1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.