What is Nominal Accounts?
Nominal accounts, also called temporary accounts, are general ledger accounts that record revenues, expenses, gains, and losses for a single accounting period. Their balances are closed to retained earnings at the end of each period.
How It Works
- Open or carry forward a nominal account chart for each period.
- Post all income and expense items to the relevant nominal accounts.
- Compute the period’s profit or loss from the nominal account totals.
- Transfer the net profit or loss to retained earnings as a closing entry.
- Reset the nominal accounts to zero so the next period starts fresh.
Saudi Context
Saudi income statements prepared under IFRS as adopted by SOCPA aggregate the closing nominal account balances of the period. ZATCA uses these balances as the starting point for both corporate income tax and zakat base calculations.
Example
Sales SAR 5M, COGS SAR 3M, salaries SAR 800K, rent SAR 200K are all nominal accounts. Net profit of SAR 1M is transferred to retained earnings, and the nominal accounts reset to zero.