1. Transactions That Affect Revenue, Expenses, and Withdrawals

2. Section 1Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity What You’ll Learn  The reason for having temporary and permanent accounts.  The rules of debit and credit for the revenue, expense, and withdrawals accounts. What You’ll Learn  The reason for having temporary and permanent accounts.  The rules of debit and credit for the revenue, expense, and withdrawals accounts.

3. Why It’s Important The proper handling of transactions that affect temporary and permanent accounts is essential to maintaining accurate financial records. Why It’s Important The proper handling of transactions that affect temporary and permanent accounts is essential to maintaining accurate financial records. Key Terms  temporary capital accounts  permanent accounts Key Terms  temporary capital accounts  permanent accounts

4. Temporary Capital Accounts  Accounts that are used to collect information for a single accounting period.  Revenue  Expense  Withdrawals Temporary Capital Accounts  Accounts that are used to collect information for a single accounting period.  Revenue  Expense  Withdrawals

5. Temporary Capital Accounts  At the end of the accounting period, the balances in the temporary capital accounts are transferred to the owner’s capital account. Temporary Capital Accounts  At the end of the accounting period, the balances in the temporary capital accounts are transferred to the owner’s capital account.

6. The Relationship of Temporary Capital Accounts to the Owner’s Capital Account Utilities Expense Accumulated telephone costs for accounting period$2,857 Accumulated electricity costs for accounting period5,141 Total for accounting period$7,998 Owner’s Capital Balance at Beginning of Accounting Period$90,000 Balance at End of Accounting Period$82,002 Balance of Utilities Expense$7,998 Utilities Expense balance transferred to Owner’s Capital at end of accounting period. Expenses decrease owner’s capital.

7. Temporary Capital Accounts  What are some examples of a Revenue account?  Delivery Revenue  Sales Revenue Temporary Capital Accounts  What are some examples of a Revenue account?  Delivery Revenue  Sales Revenue

8. Temporary Capital Accounts  What are some examples of an Expense account?  Advertising Expense  Rent Expense  Utilities Expense Temporary Capital Accounts  What are some examples of an Expense account?  Advertising Expense  Rent Expense  Utilities Expense

9. Temporary Capital Accounts  What is an example of a Withdrawal account?  Owner, Withdrawal Temporary Capital Accounts  What is an example of a Withdrawal account?  Owner, Withdrawal

10. Permanent Accounts  Permanent accounts are continuous from one accounting period to the next.  Examples:  Owner’s capital account  Asset and liability accounts Permanent Accounts  Permanent accounts are continuous from one accounting period to the next.  Examples:  Owner’s capital account  Asset and liability accounts

11. Let’s quickly review the t account for Owner’s Equity Owner’s Equity Credit + Increase Side Normal Balance Debit – Decrease Side

12. 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. Revenue Accounts Credit + Increase Side Normal Balance Debit – Decrease Side

13. Rules for Expense Accounts Expenses decrease owner’s capital. Rules for Expense Accounts Expenses decrease owner’s capital. Expense Accounts Credit – Decrease Side Debit + Increase Side Normal Balance

14. Rules for the Withdrawals Account A withdrawal is an amount of money or an asset the owner takes out of the business. Rules for the Withdrawals Account A withdrawal is an amount of money or an asset the owner takes out of the business. Withdrawals Accounts Credit – Decrease Side Debit + Increase Side Normal Balance