Real Accounts
What is the advantage and disadvantage of real accounts?
The advantage of real accounts is that it is easier to journal entry due to the golden principle applied for real accounts. Debit what comes in and credit what goes out. Whereas the disadvantage of real accounts is that if there occurs an error in calculating the closing balance of the accounting year, then this error would be carried forward to the next accounting period.
How do auditor use real accounts?
Auditors regularly check the items of real accounts as part of their audit proceedings. If they can verify that the closing balances of the real accounts are true, then automatically other transactions recorded by the organization in their income statement must have been flushed out.
What is the difference between nominal account and real account?
A nominal or temporary account is closed at the end of every financial year. Thus, there is zero balance at the beginning of every financial year. These accounts include revenues, expenses, profits/losses. Whereas, real or permanent accounts are those which continue to remain in the financial statements until the end of the business or entity. It includes the assets, liabilities and equity which are carried forwarded to every financial year.