transactions that affect revenue, expenses, and withdrawals what you’ll learn the rules of debit...
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Transactions That Affect Revenue, Expenses, and Withdrawals
Transactions That Affect Revenue, Expenses, and Withdrawals
What You’ll Learn
The rules of debit and credit for the revenue, expense, and withdrawals accounts.
The reason for having temporary and permanent accounts.
What You’ll Learn
The rules of debit and credit for the revenue, expense, and withdrawals accounts.
The reason for having temporary and permanent accounts.
Revenue RecognitionRevenue Recognition
GAAP Principle
Revenue should be recognized on the date earned, even if cash has not been received
GAAP Principle
Revenue should be recognized on the date earned, even if cash has not been received
Rules for Revenue Accounts
Revenue earned from selling goods
or services increases owner’s capital.
Rules for Revenue Accounts
Revenue earned from selling goods
or services increases owner’s capital.
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Revenue Accounts
Credit
+
(1) Increase Side
(3) Normal Balance
Debit
–
(2) Decrease Side
Rules for Expense Accounts
Expenses decrease owner’s capital.
Rules for Expense Accounts
Expenses decrease owner’s capital.
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Expense Accounts
Credit
–
(2) Decrease Side
Debit
+
(1) Increase Side
(3) Normal Balance
Rules for the Withdrawals Account
A withdrawal is an amount of money or an asset the owner takes out of the business. Withdrawals decrease the owner’s capital.
Rules for the Withdrawals Account
A withdrawal is an amount of money or an asset the owner takes out of the business. Withdrawals decrease the owner’s capital.
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Withdrawals Accounts
Credit
–
(2) Decrease Side
Debit
+
(1) Increase Side
(3) Normal Balance
Analyzing Transactions (cont'd.)Analyzing Transactions (cont'd.)
Business Transaction 8 (cont'd.)
T ACCOUNTS 6.
On October 15, Roadrunner provided delivery service for the Sims Corporation. A check for $1,200 was received in full payment.
DeliveryCash in Bank Revenue
Debit
+
1,200
Credit
+
1,200
Section 2 Applying the Rules of Debit and Credit to Revenue, Expense, and Owner’s Equity Transactions (cont'd.)
Section 2 Applying the Rules of Debit and Credit to Revenue, Expense, and Owner’s Equity Transactions (cont'd.)
Credit
–
Debit
–
Analyzing Transactions (cont'd.)Analyzing Transactions (cont'd.)
Business Transaction 9 (cont'd.)
T ACCOUNTS 6.
On October 16, Roadrunner mailed Check 103 for $700 to pay the month’s rent.
Rent Expense Cash in Bank
Debit
+
700
Credit
–
700
Section 2 Applying the Rules of Debit and Credit to Revenue, Expense, and Owner’s Equity Transactions (cont'd.)
Section 2 Applying the Rules of Debit and Credit to Revenue, Expense, and Owner’s Equity Transactions (cont'd.)
Credit
–
Debit
+
Analyzing Transactions (cont'd.)Analyzing Transactions (cont'd.)
Business Transaction 10 (cont'd.)
T ACCOUNTS 6.
On October 18, Beacon Advertising prepared an advertisement for Roadrunner. Roadrunner will pay Beacon’s $75 fee later.
Advertising Accounts Payable—Expense Beacon Advertising
Debit
+
75
Credit
+
75
Section 2 Applying the Rules of Debit and Credit to Revenue, Expense, and Owner’s Equity Transactions (cont'd.)
Section 2 Applying the Rules of Debit and Credit to Revenue, Expense, and Owner’s Equity Transactions (cont'd.)
Credit
–
Debit
–
Permanent Accounts
Permanent accounts are
continuous from one
accounting period to the next.
Permanent accounts:Owner’s capital accountAsset and liability accounts
Permanent Accounts
Permanent accounts are
continuous from one
accounting period to the next.
Permanent accounts:Owner’s capital accountAsset and liability accounts
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Permanent Accounts
Permanent accounts start each new accounting period with the beginning balance equal to the ending balance of the previous accounting period.
Permanent Accounts
Permanent accounts start each new accounting period with the beginning balance equal to the ending balance of the previous accounting period.
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Temporary Accounts
Temporary accounts are used to collect information for a single accounting period.
Temporary capital accounts:RevenueExpenseWithdrawals
Temporary Accounts
Temporary accounts are used to collect information for a single accounting period.
Temporary capital accounts:RevenueExpenseWithdrawals
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Temporary Accounts (cont)
At the end of that period, the balances in the temporary capital accounts are transferred to the owner’s capital account.
Temporary accounts start each new accounting period with a zero balance.
Temporary Accounts (cont)
At the end of that period, the balances in the temporary capital accounts are transferred to the owner’s capital account.
Temporary accounts start each new accounting period with a zero balance.
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Utilities
The Relationship of Temporary Capital Accounts to the Owner’s Capital Account
Show on board how the temporary accounts close into the owner’s capital account.
The Relationship of Temporary Capital Accounts to the Owner’s Capital Account
Show on board how the temporary accounts close into the owner’s capital account.
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity (cont'd.)
The Chart of AccountsThe Chart of AccountsRoadrunner Delivery Service
155 Gateway Blvd.Sacramento, CA 94230
CHART OF ACCOUNTS
ASSETS 101 Cash in Bank105 Accounts Receivable--City News110 Accounts Receivable--Green Company115 Computer Equipment120 Office Equipment125 Delivery Equipment
LIABILITIES 201 Accounts Payable--Beacon Advertising205 Accounts Payable--North Shore Auto
OWNER’S EQUITY 301 Maria Sanchez, Capital302 Maria Sanchez, Withdrawals303 Income Summary
REVENUE 401 Delivery Revenue
EXPENSES 501 Advertising Expense505 Maintenance Expense510 Rent Expense515 Utilities Expense
Roadrunner Delivery Service155 Gateway Blvd.
Sacramento, CA 94230
CHART OF ACCOUNTS
ASSETS 101 Cash in Bank105 Accounts Receivable--City News110 Accounts Receivable--Green Company115 Computer Equipment120 Office Equipment125 Delivery Equipment
LIABILITIES 201 Accounts Payable--Beacon Advertising205 Accounts Payable--North Shore Auto
OWNER’S EQUITY 301 Maria Sanchez, Capital302 Maria Sanchez, Withdrawals303 Income Summary
REVENUE 401 Delivery Revenue
EXPENSES 501 Advertising Expense505 Maintenance Expense510 Rent Expense515 Utilities Expense
The Chart of AccountsA list of all the accounts and their assigned
account numbers. Assign #s as follows:
1. Asset accounts • begin with a 1• Listed in order of
• liquidity. 2. Liability accounts
• begin with a 23. Owner equity accounts
• begin with a 3. 4. Revenue accounts
• begin with a 4. 5. Expense accounts
• begin with a 5.
The Chart of AccountsA list of all the accounts and their assigned
account numbers. Assign #s as follows:
1. Asset accounts • begin with a 1• Listed in order of
• liquidity. 2. Liability accounts
• begin with a 23. Owner equity accounts
• begin with a 3. 4. Revenue accounts
• begin with a 4. 5. Expense accounts
• begin with a 5.
Testing for the Equality of Debits and CreditsTesting for the Equality of Debits and Credits
Section 2 Applying the Rules of Debit and Credit to Revenue, Expense, and Owner’s Equity Transactions (cont'd.)
Section 2 Applying the Rules of Debit and Credit to Revenue, Expense, and Owner’s Equity Transactions (cont'd.)
Step 1 Make a list of the account titles used by the business.
Step 1 Make a list of the account titles used by the business.
Step 2 To the right of each account title, list the balance of the account. Use two columns, one for debit balances and the other for credit balances.
Step 2 To the right of each account title, list the balance of the account. Use two columns, one for debit balances and the other for credit balances.
Step 3 Add the amounts in each column.Step 3 Add the amounts in each column.
Testing for the Equality of Debits and Credits (cont'd.)Testing for the Equality of Debits and Credits (cont'd.)
Section 2 Applying the Rules of Debit and Credit to Revenue, Expense, and Owner’s Equity Transactions (cont'd.)
Section 2 Applying the Rules of Debit and Credit to Revenue, Expense, and Owner’s Equity Transactions (cont'd.)
DEBIT CREDITACCOUNT NAME BALANCES BALANCES101 Cash in Bank $ 21,125105 Accounts Receivable--City News 1,450110 Accounts Receivable--Green Company115 Computer Equipment 3,000120 Office Equipment 200125 Delivery Equipment 12,000201 Accounts Payable--Beacon Advertising $ 75205 Accounts Payable--North Shore Auto 11,650301 Maria Sanchez, Capital 25,400302 Maria Sanchez, Withdrawals 500303 Income Summary401 Delivery Revenue 2,650501 Advertising Expense 75505 Maintenance Expense 600510 Rent Expense 700515 Utilities Expense 125
$ 39,775 $ 39,775
101 Cash in Bank $ 21,125105 Accounts Receivable--City News 1,450110 Accounts Receivable--Green Company115 Computer Equipment 3,000120 Office Equipment 200125 Delivery Equipment 12,000201 Accounts Payable--Beacon Advertising $ 75205 Accounts Payable--North Shore Auto 11,650301 Maria Sanchez, Capital 25,400302 Maria Sanchez, Withdrawals 500303 Income Summary401 Delivery Revenue 2,650501 Advertising Expense 75505 Maintenance Expense 600510 Rent Expense 700515 Utilities Expense 125
$ 39,775 $ 39,775
Check Your UnderstandingCheck Your Understanding
1. What is the normal balance of a
withdrawals account?
1. What is the normal balance of a
withdrawals account?
2. What other temporary account
carries a normal balance on the
same side as the normal balance
for a withdrawals account?
2. What other temporary account
carries a normal balance on the
same side as the normal balance
for a withdrawals account?
Section 2 Applying the Rules of Debit and Credit to Revenue, Expense, and Owner’s Equity Transactions (cont'd.)
Section 2 Applying the Rules of Debit and Credit to Revenue, Expense, and Owner’s Equity Transactions (cont'd.)