Transactions That
Affect Revenue,
Expenses, and
Withdrawals
Chapter 5
Temporary and Permanent
Accounts
• Permanent accounts keep a running balance that moves from
the end of one accounting period to the beginning of the next.
(Sometimes called Real Accounts)
• Temporary accounts are closed at the end of each accounting
period and their balances are used to increase or decrease a
permanent account balance. Then the accounts start over
with a zero balance at the beginning of the next accounting
period.
Temporary Accounts
• Revenue
• Expenses
• Withdrawal
• These accounts are used to collect data within an accounting
period so the information can be analyzed to improved the
efficiency of a business.
See How It Works
Utilities Expense
Accumulated telephone costs
For accounting period
$2,857
Accumulated electricity costs
For accounting period
$5,141
Total for accounting period
$7,998
Owner’s Capital
Balance at Beginning of
Accounting Period
$90,000
Balance of Utilities Expense $7,998
Balance at End of
Accounting Period
Pg 105
$82,002
The Rules of Debit and Credit for
Temporary Accounts
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 a revenue account is a credit
Rules for Expense Accounts
1. An expense account is increased on the debit side
2. An expense account is decreased on the credit side
3. The normal balance for an expense account is a debit
Rules for the Withdrawal Account
1. The withdrawal account is increased on the debit side
2. The withdrawal account is decreased on the credit side
3. The normal balance for the withdrawal account is a debit
Rules Applied to T Accounts
Permanent Account
Owner’s Equity
Debit Side
Decrease Side
Temporary Account
Expenses
Debit
+
Increase Side
Normal Balance
Credit
Decrease
Temporary Account
Withdrawal
Debit
+
Increase Side
Normal Balance
Credit
Decrease
Credit
+
Increase Side
Normal Balance
Temporary Account
Revenue
Debit Side
Decrease Side
Credit
+
Increase Side
Normal Balance
Pg 109
Business Transaction #8
Owner’s Equity
Business Transaction #9
Owner’s Equity
Business Transaction #10
Owner’s Equity
Business Transaction #11
Owner’s Equity
Business Transaction #12
Owner’s Equity
Business Transaction #13
Owner’s Equity
Business Transaction #14
Owner’s Equity
Test for the Equality of Debits and
Credits
• Double Entry Accounting means that your debits and credits
should always be equal. Testing that they balance is a good
way to double check your work.
1. Make a list of the account names used by the business
2. List the balance to the right of each account name using two
columns, one for debit and one for credit
3. Add the amounts in each column
Account Name
Debit Balances Credit Balances
101 Cash in Bank
21,125
105 A/R – City News
1,450
110 A/R – Green Company
115 Computer Equipment
3,000
120 Office Equipment
200
125 Delivery Equipment
12,000
201 A/P – Beacon Advertising
75
205 A/P – North Shore Auto
11,650
301 Maria Sanchez, Capital
25,400
302 Maria Sanchez, Withdrawals
500
303 Income summary
401 Delivery Revenue
2,650
501 Advertising Expense
75
505 Maintenance Expense
600
510 Rent Expense
700
515 Utilities Expense
125
$39,775
$39,775