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Accounting Allah shmoop Riel versus nominal accounts The love affair

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Well there are more ways to slice dice and fry

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that beans you are counting So yeah another consideration is

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that you've got really accounts and nominal accounts What are

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they What's the difference between him and why would we

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even care Well the short answer here is that as

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companies get larger more global sell more than just one

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product and in you know many flavors Will The accounting

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for all of this is a mess so there's kind

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of a middle layer needed to help organize everything I

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think about it like the move out of your grandparent's

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home when they left you no feet first and your

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left to clean everything out of there and you know

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put the home on Zillow You need to sub assemble

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elements of it trash being the biggest one and then

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family heirlooms is probably another And then that piano gets

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retuned and fixed and well it gets moved into your

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living room permanently along with the really nice grandmama furniture

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They'd never let you sit on when you were little

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And then there's another pile you know just for eBay

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But the stuff sits a few weeks until it's all

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gradually sold Well anyway that's the allegory for the gist

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of really versus nominal accounts They exist to help you

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organize your financial life Okay So what's the difference between

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him Well a real account is something like a permanent

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bank account that holds cash A real account is an

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asset the company owns like land or a building or

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four million pounds of pig manure Those are really accounts

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because they always exist and will always be a part

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of the company's regular reporting system But they're really you

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can see him feel him touch him Rial accounts also

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include things like liabilities accounts payable bonds or notes payable

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pension obligations you know for its well paid union employees

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and all that stuff Think of these accounts as the

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piano to keep forever antique furniture The pile of family

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pictures kept always in the Cabinet In the dining room

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A nominal account is something completely different If you showed

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up in Latin class that day well you know that

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Nam is essentially short for name So in this sense

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a nominal account is one that has been created just

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in name for usually a short period of time Once

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the youthfulness of that nominal account is over that account

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evaporates and it's not part of the company's regular reporting

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Think of nominal accounts is the temporary piles of crap

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from Grandmama that's going Teo eBay Or if not then

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you know one eight hundred junk or while the dump

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they exist on ly temporarily until clarity has gained as

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toe what to do with them And then well those

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piles just go away yeah Businesses managed their cash and

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or cash flow inside of a nominal account A tree

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trimming company might have cash inflows in a given month

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of eighty two thousand seven hundred fourteen dollars and outflows

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of seventy six thousand nine hundred twelve dollars Well it

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would simply track the cash flows for that month and

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then at the end of the month zero out the

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amount putting that well What is that Eighty two minus

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seventy six Yet about six grand of increase into its

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Bank of America account where that increase would then be

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kept on the balance sheet in a permanent or riel

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account i e Cash So yeah that's how the tree

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trimming company would manage its greenery And that's our love 00:03:27.615 --> [endTime] affair with riel and nominal accounts

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