What is a Real Account? Definition, Examples & Accounting Rule

A real account shows assets that a business owns. These accounts carry forward their balances to the next year.

Example: Rajesh owns a shop. He buys a delivery van for ₹5,00,000. The van is a real account. It shows the actual assets his business owns. The van's value stays in his books. Next year, the van account will still show this asset.

Real Account Table
 

Real accounts never close at year-end. They continue into the next accounting period. The golden rule states: debit what comes in, credit what goes out. These accounts represent the actual wealth of a business. They appear on the balance sheet permanently.

1. Types of Real Accounts

Real accounts divide into three main categories: tangible, intangible, and financial assets. Tangible assets include things you can touch and see. Intangible assets are valuable but not physical. Financial assets represent money and investments. Each type serves different business purposes.

Example: Priya runs a textile factory. She owns machinery worth ₹10,00,000. This represents tangible assets. She also holds a trademark valued at ₹2,00,000. This shows intangible assets. Her bank account contains ₹5,00,000. This displays financial assets.

Understanding these different types helps businesses categorise their wealth properly. Most companies hold all three types of real accounts. The mix depends on the nature of business operations. Service companies may have more intangible assets than manufacturing firms.

Types of Real Accounts:
 

2. Characteristics of Real Accounts

Real accounts possess unique features that distinguish them from other accounts. They maintain permanent balances throughout the business lifecycle. These accounts never reset to zero. They show the actual financial position. Real accounts help measure business growth over time.

Example: Amit owns a restaurant. His kitchen equipment costs ₹8,00,000. This amount stays in his books permanently. Next year, the equipment value remains. Only depreciation reduces the value gradually. The account never becomes zero unless he sells everything.

These permanent characteristics make real accounts vital for business planning. Banks often examine real accounts when approving loans. Investors use real account values to assess company strength. The stability of these accounts provides confidence to stakeholders.

Real Account Characteristics:
 

3. Golden Rule for Real Accounts

The golden rule for real accounts states simply: debit what comes in, credit what goes out. This rule applies to all asset transactions. When you buy assets, you debit the account. When you sell assets, you credit the account. This system maintains accurate records.

Example: Sunita purchases office furniture worth ₹3,00,000. She debits the furniture account. Later, she sells old furniture for ₹50,000. She credits the furniture account. This keeps her records accurate and balanced.

This golden rule forms the foundation of double-entry bookkeeping. Every transaction affects at least two accounts simultaneously. The rule ensures that accounting equations always balance. Mastering this rule is essential for proper financial record-keeping.

Golden Rule Application:
 

4. Examples of Real Accounts in Business

Real accounts appear everywhere in business operations. Common examples include land, buildings, machinery, and vehicles. Cash and bank accounts are also real accounts. Stock and inventory count as real accounts, too. Each represents actual business wealth.

Example: Rohit runs a manufacturing unit. He owns land worth ₹50,00,000. His factory building costs ₹30,00,000. Production machinery values ₹20,00,000. His bank account shows ₹8,00,000. Raw materials stock equals ₹5,00,000. All these represent real accounts.

Different industries have varying types of real accounts. Technology companies focus on computer equipment and software. Retail businesses emphasise stock and shop fixtures. Manufacturing firms invest heavily in machinery and buildings. Each sector prioritises assets that support their core operations.

Business Real Accounts:
 

5. Difference Between Real and Nominal Accounts

Real accounts differ significantly from nominal accounts. Real accounts show assets and never close. Nominal accounts show income and expenses. They close every year-end. Real accounts appear on balance sheets. Nominal accounts appear on profit and loss statements.

Example: Kavita owns a grocery shop. Her shop building, worth ₹25,00,000, is a real account. Her monthly rent income of ₹50,000 is a nominal account. The building value continues next year. The rent income resets to zero yearly.

This distinction helps accountants prepare accurate financial statements. Real accounts provide stability and continuity in business records. Nominal accounts show periodic performance and operational results. Both types work together to give a complete financial picture.

Real vs Nominal Accounts:”
 

Conclusion

Real accounts form the backbone of business accounting. They show actual assets that businesses own. These accounts never close at year-end. They carry forward balances to the next year. Understanding real accounts helps track business wealth properly. Every business owner needs this knowledge for success.

FAQs
 

1. What is a real account? 

A real account shows assets that a business owns.

2. Do real accounts close at year-end? 

No, real accounts never close and carry forward their balances.

3. What is the golden rule for real accounts? 

Debit what comes in, credit what goes out.

4. Give examples of real accounts. 

Land, buildings, machinery, cash, and stock are real accounts.

5. Where do real accounts appear in financial statements? 

Real accounts appear on the balance sheet permanently.

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LoansJagat Team

‘Simplify Finance for Everyone.’ This is the common goal of our team, as we try to explain any topic with relatable examples. From personal to business finance, managing EMIs to becoming debt-free, we do extensive research on each and every parameter, so you don’t have to. Scroll up and have a look at what 15+ years of experience in the BFSI sector looks like.