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Transactions That Affect Revenue, Expenses, and Withdrawals

Transactions That Affect Revenue, Expenses, and Withdrawals. Chapter 5. Temporary and Permanent Accounts. Permanent accounts keep a running balance that moves from the end of one accounting period to the beginning of the next. (Sometimes called Real Accounts)

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Transactions That Affect Revenue, Expenses, and Withdrawals

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

  2. Temporary and Permanent Accounts • Permanent accounts keep a running balance that moves from the end of one accounting period to the beginning of the next. (Sometimes called Real Accounts) • Temporary accounts are closed at the end of each accounting period and their balances are used to increase or decrease a permanent account balance. Then the accounts start over with a zero balance at the beginning of the next accounting period.

  3. Temporary Accounts • Revenue • Expenses • Withdrawal • These accounts are used to collect data within an accounting period so the information can be analyzed to improved the efficiency of a business.

  4. See How It Works Utilities Expense Accumulated telephone costs $2,857 For accounting period Accumulated electricity costs $5,141 For accounting period Total for accounting period $7,998 Owner’s Capital Balance at Beginning of $90,000 Accounting Period Balance at End of $82,002 Accounting Period Balance of Utilities Expense $7,998 Pg 105

  5. The Rules of Debit and Credit for Temporary Accounts Rules for Revenue Accounts • A revenue account is increased on the credit side • A revenue account is decreased on the debit side • The normal balance for a revenue account is a credit Rules for Expense Accounts • An expense account is increased on the debit side • An expense account is decreased on the credit side • The normal balance for an expense account is a debit Rules for the Withdrawal Account • The withdrawal account is increased on the debit side • The withdrawal account is decreased on the credit side • The normal balance for the withdrawal account is a debit

  6. Rules Applied to T Accounts Permanent Account Owner’s Equity Debit Side - Decrease Side Credit + Increase Side Normal Balance Temporary Account Expenses Temporary Account Revenue Debit + Increase Side Normal Balance Credit - Decrease Debit Side - Decrease Side Credit + Increase Side Normal Balance Temporary Account Withdrawal Debit + Increase Side Normal Balance Credit - Decrease Pg 109

  7. Business Transaction #8 Owner’s Equity

  8. Business Transaction #9 Owner’s Equity

  9. Business Transaction #10 Owner’s Equity

  10. Business Transaction #11 Owner’s Equity

  11. Business Transaction #12 Owner’s Equity

  12. Business Transaction #13 Owner’s Equity

  13. Business Transaction #14 Owner’s Equity

  14. Test for the Equality of Debits and Credits • Double Entry Accounting means that your debits and credits should always be equal. Testing that they balance is a good way to double check your work. • Make a list of the account names used by the business • List the balance to the right of each account name using two columns, one for debit and one for credit • Add the amounts in each column

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