Transactions That Affect Revenue, Expenses, and Withdrawals

1. Chapter 5 $ $ Transactions That Affect Revenue, Expenses, and Withdrawals $ $

2. Chapter 5 $ Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity $ • What You’ll Learn • The reason for having temporary and permanent accounts. • The rules of debit and credit for the revenue, expense, and withdrawals accounts. $ $

3. Chapter 5 $ Why It’s Important The proper handling of transactions that affect temporary and permanent accounts is essential to maintaining accurate financial records. $ $ • Key Terms • temporary capital accounts • permanent accounts $

4. Chapter 5 $ • Temporary Capital Accounts • Accounts that are used to collect information for a single accounting period. • Revenue • Expense • Withdrawals $ $ $

5. Chapter 5 $ • Temporary Capital Accounts • At the end of the accounting period, the balances in the temporary capital accounts are transferred to the owner’s capital account. $ $ $

6. Chapter 5 $ The Relationship of Temporary Capital Accounts to the Owner’s Capital Account $ Utilities Expense Accumulated telephone costs for accounting period $2,857 Accumulated electricity costs for accounting period 5,141 Total for accounting period $7,998 $ Utilities Expense balance transferred to Owner’s Capital at end of accounting period. Expenses decrease owner’s capital. $ Owner’s Capital Balance at Beginning of Accounting Period $90,000 Balance at End of Accounting Period $82,002 Balance of Utilities Expense $7,998

7. Chapter 5 $ • Temporary Capital Accounts • What are some examples of a Revenue account? • Delivery Revenue • Sales Revenue $ $ $

8. Chapter 5 $ • Temporary Capital Accounts • What are some examples of an Expense account? • Advertising Expense • Rent Expense • Utilities Expense $ $ $

9. Chapter 5 $ • Temporary Capital Accounts • What is an example of a Withdrawal account? • Owner, Withdrawal $ $ $

10. Chapter 5 $ • Permanent Accounts • Permanent accounts are continuous from one accounting period to the next. • Examples: • Owner’s capital account • Asset and liability accounts $ $ $

11. Chapter 5 $ Let’s quickly review the t account for Owner’s Equity $ $ Owner’s Equity Debit – Decrease Side Credit + Increase Side Normal Balance $

12. Chapter 5 $ Rules for Revenue Accounts Revenue earned from selling goods or services increases owner’s capital. $ $ Revenue Accounts Debit – Decrease Side Credit + Increase Side Normal Balance $

13. Chapter 5 $ Rules for Expense Accounts Expenses decrease owner’s capital. $ Expense Accounts $ Debit + Increase Side Normal Balance Credit – Decrease Side $

14. Chapter 5 $ Rules for the Withdrawals Account A withdrawal is an amount of money or an asset the owner takes out of the business. $ $ Withdrawals Accounts Credit – Decrease Side Debit + Increase Side Normal Balance $