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Main Idea
Revenues, expenses, and withdrawals are temporary accounts.
They start each new accounting period with zero balances.
Yes
Relationship of Revenue, Expenses, and
Withdrawals to Owners Equity
Key Terms
temporary accounts
permanent accounts
ACTIVATING PRIOR KNOWLEDGE
Owners Capital
Expenses Revenue
Withdrawals Investments
by the owner
Relationship of Revenue, Expenses, and
Withdrawals to Owners Equity
Temporary accounts:
start the accounting period with a zero balance
accumulate amounts for one accounting period
transfer the balance to the owners capital account at the
end of the period.
Relationship of Revenue, Expenses, and
Withdrawals to Owners Equity
Do The Math
Effect on owners equity: $2,050
Problem 5-1
Cash in Bank: asset, debit, credit, debit
Accts Receivable: asset, debit, credit, debit
Airplanes: asset, debit, credit, debit
Accts Payable: liability, credit, debit, credit
Caroline Palmer, Capital: owners equity, credit, debit, credit
Caroline Palmer, Withdrawals: owners equity, debit, credit,
debit
Flying Fees: revenue, credit, debit, credit
Advert. Expense: expense, debit, credit, debit
Food Expense: expense, debit, credit, debit
Fuel and Oil Expense: expense, debit, credit, debit
Repairs Expense: expense, debit, credit, debit
Relationship of Revenue, Expenses, and
Withdrawals to Owners Equity
Main Idea
Double-entry accounting requires that total debits and total
credits are always equal.
Key Term
revenue recognition
SECTION 2
APPLYING THE RULES OF DEBIT AND CREDIT TO
REVENUE, EXPENSE, AND WITHDRAWALS TRANSACTIONS
Analyzing Transactions
Using the rules of debit and credit, analyze some business
transactions that af fect revenue, expense, and owners withdrawals
accounts:
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Using the rules of debit and credit, analyze some business
transactions that af fect revenue, expense, and owners withdrawals
accounts:
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Using the rules of debit and credit, analyze some business
transactions that af fect revenue, expense, and owners withdrawals
accounts:
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Using the rules of debit and credit, analyze some business
transactions that af fect revenue, expense, and owners withdrawals
accounts:
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Using the rules of debit and credit, analyze some business
transactions that af fect revenue, expense, and owners withdrawals
accounts:
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Using the rules of debit and credit, analyze some business
transactions that af fect revenue, expense, and owners withdrawals
accounts:
APPLYING THE RULES OF DEBIT AND CREDIT TO
REVENUE, EXPENSE, AND WITHDRAWALS TRANSACTIONS
Business Transaction 9
If Roadrunner pays $700 a month in rent, how much does the
company pay in a year?
$8,400
APPLYING THE RULES OF DEBIT AND CREDIT TO
REVENUE, EXPENSE, AND WITHDRAWALS TRANSACTIONS
Business Transaction 10
How does this transaction affect owners equity?
Expenses decrease owners equity
Analyzing Transactions
Using the rules of debit and credit, analyze some business
transactions that af fect revenue, expense, and owners withdrawals
accounts:
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Using the rules of debit and credit, analyze some business
transactions that af fect revenue, expense, and owners withdrawals
accounts:
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Using the rules of debit and credit, analyze some business
transactions that af fect revenue, expense, and owners withdrawals
accounts:
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Transaction 11 follows the GAAP principle of revenue recognition
(recording revenue on the date earned):
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Transaction 11 follows the GAAP principle of revenue recognition
(recording revenue on the date earned):
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Transaction 11 follows the GAAP principle of revenue recognition
(recording revenue on the date earned):
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Analyzing Transactions
APPLYING THE RULES OF DEBIT AND CREDIT TO
REVENUE, EXPENSE, AND WITHDRAWALS TRANSACTIONS
Business Transaction 14
How is this transaction represented using the accounting equation?
-$500 = -$500
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Follow these steps to test for the equality of debits and credits:
Make a list of account names.
Next to each account, list the account balance in either the
debit or credit column.
Add the amounts in each column.
Applying the Rules of Debit and Credit to Revenue,
Expense, and Withdrawals Transactions
Problem 1
On October 24 Larry Nevers, the owner of Aqua Pool, took
$1 ,000 out of the business for personal use.
Answer 1
Step 1: Identify the accounts af fected.
The accounts Larry Nevers, Withdrawals and Cash in Bank are affected.
Question 2
Why do expense accounts have a normal debit balance if they
are temporary capital accounts and owners capital accounts,
which are permanent accounts, have a credit balance?