Finance Assignment: Analyzing Nominal, Real Accounts & Working Capital

This accounting assignment provides a comprehensive overview of key financial concepts. It begins by differentiating between nominal and real accounts, explaining their characteristics, the types of information they contain (revenues, expenses, assets, liabilities, etc.), and the financial statements where this information is presented (income statement and balance sheet). The assignment then presents an income statement and balance sheet for the year ending July 31, 2010, along with interpretations of the financial performance and position of the company. Finally, the assignment delves into the concept of working capital, defining it as the difference between current assets and liabilities, and emphasizing its importance for a business's day-to-day operations and financial health. An example of a local cafe is used to illustrate the practical application and importance of working capital for both business leaders and investors. The assignment demonstrates an understanding of accounting principles and financial statement analysis.

Accounting

Contents
MAIN BODY.............................................................................................................................................3
Question 1...............................................................................................................................................3
Question 2...............................................................................................................................................4
Question 3...............................................................................................................................................5
REFERENCES..........................................................................................................................................7

MAIN BODY
Question 1
Difference between nominal and real account?
Basis Nominal account Real account
Time of
closing
account
These accounts are closed at the end
of year.
These accounts are not closed and it is
kept open. In the next year, balance is
forward.
Objective The objective of this account is to
know about net profitability and loss.
While real accounts’ objective is to
know about financial position.
Alternative
name
This account is also known as
temporary account.
It is known as permanent account.
The nominal accounts are known by this name because under it information is contained for a
particular time period that is of one year (Ozgode, 2019). At the end of year, this account is
closed.
While real account is known by this name because in this information is included for a longer
time period and at the end of year, information is forwarded for next year.
Types of information included in nominal and real account?
Both accounts consist different types of information. Such as nominal account includes
information about company’s sales revenues, cost or expenses. As well as amount of net profit
and loss at the end of financial year.
In the real account, information about net assets, liabilities, owners’ equity is included that is
used to know about financial position of company.
Financial statement that contains the information from nominal accounts?

The information of nominal account is included in profit and loss account. This is a statement
which includes information about level of net profitability and loss at the end of year.
Financial statement that contains the information from real accounts?
The information of nominal account is included in balance sheet (Veysey, 2020). This is a
statement which includes information about financial position of a company.
Question 2
Income statement for year ending 31 July 2010:
Particulars
Amount
(In $) Particulars
Amount
(In $)
Opening Stock - Sales 6600
Purchase 900
Gross Profit 5700
Total 6600 Total 6600
Insurance Expense 1800
Gross
Profit 5700
Gas and Oil
Expenses 500
Employee Salaries 1700
Net Profit 1700
Total 5700 Total 5700
Interpretation- On the basis of above prepared income statement, this can be stated that value of
net margin is $1700 which is indicating that there are less number of expenses for company. As
well as value of gross margin is of $5700 that is a positive sign of lower sales expenses for year
2010.

Balance sheet as on 31 July 2010:
Capital and Liabilities
Amount
(In $) Assets
Amount
(In $)
Capital 18000
Non-Current
Assets
Add: Net Profit 1700 Truck 11000
19700
Less: Dividend Paid 800 Current Assets:
18900 Cash Balance 15300
Long term Liabilities:
Long term loan from
bank 7000
Current Liabilities:
Trade Payables 400
Total 26300 Total 26300
Interpretation- The above prepared balance sheet is indicating that company has only one type of
current and non-current asset which is cash balance and truck. The value of liabilities and assets
is similar which is showing that all transactions are recorded accurately in the books of accounts.
Question 3
The term working capital can be defined as a distinction between volume of current
assets and liabilities. This type of capital is too essential for companies in order to manage day to
day transactions. As well as efficiency of a company’s working capital depends on cash flow
(Nastiti, Atahau and Supramono, 2019). This is so because if a company has more number of
positive cash flows then availability of cash will be higher and it will lead to positive working
capital.

The working capital is important because it analyze efficiency of a company to pay short
term expenses. Companies should have a sufficient amount of working capital. It should not be
too much or too lower. This is so because if a company has higher working capital then it shows
that they are not investing their assets. While lower working capital is sign of negative
performance because companies can’t be able to pay short term debts.
Each company should have working capital. For example, there is a café near my location
named as “Smith’s cafe”. In this café there are a rage of working capital such as cash, stock,
receivables etc. Among all these assets, cash will be useful for both to the investors and leaders.
This is so because by help of enough amount of cash, business leaders can execute their
numerous plans and policies. Same as outsider investors also can make investment in the café if
they have cash balance (Wicaksono and Puspita, 2020). In addition, cash can be used to pay
dividend amount to the different stakeholders who make invest.

REFERENCES
Books and journal:
Ozgode, O. (2019). Nominal (im) balances of the National Economy: The Construction of the
National Income and Products Accounts System as a Macroeconomic Infrastructure.
Veysey, R. (2020). ‘The real effects of a new revenue accounting standard’-a practitioner
view. Accounting and Business Research, 50(5), 504-506.
Nastiti, P. K. Y., Atahau, A. D. R., & Supramono, S. (2019). Working capital management and
its influence on profitability and sustainable growth. Business: Theory and Practice, 20,
61-68.
Wicaksono, G., & Puspita, Y. (2020). The Role of Working Capital on Profitability After Tax on
Automotive And Allied Products Companies in Indonesia. Jurnal Mantik, 3(4, Feb), 588-
596.