expanding the ledger the income statement accounts baf3m - chapter 2 mr. r. kotecha (2009) ontario...
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Expanding the Ledger
The Income Statement Accounts
BAF3M - Chapter 2
Mr. R. Kotecha (2009) Ontario Educational Assistance Bank (2009)
Income Statement
In Unit 2, we learned about the ledger (t-accounts) and the effects transactions have on its accounts. The ledger can be taken to a higher level explaining the capital account in more detail. Now we are going to learn about 3 new accounts:
1.
2.
3.
These accounts will provide the owner with more detail about how the business has performed.
Revenue, Expenses & Drawings
Up until now, we have been making changes to the ______________ in the _______________ section of the balance sheet
Here are a few examples that we have encountered (follow along by completing the T-charts for the accounts that have been affected:
Transaction #1
The company performs a service for a customer who pays cash ($3000)
Record which is the debit and credit
Transaction #2
The company performs a service ($1000) for a customer on credit
Record which is the debit and credit
Transaction #3
The company pays the workers’ salaries (wages) with the use of cash (total paid = $2200)
Record which is the debit and credit
Transaction #4
The company receives a phone bill ($150) that hasn’t been paid yet
Record which is the debit and credit
Transaction #5
The owner withdraws cash ($1000) from the company for personal use
Record which is the debit and credit
The Capital Account
What does the Capital Account look like? (What is the final balance?)
It is easy to see what has happened here, but very unclear to what transactions specifically happened
The Capital Account
In order to better explain the Capital account, we will introduce different accounts that better explain the specific transactions that affects the account
Each of the new accounts reflects a particular kind of transaction that affects the OE:
They are either a ________, _________, or _________
Revenues
Revenue:ex. Service revenues, fee’s earned, commissions earned, interest revenue, royalties earned, etc.
Remember: since revenues _________ the capital account, their balance will ______________
Rules for Revenue:
Expenses
Expenses:
Ex. Advertising Expense, Utilities Expense, Wages Expense, Telephone Expense, Property Tax expense
Remember: since expenses decrease the capital account, their balance will be have a
_________________________
Rules for Expenses:
Drawings
Drawings are the
Remember: since drawings _________ the capital account, their balance will be have a ___________
Rules for Drawings:
Transaction #1
The company performs a service for a customer who pays cash ($3000)
Record which is the debit and credit
Transaction #2
The company performs a service ($1000) for a customer on credit
Record which is the debit and credit
Transaction #3
The company pays the workers’ salaries (wages) with the use of cash (total paid = $2200)
Record which is the debit and credit
Transaction #4
The company receives a phone bill ($150) that hasn’t been paid yet
Record which is the debit and credit
Transaction #5
The owner withdraws cash ($1000) from the company for personal use
Record which is the debit and credit