CHAPTER FOUR REVENUE AND EXPENSE ACCOUNTS 3 REVENUE

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CHAPTER FOUR REVENUE AND EXPENSE ACCOUNTS

CHAPTER FOUR REVENUE AND EXPENSE ACCOUNTS

3 REVENUE AND EXPENSE ACCOUNTS Objectives: 1. Record debits and credits in revenue, expense,

3 REVENUE AND EXPENSE ACCOUNTS Objectives: 1. Record debits and credits in revenue, expense, and withdrawal accounts. 2. Explain the rules of debit and credit. 3. Apply the rules of debit and credit for revenue, expense, and withdrawals on owner’s equity. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

4 Recording Revenue • The increase in the owner’s equity that results from revenue

4 Recording Revenue • The increase in the owner’s equity that results from revenue is recorded in a separate revenue account. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

5 Recording Expenses • Separate expense accounts should be used to record costs of

5 Recording Expenses • Separate expense accounts should be used to record costs of doing business. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

6 Recording the Owner’s Withdrawals • The owner of a business may use cash

6 Recording the Owner’s Withdrawals • The owner of a business may use cash or other assets personally. This is recorded in the withdrawal account. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

7 The Rules of Debit and Credit Assets • Balance side is debit side

7 The Rules of Debit and Credit Assets • Balance side is debit side • Increase side is debit side • Decrease side is credit side Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

8 The Rules of Debit and Credit (continued) Liabilities • Balance side is credit

8 The Rules of Debit and Credit (continued) Liabilities • Balance side is credit side • Increase side is credit side • Decrease side is debit side Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

9 The Rules of Debit and Credit (continued) Owner’s Equity • Beginning investment is

9 The Rules of Debit and Credit (continued) Owner’s Equity • Beginning investment is on credit side • Increases are on credit side • Decrease are on debit side Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

10 The Rules of Debit and Credit (continued) Revenue Accounts • Increases in owner’s

10 The Rules of Debit and Credit (continued) Revenue Accounts • Increases in owner’s equity through revenue are on the credit side • Decreases in owner’s equity through reduction of revenue are on the debit side Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

11 The Rules of Debit and Credit (continued) Expense Accounts • Decreases in owner’s

11 The Rules of Debit and Credit (continued) Expense Accounts • Decreases in owner’s equity through expenses on the debit side • Increases in owner’s equity through reduction of expense on the credit side Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

12 Transaction • Rebecca Van Lieu tested and screened job applicants for $800 on

12 Transaction • Rebecca Van Lieu tested and screened job applicants for $800 on credit for a client, Donald Lynch. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

13 Transaction Analysis • The increase in the asset Accounts Receivable is recorded as

13 Transaction Analysis • The increase in the asset Accounts Receivable is recorded as a debit to the Accounts Receivable account. • Because revenue was earned, owner’s equity increased and is reflected by a credit to revenue. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

14 Transaction • Rebecca Van Lieu received $400 on account from Donald Lynch. Mc.

14 Transaction • Rebecca Van Lieu received $400 on account from Donald Lynch. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

15 Transaction Analysis • This transaction involves only an exchange of one asset (accounts

15 Transaction Analysis • This transaction involves only an exchange of one asset (accounts receivable) for another (cash). • It is recorded by debiting the Cash account and crediting the Accounts Receivable account. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

16 Transaction Analysis (continued) Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill

16 Transaction Analysis (continued) Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 Transaction • Rebecca Van Lieu withdrew $500 in cash from her business for

17 Transaction • Rebecca Van Lieu withdrew $500 in cash from her business for her personal use. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

18 Transaction Analysis • Owner’s equity is decreased by $500 by debiting the Withdrawals

18 Transaction Analysis • Owner’s equity is decreased by $500 by debiting the Withdrawals account. • The asset Cash is decreased by $500 by crediting the Cash account Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

19 Accounting Terminology • Owner’s equity accounts • Withdrawals Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e

19 Accounting Terminology • Owner’s equity accounts • Withdrawals Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

20 Chapter Summary • Many business transactions involve earning revenue and incurring expenses. •

20 Chapter Summary • Many business transactions involve earning revenue and incurring expenses. • A separate account is opened for each major revenue and expense. • A separate withdrawal account is opened to record the owner’s withdrawals. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

21 Chapter Summary (continued) • At the end of the period of operations, all

21 Chapter Summary (continued) • At the end of the period of operations, all revenue and expenses are totaled. • Net income or loss is derived after subtracting expenses from revenue and increases or decreases the owner’s equity. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

22 Chapter Summary (continued) • Withdrawals are subtracted from the net income to show

22 Chapter Summary (continued) • Withdrawals are subtracted from the net income to show the net increase or decrease in the owner’s equity. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

23 Topic Quiz Answer the following true/false questions: 1. The balance side of a

23 Topic Quiz Answer the following true/false questions: 1. The balance side of a revenue account is the debit side. FALSE 2. The balance side of an expense account is the debit side. TRUE 3. If withdrawals exceed net income, the owner’s equity is increased. FALSE Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

24 Investigating on the Internet Sources of information about revenue and expense accounts can

24 Investigating on the Internet Sources of information about revenue and expense accounts can be accessed at a website for a business. As a research assignment, access the corporate website and report those sources of information that might concern revenue and expense accounts used in the operation of the business. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

25 1. The balance side of a revenue account is the debit side. FALSE

25 1. The balance side of a revenue account is the debit side. FALSE The balance side of a revenue account is the credit side. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e (Return to Topic Quiz) © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

26 3. If withdrawals exceed net income, the owner’s equity is increased. FALSE The

26 3. If withdrawals exceed net income, the owner’s equity is increased. FALSE The owner’s equity is decreased. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e (Return to Topic Quiz) © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

Copying Expense Report Expense Lines Concept Copying ExpenseCopying Expense Report Expense Lines Concept Copying Expense
Unit 5 Revenue and Expense Accounts Key ConceptsUnit 5 Revenue and Expense Accounts Key Concepts
Travel and Expense Travel and Expense The DepartmentTravel and Expense Travel and Expense The Department
Travel and Expense Module Travel and Expense ModuleTravel and Expense Module Travel and Expense Module
Four Types Four Types Four Types Four TypesFour Types Four Types Four Types Four Types
Chapter 10 Auditing Revenue and Related Accounts RevenueChapter 10 Auditing Revenue and Related Accounts Revenue
Concur Travel and Expense Management Expense Report PreparationConcur Travel and Expense Management Expense Report Preparation
Payroll and Expense Management Index Introduction Expense ManagementPayroll and Expense Management Index Introduction Expense Management
Travel and Expense Travel Authorizations Expense Reports CashTravel and Expense Travel Authorizations Expense Reports Cash
Concur Travel and Expense Management Approving Requests ExpenseConcur Travel and Expense Management Approving Requests Expense
Reimbursements Downloading the expense 365 app expense 365Reimbursements Downloading the expense 365 app expense 365
Verifying Expense Report Receipts Concept Verifying Expense ReportVerifying Expense Report Receipts Concept Verifying Expense Report
Expense Management Manual expense reports can be difficultExpense Management Manual expense reports can be difficult
Panther Soft Financials Travel Expense Agenda Travel ExpensePanther Soft Financials Travel Expense Agenda Travel Expense
Expense Transfers Purpose Review the payroll Expense TransferExpense Transfers Purpose Review the payroll Expense Transfer
Creating Journal Expense Reports Concept Creating Journal ExpenseCreating Journal Expense Reports Concept Creating Journal Expense
Operating Expense Solutions Delivered Expense Recovery Services EnergyOperating Expense Solutions Delivered Expense Recovery Services Energy
Viewing Expense Reports Concept Viewing Expense Reports ViewingViewing Expense Reports Concept Viewing Expense Reports Viewing
Entering Expense Issue Returns Concept Entering Expense IssueEntering Expense Issue Returns Concept Entering Expense Issue
Approving an Expense Report Concept Approving an ExpenseApproving an Expense Report Concept Approving an Expense
Deleting Expense Reports Concept Deleting Expense Reports DeletingDeleting Expense Reports Concept Deleting Expense Reports Deleting
Primary expense Secondary expense Primary expenses are highpriorityPrimary expense Secondary expense Primary expenses are highpriority
Adding a new expense Adding a new expenseAdding a new expense Adding a new expense
National accounts Environmental accounts Economywide Material Flow AccountsNational accounts Environmental accounts Economywide Material Flow Accounts