Chapter 5 – The Expanded Owner’s Equity

5.1 Define Key terminology: Revenue, Expenses, Drawings Revenue Recognition Principle (Accounting Principles) accrual basis of accounting  Read 5.1 and answer review questions #1,2, 6, 9,10,11, 12, 18, p. 140 (t), p. 78 (w) Assets = Liabilities + Owner’s Equity - - + + Debit (DR) Credit (CR) Debit Credit

+ + + + Owner’s Equity Drawings Capital Owner withdrawal Owner investment Debit Credit Expenses Revenue + + $ earned from providing service or good Cost of operating business Credit Debit

5.2 The Income Statement (Record definition on back of handout) is a financial statement that summarizes the items of revenue & expenses to show a net income or net loss of a business for a given period of time (like a video)

Heading Heading Heading Net Income/ Net Loss 1 2 3 All revenue accounts (largest to smallest) Heading 4 All expenses accounts (alpha) 5 6 Net Income/ Net Loss

Time Period Concept (p.148) Accounting takes place over specific periods of time know as fiscal period (equal length when measuring financial progress, eg. 1 year)

Matching Principal (p.149) Each expense must be recorded in the same period as the revenue it helped earn in order to fairly calculate net income/ loss.

Chart of Accounts p. 139 Is a list of ledger accounts and their numbers arranged in ledger order (A, L OE  Capital, drawings, Revenue, Expense)

300’s 100’s Liquidity 400’s 500’s 200’s

Try these Exercises!! Read 5.1 & answer review questions #1,2,6,9,10,11,18 p. 140 (t), p. 78 (w) Ex. #1, 2, 3 p. 141-142 (t), p. 80-81 (w)