What is a nominal account?

Nominal accounts are temporary accounts that are used as part of a standard accounting system. Accounts that are classified as nominal are usually used to monitor profits and losses, as well as income and expenditure for a specified period of time. One of the common examples of the nominal account is the profit and loss account, which shows key information regarding income for the usual accounting period employed by the company. Many businesses use accounting methods that include the use of the account as part of their overall strategy during the year, as well as a useful part of the reconciliation of accounting records at the end of the year. This is unlike what is called the balance sheet. Accounts of this type are used to monitor assets, obligations and equity and are sometimes identified as actual assignments or permanent accounts. The nominal account function is of a temporary nature and effectively serves as a place for income and expenditure until they are assigned to a permanent account.

The purpose of the nominal account is to provide an easy way to identify the company's income and expenditure for a certain period of time. In most applications, a temporary account serves as a means of data location until the account balance is transferred to an account that is considered permanent. Some companies use the model of revenue documentation and expenditure using a nominal account throughout the business year and convert account balance to a permanent account within the end of the year. At this point, the nominal account contains zero balance, allowing you to launch a new accounting year with a clean slate.

depending on the company's tactic structure, the balance on the nominal account can be converted to one or more permanent accounts. With a single property, this often means that the balance is moved to your own capital at the end of the business year. There is a great chance for corporations that the nominal account balance will eventually be transferred to what is called an accountundivided earnings. The exact process of using these temporary accounts within the accounting process and where the balance is eventually transferred is sometimes influenced by government regulations that the company must follow to comply with the standards that introduced that the local, state or federal monitoring agency.