Accounting Chapter 3 Unit 5 Revenue and Expense Accounts Mrs. Joudrey

General Ledgers will now include all of the accounts needed to create a balance sheet (assets, liabilities, and owner’s equity) and an income statement (revenues and expenses) The income statement has two parts, revenues and expenses. For every revenue and every expense item there will be a separate account in the ledger.

Revenue Accounts Revenues are the money the company gets from the sale of goods or services to a business. (If Uncle Buck’s sells pizza and a large pizza is $20 – they will get revenue of $20 for every large pizza they sell).

Number of Revenue Accounts Each different type of revenue will need its own account. The number of different types of revenue earned determine the number of revenue accounts that any given business will have.

Expense Accounts Expenses are the costs to a business in order for them to be able to generate revenue (to be able to sell goods or services). A separate expense account is set up for each major type of expense.

Expense Accounts If an expense is happening frequently it will have its own account or if the expense has a large dollar value, otherwise small infrequent expenses can be placed in an account called miscellaneous or general expense.

Rules of Debit and Credit for Revenue and Expense Accounts If a business is making lots of revenue (people are buying a lot from the business) Revenue is going to go up which will make Owner’s Equity go up (as long as their expenses are not greater than their revenue).

Transaction Analysis At least two accounts are involved and debits must equal credits for each transaction. Record your answers to the following transactions for lawyer C. Piccolo in your notebooks. Use T accounts as well as the following table:

Transaction July 1 Received $175 cash from a client for drawing up a new will Hint: when services are provided you can use the account called “fees earned”

Answer

Transaction Jul. 2 Billed client $1200 for legal services to close purchase of a home.

Answer

Transaction Jul. 3 Received $600 from the client as a partial payment of the $1200 billed on July 2.

Answer

Transaction Jul. 4 Paid $95 to Telus for telephone bill received today.

Answer

Transaction Jul. 5 Received a bill from the Calgary Herald for $150 for advertising the new location of the practice. The terms of the payment allow for 30 days to pay. The bill will be paid later.

Answer

Transaction Jul. 6 Paid $100 to the Calgary Herald as partial payment of their bill for $150 received on July 5.

Answer

Rules Relating to the Owner’s Equity Account Owner’s equity increases on the right or credit side Revenue increases owner’s equity Revenue is recorded on the credit side of revenue accounts Owner’s equity decreases on the left or debit side Expenses decrease owner’s equity Expenses are recorded on the debit side of the expense account

From Your Textbook Do questions 13 and 14 on page 90 Do exercise 8 together on page 90-91