Chapter 5 Transactions That Affect Revenue, Expenses, and Withdrawals What You’ll Learn Explain the difference between permanent accounts and temporary accounts. List and apply the rules of debit and credit for revenue, expense, and withdrawals accounts. Use the six-step method to analyze transactions affecting revenue, expense, and withdrawals accounts. Test a series of transactions for equality of debits and credits. Define the accounting terms introduced in this chapter. Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 5, Section 1 Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity What Do You Think? If temporary accounts begin each period with zero balances, what do you think happened to the balance from the prior period? Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity SECTION 5.1 Main Idea Revenues, expenses, and withdrawals are temporary accounts. They start each new accounting period with zero balances. You Will Learn how temporary account transactions change owner’s equity. the rules of debit and credit for temporary accounts. Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity SECTION 5.1 Key Terms temporary accounts permanent accounts Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity SECTION 5.1 Temporary and Permanent Accounts Revenues, expenses, and withdrawals could be recorded as increases or decreases in the capital account. A better way to record these transactions is to set up separate accounts for each type of revenue or expense. Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity SECTION 5.1 Using Temporary Accounts Use temporary accounts to temporarily record information for revenues, expenses and withdrawals. Temporary accounts start the accounting period with a zero balance, accumulate amounts for one accounting period, and transfer the balance to the owner’s capital account at the end of the period. Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity SECTION 5.1 Using Permanent Accounts In contrast to temporary accounts, permanent accounts continue accumulating from one accounting period to the next. The owner’s capital account and the asset and liability accounts are permanent accounts. Permanent accounts show the balances on hand or amounts owed at any time, and the day-to-day account changes. Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity SECTION 5.1 The Rules of Debit and Credit for Temporary Accounts Review the T account showing the rules of debit and credit for the owner’s capital account: Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity SECTION 5.1 Rules for Revenue Accounts These rules of debit and credit are used 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 the increase or the credit side. Revenue accounts normally have credit balances. Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity SECTION 5.1 Rules for Expense Accounts These rules of debit and credit are used 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 the increase or the debit side. Expense accounts normally have debit balances. Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity SECTION 5.1 Rules for Expense Accounts Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity SECTION 5.1 Rules for Withdrawals Accounts These rules of debit and credit are used for withdrawals accounts: A withdrawals account is increased on the debit side. A withdrawals account is decreased on the credit side. The normal balance for a withdrawals account is the increase or the debit side. Withdrawals accounts normally have debit balances. Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity SECTION 5.1 Rules for Withdrawals Accounts Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity SECTION 5.1 Summary of the Rules of Debit and Credit for Temporary Accounts Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity SECTION 5.1 Key Terms Review temporary accounts Accounts used to collect information that will be transferred to a permanent capital account at the end of the accounting period (for example, revenue, expense, and the owner’s withdrawals account). permanent accounts Accounts that are continuous from one accounting period to the next; balances are carried forward to the next period (for example, assets, liabilities, and the owner’s capital account). Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.