Chpt 5.1 – Expanded Ledger

Take a look at the T-Account for Capital that shows all the transactions for the month of January. How much revenue did the company earn in January?How much did the owner withdraw for his personal use?What was spent on expenses?

Chapter 5 – Revenue, Expenses & Drawings (RED)

To date we have used Owner’s Equity to record revenue, expenses and the owner’s withdrawals.

Now _______, ________& ________(owner’s salary) will have their own t-account and will __________________________.

Revenue, Expenses & Drawings

Revenue – amounts related to the ______of ________________.

Expenses – ______related to earning revenue (utilities, advertising, car repairs, wages)

Drawings – __________________for personal use (owner’s salary)

A list of Accounts

Assets Liabilities Owner’s Equity

Bank

Accts Receiv.

Equipment

Supplies

Automobile

Building

Land

Accts Payable

Bank Loan

Mortgage

Capital

___________

Revenue ___________

Expenses__________

___________

___________

___________

By having separate accounts for revenue, expenses and drawings, we can answer those questions.

•How much revenue did the company earn in January?

•How much did the owner withdraw for his personal use?

•What was spent on expenses?

Figure 5.3: Expanded Equity Section on Trial Balance

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Accounting for Revenue

Revenue is earned when a service is prepared or when goods are sold.

Think along these lines: ___________is an _______________

An increase in equity requires a _________ Therefore the _________(fees earned

account) is ___________.

Accounting for Expenses

____________are the _________associated with producing revenue. It includes such things as __________________________________.

Think along these lines: ___________represent a ________________.

A decrease in equity requires a __________ Therefore __________________.

Accounting for Drawings

Drawings – this is the _______________. If the business is profitable than the owner can take money out of the business for their personal use which is called drawings.

This represents a __________in __________ therefore when a drawing occurs the account is ___________.

** Drawings have _______________________or net loss and do not appear on the income statement.

Summary

Revenue Expense Drawings

Credit - CR side

Debit – DR side

Increase in revenue

Increase in Expense

Increase in Drawings

Debit – DR side

Equity Summary

Now there are 4 types of accounts in the equity section:

1. Capital – it will have a ____________and the ________________that will effect it will be when the _____________________________in the business.

2. __________– increase in equity therefore will have a __________ balance.

3. ________– decrease in equity therefore will have a ________balance.

4. ___________– decrease in equity therefore will have a _________balance.

Income Statement

A __________________that summarizes the items of revenue and expense, and shows that ________ or ________of a business, for a given fiscal period.

Example of an Income Statement

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Income Statement

Who uses an income statement??? Owners & Managers – how much ______is

their business making, are they reaching their ___________.

________– is the company making enough money in order to ________________.

Tax Authorities – _____________the business _____based on their __________.

Chart of Accounts

A chart of accounts is a ____________ accounts and their numbers arranged in ledger order.

Assets ……………………………... __________

Liabilities ………………………….. __________

Capital __________

Owner’s Equity Drawings

Revenue……….. __________

Expenses……….__________

Example of a Chart of Accounts