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Simple English definitions for legal terms
nominal account
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A quick definition of nominal account:
A nominal account is a type of accounting record that is used to keep track of income and expenses. At the end of the year, the balance in a nominal account is transferred to a surplus account. This type of account is important for businesses to keep track of their financial transactions and to ensure that they are meeting their financial goals.A more thorough explanation:
A nominal account is an income-statement account that is closed into surplus at the end of the year when the books are balanced. This means that the account is used to record expenses and revenues for a specific period, such as a year, and then the balance is transferred to another account.
For example, a company's rent expense account is a nominal account. At the end of the year, the balance of this account is transferred to the company's retained earnings account. This process helps to keep the company's financial records organized and accurate.