Temporary Accounts and Permanent Accounts

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. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 3,000 (3) (1) 25,000 (11) 1,450 (5) 200 200 (7) 350 (6) (7) 200 700 (9) (8) 1,200 Bal 1,450 Bal ----- 125 (12) 600 (13) 500 (14) Bal 21,125 (2) 400 200 (5) (4) 12,000 (3) 3,000 Bal 12,000 Bal 200 Bal 3,000 75 (10) (6) 350 12,000 (4) 25,000 (1) 11,650 Bal 400 (2) 75 Bal 25,400 Bal (14) 500 1,200 (8) (10) 75 Bal 500 1,450 (11) Bal 75 2,650 Bal (9) 700 (12) 125 (13) 600 Bal 125 Bal 600 Bal 700

14. Testing for Equality of Debits & Credits