Final answer:
Nominal accounts, or temporary accounts, are used to record income and expenditures within a specific fiscal period. They are closed at the end of this period, transferring their balances to the retained earnings account. Real accounts, in contrast, carry their balances forward and are not closed.
Step-by-step explanation:
The term nominal accounts, also known as temporary accounts, refers to accounts that are used to track revenue, expenses, gains, and losses. These accounts provide a way to measure the financial performance of a business over a specific period of time, such as a fiscal year. At the end of the accounting period, nominal accounts are closed to the retained earnings account in order to prepare the company's books for the next period. This means their balances are transferred to permanent accounts on the balance sheet, and they start the new accounting period with a zero balance.
In contrast, real accounts (or permanent accounts) such as assets, liabilities, and equity accounts are not closed at the end of the accounting period, but instead, they carry their balances forward into the future. The function of the T-account, with its two-column format, visually represents how a business tracks its assets and liabilities, effectively summarizing the company's financial position at a given time.