Chapter 5
<ul><li>Dave Thomas was the man behind Wendy’s International. The original restaurant in Columbus Ohio, open in 1969 and i...
Section 1
<ul><li>The reason for having temporary and permanent accounts. </li></ul><ul><li>The rules of debit and credit for revenu...
<ul><li>Temporary capital account </li></ul><ul><li>Permanent accounts </li></ul>
 
Supplies Debit Credit End. Bal. 875 Supplies Debit Credit Beg. Bal. 875 Beginning of Next Accounting Period
Owner’s Capital Account Debit Credit _ + Decrease Increase Side Side Normal Balance
<ul><li>A revenue account is  increase  (+) on the  credit  side </li></ul><ul><li>A revenue account is  decreased  (-) on...
 
<ul><li>An expense account is  increased  on the  debit  side. </li></ul><ul><li>An expense account is  decreased  on the ...
 
<ul><li>Computing the Balance in a T Account </li></ul><ul><ul><li>To make it easier to find an account balance: </li></ul...
<ul><li>The withdrawals account is  increased  on the  debit  side. </li></ul><ul><li>The withdrawals account is  decrease...
 
<ul><li>Debit and Credits </li></ul><ul><li>Debits are used to  </li></ul><ul><li>Decrease (-) revenue </li></ul><ul><li>I...
<ul><li>Using a Toll-Free Number </li></ul><ul><li>Many businesses offer a toll-free telephone line for customers and busi...
<ul><li>Problem 5-1 </li></ul>
Section 2
<ul><li>How to analyze transactions that affect revenue, expense, and withdrawal accounts </li></ul>
<ul><li>Revenue recognition </li></ul>
<ul><li>On October 15, Roadrunner provided delivery services for the Sims Corporation. A check for $1,200 was received in ...
<ul><li>October 20, Roadrunner billed City News $1,450 for delivery services. </li></ul><ul><li>October 28, Roadrunner pai...
Account Name Debit Balance Credit Balances 101 Cash in Bank $21,125 105 Accounts Receivables-City News 1,450 110 Accounts ...
<ul><li>Thinking Critically --- page 109 </li></ul><ul><li>Analyzing Accounting --- page 109 </li></ul><ul><li>Problem 5-2...
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Chapter 5 transactions that affect revenue, expenses, and

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Lesson for effects on Owner Equity accounts

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  • The proper handling of transactions that affect temporary and permanent accounts is essential to maintaining accurate financial records.
  • Revenues, expenses, and withdrawals accounts are used to collect information for a single accounting period. Temporary capital accounts start each accounting period with a zero balance.
  • Permanent accounts are continuous from one accounting period to the next. In permanent accounts, the dollar balances at the end of one period becomes the dollar balance for the4 beginning of the next accounting period. Permanent accounts show balances on hand or amount owed at anytime, they also show the day-to-day changes in assets, liabilities and owner’s capital.
  • 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.
  • You need to analyze revenue, expense, and owner’s withdrawal transactions to record them correctly.
  • Revenue should be recognized on the date earned, even if cash has not been received//
  • In the double-entry accounting system, correct analysis and recording of transactions should result in total debits equal to total credits. To test for the equality of debits and credits, follow these steps: Make a list of the account titles used by the business To the right of each account title, list the balance of the account. Use two columns, one for debit balances and the other for credit balances. Add the amounts in each column. If you have recorded everything correctly, the accounts will balance.
  • Chapter 5 transactions that affect revenue, expenses, and

    1. 1. Chapter 5
    2. 2. <ul><li>Dave Thomas was the man behind Wendy’s International. The original restaurant in Columbus Ohio, open in 1969 and is called Wendy’s Old Fashioned Hamburgers. </li></ul>What do you think? Wendy’s earns revenue by selling meals. Can you think of at least six examples of expenses that a Wendy’s restaurant might have?
    3. 3. Section 1
    4. 4. <ul><li>The reason for having temporary and permanent accounts. </li></ul><ul><li>The rules of debit and credit for revenue, expense, and withdrawal accounts </li></ul>
    5. 5. <ul><li>Temporary capital account </li></ul><ul><li>Permanent accounts </li></ul>
    6. 7. Supplies Debit Credit End. Bal. 875 Supplies Debit Credit Beg. Bal. 875 Beginning of Next Accounting Period
    7. 8. Owner’s Capital Account Debit Credit _ + Decrease Increase Side Side Normal Balance
    8. 9. <ul><li>A revenue account is increase (+) on the credit side </li></ul><ul><li>A revenue account is decreased (-) on the debit side </li></ul><ul><li>The normal balance for a revenue account is the increase side , or the credit side . Revenue accounts normally have credit balances </li></ul>
    9. 11. <ul><li>An expense account is increased on the debit side. </li></ul><ul><li>An expense account is decreased on the credit side. </li></ul><ul><li>The normal balance for an expense account is the increase side, or the debit side. Expense accounts normally have debit balances. </li></ul>
    10. 13. <ul><li>Computing the Balance in a T Account </li></ul><ul><ul><li>To make it easier to find an account balance: </li></ul></ul><ul><ul><ul><li>Add amounts and write a sum total on each side of the account </li></ul></ul></ul><ul><ul><ul><li>Subtract the lesser subtotal from the other subtotal to find the account balance. </li></ul></ul></ul>
    11. 14. <ul><li>The withdrawals account is increased on the debit side. </li></ul><ul><li>The withdrawals account is decreased on the credit side. </li></ul><ul><li>The normal balance for the withdrawals account is the increase side or the debit side. The withdrawal account normally has a debit balance. </li></ul>
    12. 16. <ul><li>Debit and Credits </li></ul><ul><li>Debits are used to </li></ul><ul><li>Decrease (-) revenue </li></ul><ul><li>Increase (+) expenses </li></ul><ul><li>Increase (+) withdrawals </li></ul><ul><li>Credits are used to: </li></ul><ul><li>Increase (+) revenue </li></ul><ul><li>Decrease (-) expenses </li></ul><ul><li>Decrease (-) withdrawals </li></ul>
    13. 17. <ul><li>Using a Toll-Free Number </li></ul><ul><li>Many businesses offer a toll-free telephone line for customers and business associates. Suppose you’re an accountant for Procter & Gamble in Cincinnati, Ohio. Your friend Mike just moved to Houston and asks if your company has a 800 number he can use to call you. Your company does offer an 800 number, and you would like to hear from Mike. However, you also know that your company pays for each incoming call. </li></ul><ul><li>Ethical Decision Making: </li></ul><ul><ul><li>What are the ethical issues? </li></ul></ul><ul><ul><li>What are the alternatives? </li></ul></ul><ul><ul><li>Who are the affected parties? </li></ul></ul><ul><ul><li>Ho do the alternatives affect the parties ? </li></ul></ul><ul><ul><li>What would you do? </li></ul></ul>
    14. 18. <ul><li>Problem 5-1 </li></ul>
    15. 19. Section 2
    16. 20. <ul><li>How to analyze transactions that affect revenue, expense, and withdrawal accounts </li></ul>
    17. 21. <ul><li>Revenue recognition </li></ul>
    18. 22. <ul><li>On October 15, Roadrunner provided delivery services for the Sims Corporation. A check for $1,200 was received in full payment. </li></ul><ul><li>On October 16, Roadrunner mailed Check 103 for $700 to pay the month’s rent. </li></ul><ul><li>On October 18, Beacon Advertising prepared an advertisement for Roadrunner. Roadrunner will pay Beacon’s $75 fee later. </li></ul>
    19. 23. <ul><li>October 20, Roadrunner billed City News $1,450 for delivery services. </li></ul><ul><li>October 28, Roadrunner paid a $125 telephone bill with Check 104. </li></ul><ul><li>On October 29, Roadrunner wrote Check for $600 to have the office repainted. </li></ul><ul><li>On October 31, Maria Sanchez wrote check 106 to withdraw $500 cash for personal use. </li></ul>
    20. 24. Account Name Debit Balance Credit Balances 101 Cash in Bank $21,125 105 Accounts Receivables-City News 1,450 110 Accounts Receivables-Green Company 115 Computer Equipment 3000 120 Office Equipment 200 125 Delivery Equipment 12000 201 Accounts Payable – Beacon Advertising 75 205 Accounts Payable – North Shore Auto 11650 301 Maria Sanchez, Capital 25,400 302 Maria Sanchez, withdrawal 500 303 Income Summary 401 Delivery Revenue 2,650 501 Advertising Expense 75 505 Maintenance 600 510 Rent Expense 700 515 Utilities Expense 125 $39,775 $39,775
    21. 25. <ul><li>Thinking Critically --- page 109 </li></ul><ul><li>Analyzing Accounting --- page 109 </li></ul><ul><li>Problem 5-2 Identifying Accounts Affected by Transactions --- page 109 </li></ul>

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