1. Transactions That Affect Revenue, Expenses, and Withdrawals
Chapter 5
Transactions That Affect Revenue, Expenses, and Withdrawals

2. Vocabulary OLD Revenue Expenses Withdrawals NEW
Ch 5 Section 1
OLD
Revenue
Expenses
Withdrawals
NEW
Temporary Capital Accounts
Permanent Accounts
Revenue – Money earned from selling goods and services
Expenses – The money used to run the business
Withdrawals – Money taken out of the business by the owner
Temporary Capita accounts – balance transferred to capital account and the end of the period and start new each period with zero balance.
Permanent accounts – continuous from one accounting period to the next. Dollar balances carry forward.

3. Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity
Ch 5 Section 1
Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity
Owner’s Capital account shows the amount of the owner’s investment, or equity (what the business is worth $$ if sold).
Expenses and owner’s withdrawals decrease owner’s equity

4. Temporary Capital Accounts
Ch 5 Section 1
Accounting is measured in periods of time or accounting periods
Revenue, expense, and withdrawals accounts are used to collect information for a single accounting period.
Temporary capital accounts start new each period with zero balances. - The balance does NOT carry forward
At the end of that period, the balances in the temporary capital accounts are transferred to the owner’s capital account.

5. Illustrating Temporary accounts
Ch 5 Section 1
During the accounting period, transactions related to utilities such as electric and phone are recorded in Utilities Expense account
The individual transaction amounts accumulate during the period
At the end of the period, the total is transferred to owner’s capital and subtracted

6. The Relationship of Temporary Capital Accounts to the Owner’s Capital Account
Ch 5 Section 1
Utilities Expense
Accumulated telephone
costs for accounting
period $2,857
Accumulated electricity
period 5,141
Total for accounting
period $7,998
Utilities Expense balance transferred to Owner’s Capital at end of accounting period. Expenses decrease owner’s capital.
Owner’s Capital
Balance of Utilities
Expense $7,998
Balance at Beginning of
Accounting Period $90,000
Balance at End of
Accounting Period $82,002

7. Permanent Accounts Owner’s capital account
Ch 5 Section 1
Permanent Accounts
Owner’s capital account
Asset and liability accounts
Permanent accounts are continuous from one accounting period to the next.
Dollar balances at the end of one accounting period becomes the beginning dollar balances for the next accounting period

8. Illustrating Permanent Accounts
Ch 5 Section 1
If a business has supplies totaling $875 at the end of one accounting period, the business will start with $875 in supplies at the beginning of the next accounting period.
Permanent accounts show balances on hand or amounts owned at any time.
Show day to day changes in assets, liabilities, and owner’s capital.

9. Rules of D and Cr for Temp Capital Accounts
Ch 5 Section 1
The rules of debit and credit for accounts classified as revenue, expense, and withdrawals accounts are related to the rules for the owner’s equity account.

10. Rules for Revenue Accounts
Ch 5 Section 1
Rules for Revenue Accounts
Revenue earned from selling goods or services will increase owner’s capital
Revenue Accounts
Debit -
(2) Decrease Side
Debit –
(2) Decrease Side
Credit +
(1) Increase Side
(3) Normal Balance

11. Rules for Expense Accounts
Ch 5 Section 1
Rules for Expense Accounts
Expenses decrease Owner’s Capital
Expense Accounts
Debit +
(1) Increase Side
(3) Normal Balance
Credit –
(2) Decrease Side

12. Rules for Expense Accounts
Ch 5 Section 1
Rules for Expense Accounts
- Withdrawals are money that that owner takes out of the business
- Withdrawals decrease Owner’s Capital
Withdrawals Accounts
Debit +
(1) Increase Side
(3) Normal Balance
Credit –
(2) Decrease Side

13. Review
1. Changes to revenue accounts eventually affect another account. What other account is affected? Explain
2. What type of transaction affects the debit side of the owner’s capital account? Explain
1. Capital. Revenue represents increases to capital from selling goods or services
2. Expenses and withdrawal decrease capital and represent the left, debit side of the capital account.