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Temporary Accounts and Permanent Accounts

Temporary Accounts and Permanent Accounts. Revenue , expense , and withdrawal accounts are used to collect information for a single accounting period . These accounts are called Temporary Accounts.

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Temporary Accounts and Permanent Accounts

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  1. Temporary Accounts and Permanent Accounts Revenue, expense, and withdrawal accounts are used to collect information for a single accounting period. These accounts are called Temporary Accounts. Dollar amounts in Temporary Accounts are not carried forward from one accounting period to the next. Temporary Accounts start each new accounting period with a zero balance. Assets, liabilities, and owner’s capital accounts are Permanent Accounts. Dollar amounts in Permanent Accounts are carried forward from one accounting period to the next. Permanent Accounts are continuous from one accounting period to the next.

  2. Rules for Revenue Accounts A revenue account is increased on the credit side. A revenueaccount is decreased on the debit side. The normal balance for a revenue account is the credit side. Decrease on the left side Increase on the right side Revenue Account Debit Side Credit Side - + Normal balanceon the credit side Normal Balance

  3. Rules for Expense Accounts An expense account is increased on the debit side. An expense account is decreased on the credit side. The normal balance for an expense account is the debit side. Increase on the left side Decrease on the right side Expense Account Debit Side Credit Side + - Normal balanceon the debit side Normal Balance

  4. Rules for Withdrawal Accounts A withdrawal account is increased on the debit side. A withdrawal account is decreased on the credit side. The normal balance for a withdrawal account is the debit side. Increase on the left side Decrease on the right side Withdrawal Account Debit Side Credit Side + - Normal balanceon the debit side Normal Balance

  5. Summary of Rules for Temporary Accounts The balances in the Temporary Accounts are transferred into the Owner’s Capital Account at the end of each accounting period. Owner’s Capital Account Debit Side Credit Side - + Expense Account Normal Balance Debit Side Credit Side + - Normal Balance Revenue Account Debit Side Credit Side + - Withdrawal Account Normal Balance Debit Side Credit Side + - Normal Balance

  6. Homework Textbook Page: 103 Workbook Page: 42 Problem 5-1

  7. Revenue Transactions Business Transaction 8 Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services. 1)Identify 2)Classify 3)Increase or Decrease 4) Debit and Credit Rule 5)Do Debits Equal Credits Accounts affected areCash in BankandDelivery Revenue Cash in Bankis anassetaccount andDelivery Revenueis arevenueaccount Cash in Bankis increasedby $1,200 andDelivery Revenueis increased by $1,200 Assetaccounts areincreasedon the debit side and revenueaccounts areincreased on the credit side Debits equal credits Cash in Bank Delivery Revenue + - - + = 1,200 Debit 1,200 Credit 1,200 1,200

  8. Expense Transactions Business Transaction 9 Roadrunner wrote a check for $700 to pay the rent for the month . 1)Identify 2)Classify 3)Increase or Decrease 4) Debit and Credit Rule 5)Do Debits Equal Credits Accounts affected areRent Expense andCash in Bank Rent Expenseis anexpenseaccount andCash in Bankis anasset account Rent Expenseis increasedby $700 andCash in Bankis decreased by $700 Expense accounts areincreasedon the debit side and asset accounts aredecreased on the credit side Debits equal credits Rent Expense Cash in Bank + - + - = 700 Debit 700 Credit 700 700

  9. Credit Expense Transactions Business Transaction 10 Beacon Advertising prepared an advertisement for Roadrunner. Roadrunner will pay Beacon’s $75 fee later . Accounts affected areAdvertising Expense andAccounts Payable – Beacon Advertising 1)Identify 2)Classify 3)Increase or Decrease 4) Debit and Credit Rule 5)Do Debits Equal Credits Advertising Expenseis anexpenseaccount andAccounts Payable – Beacon Advertisingis aliability account Advertising Expenseis increasedby $75 andAccounts Payable – Beacon Advertisingis increased by $75 Expense accounts areincreasedon the debit side and liability accounts areincreased on the credit side Debits equal credits Accounts Payable Beacon Advertising Advertising Expense + - - + = 75 Debit 75 Credit 75 75

  10. Credit Revenue Transactions Business Transaction 11 Roadrunner billed City News $1,450 for delivery services. Accounts affected areAccounts Receivable – City NewsandDelivery Revenue 1)Identify 2)Classify 3)Increase or Decrease 4) Debit and Credit Rule 5)Do Debits Equal Credits Accounts Receivable – City Newsis anassetaccount andDelivery Revenueis arevenueaccount Accounts Receivable – City Newsis increasedby $1,450 andDelivery Revenueis increased by $1,450 Assetaccounts areincreasedon the debit side and revenueaccounts areincreased on the credit side Debits equal credits Accounts Receivable – City News Delivery Revenue + - - + = 1,450 Debit 1,450 Credit 1,450 1,450

  11. More Expense Transactions Business Transaction 12 Roadrunner paid a $125 telephone bill with check 104 . 1)Identify 2)Classify 3)Increase or Decrease 4) Debit and Credit Rule 5)Do Debits Equal Credits Accounts affected areUtilities Expense andCash in Bank Utilities Expenseis anexpenseaccount andCash in Bankis anasset account Utilities Expenseis increasedby $125 andCash in Bankis decreased by $125 Expense accounts areincreasedon the debit side and asset accounts aredecreased on the credit side Debits equal credits Utilities Expense Cash in Bank + - + - = 125 Debit 125 Credit 125 125

  12. Even More Expense Transactions Business Transaction 13 Roadrunner wrote check 105 for $600 to have the office repainted . 1)Identify 2)Classify 3)Increase or Decrease 4) Debit and Credit Rule 5)Do Debits Equal Credits Accounts affected areMaintenance Expense andCash in Bank Maintenance Expenseis anexpenseaccount andCash in Bankis anasset account Maintenance Expenseis increasedby $600 andCash in Bankis decreased by $600 Expense accounts areincreasedon the debit side and asset accounts aredecreased on the credit side Debits equal credits Maintenance Expense Cash in Bank + - + - = 600 Debit 600 Credit 600 600

  13. Withdrawal Transactions Business Transaction 14 Maria Sanchez wrote check 106 to withdraw $500 cash for personal use . 1)Identify 2)Classify 3)Increase or Decrease 4) Debit and Credit Rule 5)Do Debits Equal Credits Accounts affected areM. Sanchez, Withdrawals andCash in Bank M. Sanchez, Withdrawalsis anowner’s equityaccount andCash in Bankis anasset account M. Sanchez, Withdrawalsis increasedby $500 andCash in Bankis decreased by $500 Owner’s equity accounts areincreasedon the debit side and asset accounts aredecreased on the credit side Debits equal credits M. Sanchez, Withdrawals Cash in Bank + - + - = 500 Debit 500 Credit 500 500

  14. Testing for Equality of Debits & Credits

  15. Homework Textbook Page: 109 Do on loose-leaf paper Problem 5-2

  16. Problem 5 - 5 Utilities Exp Cash in Bank 12,700 (1) (9) 115 Bal 15,000 Bal 115 125 (2) (3) 1,850 150 (4) 150 (6) A/R – J Alvarez Grooming Equip 325 (8) (7) 775 (1) 12,700 115 (9) (5) 75 Bal 775 Bal 3,285 Bal 12,775 A/P – Dogs & Cats Inc A Schultz, Capital A Schultz, Withdrawals 15,000 Bal 75 (5) (6) 150 15,000 Bal Bal 150 75 Bal Boarding Revenue Grooming Revenue Advertising Exp 775 (7) 1,850 (3) (2) 125 775 Bal 1,850 Bal Bal 125 Equip Repair Exp Maintenance Exp Rent Exp (4) 150 (8) 325 Bal ----- Bal 325 Bal 150

  17. Account Balances 3,285 775 12,775 75 15,000 150 1,850 775 Asi de Facil That was easy 125 150 ---- 325 115 17,770 17,770

  18. Homework Textbook Page: 117 & 118 Workbook Page: 45 & 46 Problem 5-6

  19. Problem 5 – 7 (Add 3 T-Accounts) Rent Exp Utilities Exp Cash in Bank (4) 750 (1) 17,500 750 (4) (8) 125 Bal 750 Bal 125 (7) 233 265 (5) (12) 264 125 (8) 375 (9) A/R – G Cohen A/R – J Coletti 150 (10) (6) 67 45 (11) Bal 67 Bal ---- Bal 16,287 Computer Equip Video Tapes A/P – Computer Horizons (2) 2,400 (3) 375 2,400 (2) (5) 265 Bal 640 Bal 2,400 2,400 Bal A/P – New Media G Failla, Capital G Failla, Withdrawals (9) 375 17,500 (1) 375 (3) (10) 150 ---- Bal Bal 150 17,500 Bal Video Rental Revenue VCR Rental Revenue Equip Repair Exp 67 (6) (11) 45 233 (7) 264 (12) Bal 45 331 Bal 233 Bal

  20. 16,287 67 ---- 2,400 640 2,400 ---- 17,500 Asi de Facil That was easy 150 233 331 45 750 125 20,464 20,464

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