Which of the following is an example of a real account?
A. utilities expense
B. sales revenue
C. bad debt expense
D. unearned revenue
E. rent expense
The correct answer and explanation is :
The correct answer is: D. Unearned Revenue
Explanation (300 words):
In accounting, accounts are generally classified into three types: real accounts, nominal accounts, and personal accounts. Understanding the nature of these accounts helps in the proper classification of financial transactions and accurate preparation of financial statements.
A real account (also known as a permanent account) is one that is not closed at the end of an accounting period. Its balance is carried forward to the next accounting period. Real accounts typically include assets, liabilities, and equity accounts, which are reported on the balance sheet.
Let’s evaluate the options:
- A. Utilities Expense: This is a nominal account, specifically an expense account. Nominal accounts are temporary and are closed to retained earnings at the end of the period.
- B. Sales Revenue: This is also a nominal account, a revenue account that is closed at the end of the period to calculate net income.
- C. Bad Debt Expense: This is another nominal account, representing an expense related to uncollectible accounts receivable.
- D. Unearned Revenue: This is a real account. It represents a liability because it is money received for goods or services not yet provided. Since it reflects a future obligation, it remains on the balance sheet until the revenue is earned. It is not closed at the end of the accounting period and is carried forward until the obligation is fulfilled.
- E. Rent Expense: Like other expenses, this is a nominal account and is closed at the end of the accounting period.
Therefore, Unearned Revenue is the correct answer as it is a real (permanent) liability account that remains open and continues into future periods until it is settled.