Real Accounts

What are Real Accounts?

Real accounts, also known as permanent accounts, are types of accounts in accounting that represent tangible assets, liabilities, and equity. In accounting, there are mainly three main types of accounts. The second one is the Real Account or the permanent account. This type of general ledger account does not have a closure at the end of a financial year, rather the closing balances are accumulated and carried over to the next accounting period or financial year. In simple terms, the closing balance of the previous accounting year becomes the opening balance of the current accounting year. Thus, these real accounts are termed permanent accounts as the account remains open throughout the entity’s life....

Types of Real Accounts

Real accounts are needed to maintain the financial status of an organization. There are three main types of real accounts:...

Real Accounts and Golden Rules of Accounting

The real accounts are permanent accounts as they exist and continue to carry the previous years balances until and unless the organization or business is liquidated or the account of a particular asset, liability or equity is removed or settled....

Examples of Real Accounts

Let’s assume you open a retail store and you possess a cash amount $50,000, fixed assets of $20,000 and inventory of $10,000. After running the store for few months, you generate revenue of say $60,000. Your cost of goods sold (COGS) amounted to $25,000, rent which you need to pay cost $2,500 and other additional expenses included $2,000....

Conclusion

The permanent or real accounts, are the accountswhose balances are accumulated and continued to next accounting period. In simple words, the closing balance of one financial year of an organization becomes the opening balance of the succeeding financial year of the same organization. These accounts are tabulated in the balance sheet of the organization. Real accounts can be found in the assets, liabilities and equity sections of the balance sheet. These accounts remain active from the initiation of the organization until its end or liquidation. Hence, it is possible to possess a temporary zero balance in some of their real accounts in some accounting period....

Real Accounts – FAQs

What is the advantage and disadvantage of real accounts?...