Bellringer
What is the first transaction in opening
up a business?
 Why do people start a business?
 What types of activities occur to
operate your business?
 How do businesses survive or stay in
business?
 Write down on a piece of paper…

Essential Questions
Why do revenue, expenses, and
owner’s withdrawals affect owner’s
equity?
 How are they a part of the accounting
equation?
 How do you analyze transactions that
relate to revenues, expenses and
withdrawals?

Enduring Understanding

Revenues and Expenses and
withdrawals are temporary accounts.
They start each new accounting
period with -0- balances.
Students will be able to:



Describe the purposes of the revenue,
expense and drawing accounts and
illustrate their effects on owner’s equity.
Compare and Contrast Temporary and
Permanent accounts.
Explain the double-entry system of
accounting and apply debit and credit
rules when analyzing business
transactions.
Why do people start a business?
What types of activities occur to operate your
business?

Revenue
income earned from the sale of goods
 Increases owner’s equity, the value of
your business

What types of activities occur to operate your
business?
How do business’ survive or stay in business?

Expenses
cost of products or services used to
operate a business
 Decreases owner’s equity, the value
of your business

What is the first transaction in opening up a business?
What types of activities occur to operate your business?
Investments in the
Business
Withdrawals


An amount of money or an
asset the owner takes out of
the business
Decreases Owner’s Equity,
Value of business
 Owner wrote a check to
withdraw $5,000 cash for
personal use
 Owner took one computer
for his personal use at
home.


An amount of money or an
asset the owner contributes to
the business
Increases Owner’s Equity,
Value of business
 Owner took $25,000 from
personal savings and
deposited into business
bank checking account
 Owner took a computer
from her home and
transferred it to the
business as office
equipment
How do business’ survive or stay in business?

Accounting Period: Period of time
covered by an accounting report.
Monthly – Jan 1 thru Jan 31st.
 Quarterly – Jan 1 thru March 31st.
 Yearly – Jan 1 thru December 31st.



Revenues > Expenses = Net Income +
Revenues < Expenses = Net Loss -
TEMPORARY ACCOUNTS
Accounts used to collect
information for a single accounting
period
 Examples: Revenues, Expenses
and Withdrawals
 $ amount end of accounting period
moves to owner’s equity.
 Start each new accounting period
with zero balances.

PERMANENT ACCOUNTS – “Real Accounts”
Accounts that have continuous
balances from one accounting
period to the next.
 Examples: Assets, Liabilities and
Owner’s Equity
 The $ amount at the end of one
accounting period becomes the $
amount for the beginning
accounting period.

Temporary Accounts Vs. Permanent accounts

Delivery Revenue:
Balance 1/1/2010
$0
Sales for the year $100,000
Balance 12/31/10 $100,000
Zero account out -$100,000
Balance 1/1/2011
$0

Owner’s Equity:
Balance 1/1/2010
$0
Owner’s investment
$25,000
Balance Rev 12/31/10 $100,000
Balance 12/31/10
$125,000
Balance 1/1/2011
$125,000
Temporary Accounts Vs. Permanent accounts

Utilities Expense:
Balance 1/1/2010
$0
Expense for the year $75,000
Balance 12/31/10
$75,000
Zero account out
-$75,000
Balance 1/1/2011
$0

Owner’s Equity:
Balance 1/1/2010
$0
Owner’s investment
+25,000
Balance Rev 12/31/10 +100,000
Balance Exp 12/31/10 - 75,000
Balance 12/31/10
$50,000
Balance 1/1/2011
$50,000
Temporary Accounts Vs. Permanent accounts

Maria Sanchez, Withdrawal:
Balance 1/1/2010
$0
Withdrawals for the year $5,000
Balance 12/31/10
$5,000
Zero account out
-$5,000
Balance 1/1/2011
$0

Owner’s Equity:
Balance 1/1/2010
$0
Owner’s investment
+ 25,000
Balance Rev 12/31/10 +100,000
Balance Exp 12/31/10 - 75,000
Bal Withdrawal 12/31/10 - 5,000
Balance 12/31/10
$45,000
Balance 1/1/2011
$45,000
How are they a part of the accounting equation?
Assets = Liabilities + Owner’s Equity + Revenue – ExpenseWithdrawals
T-Accounts
Permanent Account
Capital
Debit
Credit
-
+
Decrease
side
Increase side
Balance side
Revenue
Debit
Credit
-
+
Decrease
side
Increase
side
Rules for Revenue Accounts
1.
2.
3.
A revenue account is increased (+) on the credit side.
A revenue account is decreased (-) on the debit side.
The normal balance for an revenue account is a credit
balance.
Assets = liabilities + owner’s equity + revenue – expenses- withdrawals
Revenue
Fees
Credit
Debit
Decrease
side-
Credit
+
Increase side
Balance side
Debit
$200
+
$500
1,000
2,000
Balance $3,300
REMEMBER
The normal balance side of any account is the same as the side used to
increase that account.
Rules for Expense Accounts
1.
2.
3.
The expense accounts are increased (+) on the debit side.
The expense accounts are decreased (-) on the credit side.
The normal balance for the expense accounts is a debit balance.
Expense Accounts
Debit
+
Increase side
Balance side
Credit
Decrease side
Advertising Expense
Debit
+
400
200
Balance $475
Credit
125
Assets = Liabilities + Owner’s Equity +
Revenue – Expense- Withdrawals
Permanent Account
Capital
Debit
-
Expenses
Debit
Credit
+
-
Increase
side
Decrease
side
Balance
side
Decrease side
Credit
+
Increase side
Balance side
Revenue
Debit
Decrease
side
Credit
+
Increase
side
Balance
side
Rules for Withdrawals
Account



The withdrawals account is increased by debits
The withdrawals account is decreased by credits.
The normal balance for the withdrawals account is a debit balance.
Withdrawals
Debit
Credit
+
-
Increase
side
Decrease
side
Balance
side
Check your learning
1.
2.
3.
4.
5.
6.
7.
What is the normal balance side of any account?
What effect does a debit have on an expense
account?
What is the normal balance for a revenue account?
What effect does a credit have on a revenue
account?
What is the normal balance for an expense account?
What effect does a credit have on a withdrawals
account?
What is the normal balance for a withdrawals
account?
Permanent Account
Capital
Expenses
Debit
Credit
-
+
Decrease
Increase
side
Balance
side
Debit
Credit
+
-
Increase
side
Decrease
side
Withdrawals
Debit
Credit
+
-
Increase
side
Decrease
side
Revenue
Debit
Credit
-
+
Decrease
side
Increase
side
Balance
side
Remember
Expenses decrease owner’s capital.
As a result, increases in expenses are
recorded as debits and the normal
balance of an expense account is a
debit balance.
 Amounts taken out of the business
decrease owner’s capital. Therefore,
increases in the withdrawals account
are recorded as debits.

Testing for the Equality of
Debits and Credits
Make a list of the account titles used
by the business.
 Opposite each account title, list the
final or current balance of the account.
Use two columns, one for debit
balances and one for credit.
 Add each amount column.
