Chapter 5
Transactions That Affect
Revenue, Expenses, and
Withdrawals
Ch 5 Section 1
Vocabulary
OLD
Revenue
Expenses
Withdrawals
NEW
Temporary Capital
Accounts
Permanent Accounts
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
Ch 5 Section 1
Temporary Capital Accounts
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.
Ch 5 Section 1
Illustrating Temporary accounts
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
Ch 5 Section 1
The Relationship of Temporary
Capital
Accounts to the Owner’s Capital Account
Utilities Expense
Accumulated telephone
costs for accounting
period
Accumulated electricity
costs for accounting
period
Total for accounting
period
$2,857
5,141
$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
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
Ch 5 Section 1
Illustrating Permanent Accounts
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.
5 Section 1
Rules of D and Cr forChTemp
Capital Accounts
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.
Ch 5 Section 1
Rules for Revenue Accounts
Revenue earned from selling goods or
services will increase owner’s capital
Revenue Accounts
Debit
Debit
-–
(2)
(2)Decrease
DecreaseSide
Side
Credit
+
(1) Increase Side
(3) Normal Balance
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
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
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