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Temporary Accounts and Permanent Accounts
Revenue, expense, and withdrawal accounts are used to collect information for a single accounting period. These accounts are called Temporary Accounts. Dollar amounts in Temporary Accounts are not carried forward from one accounting period to the next. Temporary Accounts start each new accounting period with a zero balance. Assets, liabilities, and owner’s capital accounts are Permanent Accounts. Dollar amounts in Permanent Accounts are carried forward from one accounting period to the next. Permanent Accounts are continuous from one accounting period to the next.
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Rules 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 credit side. Decrease on the left side Increase on the right side Revenue Account Debit Side Credit Side - + Normal balance on the credit side Normal Balance
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Rules 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 debit side. Increase on the left side Decrease on the right side Expense Account Debit Side Credit Side + - Normal balance on the debit side Normal Balance
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Rules for Withdrawal Accounts
A withdrawal account is increased on the debit side. A withdrawal account is decreased on the credit side. The normal balance for a withdrawal account is the debit side. Increase on the left side Decrease on the right side Withdrawal Account Debit Side Credit Side + - Normal balance on the debit side Normal Balance
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Summary of Rules for Temporary Accounts
The balances in the Temporary Accounts are transferred into the Owner’s Capital Account at the end of each accounting period. Owner’s Capital Account Debit Side Credit Side - + Expense Account Normal Balance Debit Side Credit Side + - Normal Balance Revenue Account Debit Side Credit Side - + Withdrawal Account Normal Balance Debit Side Credit Side + - Normal Balance
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Homework Textbook Page: 103 Workbook Page: 60 Problem 5-1
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Revenue Transactions + - - + = Cash in Bank Delivery Revenue 1,200
Business Transaction 8 Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services. 1) Identify 2) Classify 3) Increase or Decrease 4) Debit and Credit Rule 5) Do Debits Equal Credits Accounts affected are Cash in Bank and Delivery Revenue Cash in Bank is an asset account and Delivery Revenue is a revenue account Cash in Bank is increased by $1,200 and Delivery Revenue is increased by $1,200 Asset accounts are increased on the debit side and revenue accounts are increased on the credit side Debits equal credits Cash in Bank Delivery Revenue + - - + = 1,200 Debit 1,200 Credit 1,200 1,200
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Expense Transactions + - + - = Cash in Bank Rent Expense 700 700
Business Transaction 9 Roadrunner wrote a check for $700 to pay the rent for the month . 1) Identify 2) Classify 3) Increase or Decrease 4) Debit and Credit Rule 5) Do Debits Equal Credits Accounts affected are Rent Expense and Cash in Bank Rent Expense is an expense account and Cash in Bank is an asset account Rent Expense is increased by $700 and Cash in Bank is decreased by $700 Expense accounts are increased on the debit side and asset accounts are decreased on the credit side Debits equal credits Rent Expense Cash in Bank + - + - = 700 Debit 700 Credit 700 700
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Credit Expense Transactions
Business Transaction 10 Beacon Advertising prepared an advertisement for Roadrunner. Roadrunner will pay Beacon’s $75 fee later . Accounts affected are Advertising Expense and Accounts Payable – Beacon Advertising 1) Identify 2) Classify 3) Increase or Decrease 4) Debit and Credit Rule 5) Do Debits Equal Credits Advertising Expense is an expense account and Accounts Payable – Beacon Advertising is a liability account Advertising Expense is increased by $75 and Accounts Payable – Beacon Advertising is increased by $75 Expense accounts are increased on the debit side and liability accounts are increased on the credit side Debits equal credits Accounts Payable Beacon Advertising Advertising Expense + - - + = 75 Debit 75 Credit 75 75
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Credit Revenue Transactions
Business Transaction 11 Roadrunner billed City News $1,450 for delivery services. Accounts affected are Accounts Receivable – City News and Delivery Revenue 1) Identify 2) Classify 3) Increase or Decrease 4) Debit and Credit Rule 5) Do Debits Equal Credits Accounts Receivable – City News is an asset account and Delivery Revenue is a revenue account Accounts Receivable – City News is increased by $1,450 and Delivery Revenue is increased by $1,450 Asset accounts are increased on the debit side and revenue accounts are increased on the credit side Debits equal credits Accounts Receivable – City News Delivery Revenue + - - + = 1,450 Debit 1,450 Credit 1,450 1,450
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More Expense Transactions
Business Transaction 12 Roadrunner paid a $125 telephone bill with check 104 . 1) Identify 2) Classify 3) Increase or Decrease 4) Debit and Credit Rule 5) Do Debits Equal Credits Accounts affected are Utilities Expense and Cash in Bank Utilities Expense is an expense account and Cash in Bank is an asset account Utilities Expense is increased by $125 and Cash in Bank is decreased by $125 Expense accounts are increased on the debit side and asset accounts are decreased on the credit side Debits equal credits Utilities Expense Cash in Bank + - + - = 125 Debit 125 Credit 125 125
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Even More Expense Transactions
Business Transaction 13 Roadrunner wrote check 105 for $600 to have the office repainted . 1) Identify 2) Classify 3) Increase or Decrease 4) Debit and Credit Rule 5) Do Debits Equal Credits Accounts affected are Maintenance Expense and Cash in Bank Maintenance Expense is an expense account and Cash in Bank is an asset account Maintenance Expense is increased by $600 and Cash in Bank is decreased by $600 Expense accounts are increased on the debit side and asset accounts are decreased on the credit side Debits equal credits Maintenance Expense Cash in Bank + - + - = 600 Debit 600 Credit 600 600
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Withdrawal Transactions
Business Transaction 14 Maria Sanchez wrote check 106 to withdraw $500 cash for personal use . 1) Identify 2) Classify 3) Increase or Decrease 4) Debit and Credit Rule 5) Do Debits Equal Credits Accounts affected are M. Sanchez, Withdrawals and Cash in Bank M. Sanchez, Withdrawals is an owner’s equity account and Cash in Bank is an asset account M. Sanchez, Withdrawals is increased by $500 and Cash in Bank is decreased by $500 Owner’s equity accounts are increased on the debit side and asset accounts are decreased on the credit side Debits equal credits M. Sanchez, Withdrawals Cash in Bank + - + - = 500 Debit 500 Credit 500 500
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That was easy Summary of T-Accounts Bal 1,450 Bal ------ Bal 21,125
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Homework Textbook Page: 109 Do on loose-leaf paper Problem 5-2
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Testing for Equality of Debits & Credits
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Problem 5 - 5 Cash in Bank Utilities Exp Bal 15,000 12,700 (1) (9) 115
12,700 (1) (9) Bal (3) 1,850 125 (2) 150 (4) 150 (6) A/R – J Alvarez Grooming Equip 325 (8) (7) (1) 12,700 115 (9) Bal (5) Bal 3,285 Bal 12,775 A/P – Dogs & Cats Inc A Schultz, Capital A Schultz, Withdrawals (5) 15,000 Bal (6) Bal 15,000 Bal Bal Boarding Revenue Grooming Revenue Advertising Exp 1,850 (3) (7) (2) 1,850 Bal Bal Bal Equip Repair Exp Maintenance Exp Rent Exp (4) (8) Bal Bal Bal
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That was easy Asi de Facil Account Balances 3,285 775 12,775 75 15,000
150 1,850 That was easy 775 Asi de Facil 125 150 ---- 325 115 17,770 17,770
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Homework Textbook Page: 118 & 119 Workbook Page: 76 & 76 Problem 5-7
Add T-Accts to Bottom
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Classwork Textbook Page: 117 & 118 Workbook Page: 73 & 74 Problem 5-6
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