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.

Rules for Revenue Accounts

A revenue account is increased on the credit side.

A revenue account is decreased on the debit side.

The normal balance for a revenue account is the credit side.

Revenue Account

Debit Side Credit Side

+-NormalBalance

Increase on the rightside

Decrease on the

leftside

Normal balance on the creditside

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.

Expense Account

Debit Side Credit Side

NormalBalance

+ -

Increase on the

leftside

Decrease on the rightside

Normal balance on the debit

side

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.

Withdrawal Account

Debit Side Credit Side

NormalBalance

+ -

Increase on the

leftside

Decrease on the rightside

Normal balance on the debit

side

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+-

Normal BalanceRevenue Account

Debit Side Credit Side+-

Normal Balance

Expense AccountDebit Side Credit Side

+ -Normal Balance

Withdrawal AccountDebit Side Credit Side

+ -Normal Balance

Revenue TransactionsBusiness Transaction 8

1) Identify

2) Classify

3) Increase or Decrease

4) Debit and Credit Rule

5) Do Debits Equal Credits

Accounts affected are Cash in Bank and Delivery Revenue

Cash in Bank is an asset account and Delivery Revenue is a revenue account

Cash in Bank is increased by $1,200 and Delivery Revenue is increased by $1,200

Asset accounts are increased on the debit side and revenue accounts are increased on the credit side

Cash in Bank

+ -1,200

Delivery Revenue

+-1,200

1,200Debit = 1,200

Credit

Debits equal credits

Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services.

Expense TransactionsBusiness Transaction 9

1) Identify

2) Classify

3) Increase or Decrease

4) Debit and Credit Rule

5) Do Debits Equal Credits

Accounts affected are Rent Expense and Cash in Bank

Rent Expense is an expense account and Cash in Bank is an asset account

Rent Expense is increased by $700 and Cash in Bank is decreased by $700

Expense accounts are increased on the debit side and asset accounts are decreased on the credit side

Rent Expense

+ -700

Cash in Bank

-+700

700Debit = 700

Credit

Debits equal credits

Roadrunner wrote a check for $700 to pay the rent for the month .

Credit Expense TransactionsBusiness Transaction 10

1) Identify

2) Classify

3) Increase or Decrease

4) Debit and Credit Rule

5) Do Debits Equal Credits

Accounts affected are Advertising Expense and Accounts Payable – Beacon Advertising

Advertising Expense is an expense account and Accounts Payable – Beacon Advertising is a liability account

Advertising Expense is increased by $75 and Accounts Payable – Beacon Advertising is increased by $75

Expense accounts are increased on the debit side and liability accounts are increased on the credit side

Advertising Expense

+ -75

Accounts PayableBeacon Advertising

+-75

75Debit = 75

Credit

Debits equal credits

Beacon Advertising prepared an advertisement for Roadrunner. Roadrunner will pay Beacon’s $75 fee later .

Credit Revenue TransactionsBusiness Transaction 11

1) Identify

2) Classify

3) Increase or Decrease

4) Debit and Credit Rule

5) Do Debits Equal Credits

Accounts affected are Accounts Receivable – City News and Delivery Revenue

Accounts Receivable – City News is an asset account and Delivery Revenue is a revenue account Accounts Receivable – City News is increased by $1,450 and Delivery Revenue is increased by $1,450

Asset accounts are increased on the debit side and revenue accounts are increased on the credit side

Accounts Receivable – City

News+ -1,450

Delivery Revenue

+-1,450

1,450Debit = 1,450

Credit

Debits equal credits

Roadrunner billed City News $1,450 for delivery services.

More Expense TransactionsBusiness Transaction 12

1) Identify

2) Classify

3) Increase or Decrease

4) Debit and Credit Rule

5) Do Debits Equal Credits

Accounts affected are Utilities Expense and Cash in Bank

Utilities Expense is an expense account and Cash in Bank is an asset account

Utilities Expense is increased by $125 and Cash in Bank is decreased by $125

Expense accounts are increased on the debit side and asset accounts are decreased on the credit side

Utilities Expense

+ -125

Cash in Bank

-+125

125Debit = 125

Credit

Debits equal credits

Roadrunner paid a $125 telephone bill with check 104 .

Even More Expense TransactionsBusiness Transaction 13

1) Identify

2) Classify

3) Increase or Decrease

4) Debit and Credit Rule

5) Do Debits Equal Credits

Accounts affected are Maintenance Expense and Cash in Bank

Maintenance Expense is an expense account and Cash in Bank is an asset account

Maintenance Expense is increased by $600 and Cash in Bank is decreased by $600

Expense accounts are increased on the debit side and asset accounts are decreased on the credit side

Maintenance Expense

+ -600

Cash in Bank

-+600

600Debit = 600

Credit

Debits equal credits

Roadrunner wrote check 105 for $600 to have the office repainted .

Withdrawal TransactionsBusiness Transaction 14

1) Identify

2) Classify

3) Increase or Decrease

4) Debit and Credit Rule

5) Do Debits Equal Credits

Accounts affected are M. Sanchez, Withdrawals and Cash in Bank

M. Sanchez, Withdrawals is an owner’s equity account and Cash in Bank is an asset account

M. Sanchez, Withdrawals is increased by $500 and Cash in Bank is decreased by $500

Owner’s equity accounts are increased on the debit side and asset accounts are decreased on the credit side

M. Sanchez, Withdrawals

+ -500

Cash in Bank

-+500

500Debit = 500

Credit

Debits equal credits

Maria Sanchez wrote check 106 to withdraw $500 cash for personal use .

Cash in Bank Accts Rec - City News Accts Rec - Green Co

Computer Equipment Offi ce Equipment Delivery Equipment

Maintenance Expense Rent Expense Utilities Expense

Accts Pay - Beacon Accts Pay - Nth Shore M. Sanchez, Capital

M. Sanchez, W/ Drawal Delivery Revenue Advertising Expense

(1) 25,000

25,000 (1)

(2) 400

400 (2)

(7) 200(8) 1,200

3,000 (3) 350 (6) 700 (9) 125 (12) 600 (13)

(11) 1,450 (5) 200 200 (7)

(3) 3,000 200 (5)

(4) 12,000

75 (10) (6) 350 12,000 (4)

1,200 (8) 1,450 (11)

(10) 75

(13) 600 (9) 700 (12) 125

(14) 500

500 (14)Bal

21,125

Bal 1,450

Bal -----

Bal 3,000

Bal 200

Bal 12,000

75 Bal

11,650 Bal 25,400

Bal

Bal 500 2,650 Bal

Bal 75

Bal 600

Bal 700

Bal 125

Testing for Equality of Debits & Credits Debits Credits

101 Cash in Bank 21,125$

105 Accts Rec - City News 1,450

110 Accts Rec - Green Company

115 Computer Equipment 3,000

120 Offi ce Equiment 200

125 Delivery Equipment 12,000

201 Acts Pay - Beacon Advertising 75$

205 Accts Pay - North Shore Auto 11,650

301 M. Sanchez, Capital 25,400

302 M. Sanchez, Withdrawals 500

303 I ncome Summary

401 Delivery Revenue 2,650

501 Advertising Expense 75

505 Maintenance Expense 600

510 Rent Expense 700

515 Utilities Expense 125

39,775$ $39,775

Account Name