Chapter 5 – The Expanded Owner’s Equity

5.1 Define Key terminology: • Revenue, Expenses, Drawings • Revenue Recognition Principle (Accounting Principles)

accrual basis of accounting

• Read 5.1 and answer review questions #1,2, 6, 9,10,11, 12, 18, p. 140 (t), p. 78 (w)

Liabilities Owner’s Equity= ++-

Credit (CR)

Debit Credit

Assets

+ -Debit (DR)

Owner’s Equity

CapitalDrawings

++Debit Credit

+Debit

+Credit

RevenueExpenses

Owner investment

$ earned from providing service or good

Owner withdrawal

Cost of operating business

5.2 The Income Statement

• (Record definition on back of handout) is a financial statement that summarizes the items of revenue & expenses to show a net income or net loss of a business for a given period of time (like a video)

Revenue Charter Flights 174,327$ Flying Lessons 78,604

Total Revenue 252,931$

Operating Expenses Advertising 503$ Bank Interest and Charges 2,756 Building Maintenance 1,102 Gasoline and Oil 60,962 Insurance Expense 1,746 Licences Expense 1,505 Light, Heat, and Water Expense 2,017 Miscellaneous Expense 312 Rent Expense 12,000 Repairs and Maintenance Expense 41,887 Telephone Expense 1,416 Wages 40,764

Total Expenses 166,970$

Net Income 85,961$

Basler Air ServiceIncome Statement

Year Ended December 31, 2012 1

Heading

2

Heading

3

All revenue accounts (alpha)

4

Heading

5

All expenses accounts (alpha)

6Net Income/ Net Loss

Time Period Concept (p.148)

•Accounting takes place over specific periods of time know as fiscal period (equal length when measuring financial progress, eg. 1 year)

Matching Principal (p.149)

• Each expense must be recorded in the same period as the revenue it helped earn in order to fairly calculate net income/ loss.

Chart of Accounts p. 139

• Is a list of ledger accounts and their numbers arranged in ledger order (A, L OE Capital, drawings, Revenue, Expense)

Assets No. Equity No. Bank 105 E.Boa, Capital 305A/R- H. Geroux 110 E. Boa, Drawings 310A/R- J. Magill 115A/R- E. Parsons 120 RevenueSupplies 125 Fees Earned 405Offi ce Equipment 130Automobile 135 Expenses

Advertising Expense 505Liabilities Car Expense 510Bank Loan 205 Rent Expense 515A/P- OK Supply 210 Sundry Expense 520A/P- Computer Outlet 215 Wages Expense 525

E. BOA, LLBChart of Accounts

100’

s Liq

uidi

ty20

0’s

300’s400’s

500’s

Try these Exercises!!

• Read 5.1 & answer review questions #1,2,6,9,10,11,18 p. 140 (t), p. 78 (w)• Ex. #1, 2, 3 p. 141-142 (t), p. 80-81 (w)