Temporary%20Accounts%20and%20Permanent%20Accounts

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 owners 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 revenue account is decreased on the debit side.
The normal balance for a revenue account is the
credit side.
Increase on the right side
Decrease on the left side
Revenue Account
Debit Side
Credit Side

-
Normal balance on 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 balance on 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 balance on the debit side
Normal Balance
5
Summary of Rules for Temporary Accounts
The balances in the Temporary Accounts are
transferred into the Owners Capital Account at
the end of each accounting period.
Owners Capital Account
Debit Side
Credit Side
-

Expense Account
Normal Balance
Debit Side
Credit Side

-
Revenue Account
Normal Balance
Debit Side
Credit Side

-
Normal Balance
Withdrawal Account
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 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
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 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
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 Beacons 75 fee
later .
Accounts affected are Advertising Expense and
Accounts Payable Beacon Advertising
1) Identify 2) Classify 3) Increase or
Decrease 4) Debit and Credit Rule 5) Do
Debits Equal Credits
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
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 are Accounts Receivable City
News and Delivery Revenue
1) Identify 2) Classify 3) Increase or
Decrease 4) Debit and Credit Rule 5) Do
Debits Equal Credits
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
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 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
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 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
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 are M. Sanchez, Withdrawals and
Cash in Bank
M. Sanchez, Withdrawals is an owners 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
Owners equity accounts are increased on the
debit side and asset accounts are decreased on
the credit side
Debits equal credits
M. Sanchez, Withdrawals
Cash in Bank

-
-



500 Debit
500 Credit
500
500
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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
25,000 (1)
75 (10)
(6) 350
12,000 (4)
400 (2)
11,650 Bal
75 Bal
25,400 Bal
1,200 (8)
(14) 500
(10) 75
1,450 (11)
Bal 500
Bal 75
2,650 Bal
(9) 700
(12) 125
(13) 600
Bal 125
Bal 600
Bal 700
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Testing for Equality of Debits Credits