Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity CHAPTER 5

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

Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 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. 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. 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. SECTION 5.1

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

Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Rules for Expense Accounts SECTION 5.1

Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 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. SECTION 5.1

Glencoe Accounting Unit 2 Chapter 5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Rules for Withdrawals Accounts SECTION 5.1

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 Summary of the Rules of Debit and Credit for Temporary Accounts