Accounts are sometimes classified as either real or nominal. Real accounts are assets and liabilities, that is, those representing property owned and debts due to or by the bank. Nominal accounts are those of a profit and loss, or expense and earning character. In classifying the debit items on the foregoing statement no difficulty will be experienced, excepting possibly the following:
Premium on United States Bonds
Prepaid Interest on Borrowings
These items are of a mixed character so far as the terms "nominal" and "real" go. The first item, namely, "Premium on United States Bonds" is in the nature of a reduction in the amount of interest that will be actually earned on the bonds as against that which would be earned if the premium had not be paid; in other words, as the bonds approach maturity and there is interest, income is received thereon, this premium asset is reduced or amortized by an accrued process so that at the time of maturity the premium account has disappeared. This has already been shown by illustration. Prepaid items are also of a mixed character, representing expenses prepaid for a later period. Strictly speaking they are not assets, but yet it would not be proper to charge the prepaid expenses of a later period against the current one. Such items are therefore classified as assets.