Difference between nominal and temporary accounts explained?

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In accounting, nominal accounts and temporary accounts refer to the same type of accounts — those used to record transactions for a specific accounting period and then closed at the end of that period. Their balances are reset to zero, unlike real (permanent) accounts that carry forward balances.

Meaning of Nominal and Temporary Accounts

Nominal Account: Records all incomes, expenses, gains, and losses for a financial year. Used to prepare the Profit and Loss Account before being closed to capital or retained earnings.
Temporary Account: Another name for a nominal account; it tracks short-term financial performance for a defined period (month, quarter, or year) before resetting.

Key Differences Between Nominal and Temporary Accounts

Basis of Comparison	Nominal Account	Temporary Account
Meaning	Used to record expenses, incomes, gains, and losses during a fiscal year	Used to record financial performance for short-term periods like a month or quarter
Nature	A type of temporary account specifically for revenue and expense items	A broader category encompassing nominal accounts, drawings/dividend accounts, and income summaries
Purpose	Determines net profit or loss for a fiscal year	Tracks periodic activity and ensures accurate rollover into permanent accounts
Balance Treatment	Closed at year-end to retained earnings or capital account	Also zeroed out after transferring balances to permanent accounts
Examples	Rent Expense, Salary, Commission Received, Interest Income	Revenue, Expense, Drawing, and Income Summary Accounts

Difference between nominal and temporary accounts explained?

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