1. Welcome Dear Students Your Account Double any Trouble

2. Video Accounting course Enroll on full versionenroll on course with lecturers explanation www.elearningpower.com

3. Lesson 5: Learning Objectives 1 Permanent Accounts and Temporary Accounts Applying the Rules of Debit and Credit for 2 Revenue, Expense and Withdrawals Accounts 3 Business Transaction Analysis

4. Lesson 5 : What Youll learnWHAT IT IS IMPORTANT WHAT IS NEEDED UNDERSTANDExplain the difference Use the six-step method tobetween permanent accounts analyze transactions affectingand temporary accounts. revenue, expense, and withdrawals accounts.List and apply the rules ofdebit and credit for revenue, Temporary accounts showexpense, and withdrawals the changes in owners equityaccounts. during each accounting period.

5. Key Terms permanent accounts revenue recognition temporary accounts

6. Summary: What Are Revenue ?Income earned from the sale of goods orservices is called revenue.Examples of revenue are fees earned forservices performed and cash receivedfrom the sale of merchandise.Revenue increases owners equitybecause it increases the assets of thebusiness.

7. Summary: What Are Expenses ?To generate revenue most businesses must alsoincur expenses to buy goods, materials, andservices. An expense is the cost of products orservices used to operate a business.Examples of business expenses are rent, utilities, and advertising.Expenses decrease owners equity because theydecrease the assets of the business or increaseliabilities.

8. Summary :The effects of revenue and expenses are summarized as follows: Revenue increases assets and increases owners equity. Expenses decrease assets and decrease owners equity or increase liabilities anddecrease owners equity..

9. Summary : What Is a Withdrawal ?If a business earns revenue, the owner will take cash orother assets from the business for personal use.This transaction is called a withdrawal, Withdrawals andinvestments have opposite effects.A withdrawal decreases both assets and owners equity.A withdrawal is not the same as an expense..

10. The accounts used by a business can be separated into :Permanent accounts Temporary accountsPermanent accounts carry Temporary accounts accumulatebalances forward from one dollar amounts for only oneaccounting period to the next. accounting period and then startThe following types of accounts each new accounting periodare permanent accounts: with a zero balance. assets The following types of accounts are temporary accounts: liabilities revenue owners capital expenses owners withdrawals

11. The temporary accounts areAt the end of that period, the transferredbalances in the temporaryaccounts are transferred to theowners capital account.Remember, expenses decreaseowners capital.Revenue increases owners capital

12. The Rules for Revenue AccountsRule 1: A revenue account isincreased (+) on the credit side.Rule 2: A revenue account isdecreased (-) on the debit side.Rule 3: The normal balance for arevenue account is the increaseside, or the credit side.Revenue accounts normally havecredit balances.Revenue earned from sellinggoods or services increasesowners capital.

13. The Rule for Revenue Recognition Following the GAAP principle of revenue recognition , revenue is recorded on the date earned, even if cash has not been received.

14. The Rules for Expense AccountsRule 1: An expense account isincreased on the debit side.Rule 2: An expense account isdecreased on the credit side.Rule 3: The normal balance for anexpense account is the increase side,or the debit side.Expense accounts normally havedebit balances.Expenses decrease ownerscapital.

15. The Rules for the Withdrawals AccountRule 1: The withdrawals account isincreased on the debit side.Rule 2: The withdrawals account isdecreased on the credit side.Rule 3: The normal balance for thewithdrawals account is the increaseside or debit side.Withdrawals, like expenses,decrease capital, so the rules ofdebit and credit are the same asfor expense accounts.

16. Summary : Rules of Debit and Credit,Normal Balances of Accounts

17. Summary: Business transactions between - Balance Sheet and Income StatementThere are four main types oftransactions between Balance andIncome Statement to be remembered:1. - Assets + Expenses (Withdrawals)2. + Liabilities + Expenses3. + Assets + Revenue4. - Liabilities + Revenue

18. Summary: 4. CompleteBUSINESS TRANSACTION ANALYSIS entry in T-account Identify and Classify the accounts affected 3. Determine the amount of 1. Determine Identify accounts - increase or decrease for and each account affected debited Classify credited accounts Determine which account is debited and credited . For what amount ? 2. Complete entry in T-account Determine accounts - increase decrease

19. Follow next LessonThank you ! Lesson 6:Enroll on full version Recording transactions in a General Journal enroll on course withlecturers explanationwww.elearningpower.com