Nominal Account

What is a Nominal Account?

Nominal Accounts are used in accounting to record a company's income, expenses, gains, and losses over a particular accounting period. Unlike real accounts, nominal accounts do not reflect any balance on the balance sheet. Instead, the balance of nominal accounts is zeroed out at the end of each period, transferring to the profit and loss account for the determination of the financial results.

Short Description: An account that records income, expenses, profits, and losses, which are closed at the end of each accounting period.

• Income Accounts: Capture revenue and gains generated by the business during the period.
• Expense Accounts: Record all outgoing transactions or costs incurred in generating revenue.
• Profit and Loss Account: The summary for transferring balances, providing insights into the company’s operational success or failure during a given period.

Nominal accounts play a critical role by providing accurate data for constructing income statements, essential for managing financial performance and tax purposes.