What Are Nominal Accounts in a Perpetual Inventory System?
Before we explain the perpetual inventory system, let’s take a little time to discuss what nominal accounts are. In accounting, nominal accounts are temporary accounts used to record gains, losses, revenues, and expenses. These accounts are used on the Income Statement and are closed out at the end of each accounting period. Once the nominal or temporary accounts are closed, they are transferred over to permanent accounts. The total balance is then included in the owner’s equity account for a sole proprietorship, or retained earnings account for a corporation. Subsequently, the nominal accounts are now at a zero balance and can be used again for the next period. Now that you understand the nominal accounts concept, we can now move on to what a perpetual inventory system is. A perpetual inventory system is designed to provide an entity with the most accurate and up-to-date information regarding additions and deductions to their inventory. That means the system is consistently adjusted a
