Nominal Account Definition

A nominal account is a temporary account used to keep track of amounts in various accounts for a period of usually one year. The accounts are closed at the end of a period.

Temporary

The main purpose of a nominal account is to keep track of amounts in individual accounts for an accounting period.

Revenues

Revenues are recorded in nominal accounts. Companies use these accounts to track all revenues earned during a period. These accounts begin at zero, and amounts are added to them throughout the year.

Expenses

Expenses are also recorded in nominal accounts. Each different expense has its own expense account. These accounts begin with a zero balance, and amounts are added to them all year.

Owner Withdrawals

Each owner of a business has a withdrawal account. These accounts are considered nominal because they simply track each owner’s withdrawals for a specified period of time.

Closing Process

At the end of the year, all nominal accounts are closed. By closing them, the balances in each nominal account are brought down to zero. When the next year begins, all nominal account balances are at zero.

References

• Accounting Coach: What is a Nominal Account in Accounting?