Question

Explain what is meant by the term; real accounts; (also known as permanent accounts).

a) Accounts that accumulate year-end balances
b) Accounts that track business transactions
c) Accounts that are closed at the end of the accounting period
d) Accounts that represent ownership in the business

Answer 1

Real accounts or permanent accounts are balance sheet accounts that carry their balances over to the next accounting period and include assets, liabilities, and equity, fundamental to the double-entry accounting system.

Step-by-step explanation:

The term real accounts, also known as permanent accounts, refers to accounts that accumulate year-end balances and are not closed at the end of the accounting period. These include the balance sheet accounts such as assets, liabilities, and equity. In a T-account, assets are listed on the left side while liabilities and equity (or net worth) are listed on the right side, balancing the account to zero.

This ensures that for a company, assets will always equal liabilities plus equity, which is a core principle of the double-entry accounting system.