Types of Real Accounts

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

1. Asset Accounts: The asset real account comprise of those components which are owned by the organization, and which are expected to generate some monetary value to the organization. Generally, there are two types of assets- tangible and intangible assets. The tangible assets includes cash, machinery, land, buildings, accounts receivable, inventory and investments. The intangible assets include goodwill, patents and copyrights.

2. Liability Accounts: All the debts and obligations of an organization comes under the liability accounts. The liabilities depict the responsibility of the organization to repay their creditors or fulfill any financial obligations. here, the liability accounts represents the accounts payables, loans or mortgage or notes payable, bonds payable and accrued expenses.

3. Equity Accounts: The equity account represents the owners’ rights over the assets of their organization. After deducting the liabilities, the residual claims of the assets are included in these equity accounts. It includes common stock, retained earnings, additional paid-in capital and dividends.

The above mentioned real accounts are essential for preparing the balance sheet, which depicts the picture of the financial status of an organization given at a particular period. These accounts are helpful in financial analysis as they predict the financial health and performance of the entity. Further, real accounts are included in closing entries, adjusting entries, and preparation of financial statements.

Real Accounts in Accounting: Types & Examples

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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....

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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....

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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....

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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....

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