CHAPTER FOUR

REVENUE AND
EXPENSE
ACCOUNTS
 4-3

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.
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Recording Revenue

• The increase in the owner’s

equity that results from revenue
is recorded in a separate
revenue account.

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Recording Expenses

• Separate expense accounts

should be used to record costs
of doing business.

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Recording the Owner’s

Withdrawals

•The owner of a business may use

cash or other assets personally.
This is recorded in the withdrawal
account.

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The Rules of Debit and Credit

Assets
•Balance side is debit side
•Increase side is debit side
•Decrease side is credit side

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The Rules of Debit and Credit

(continued)

Liabilities
•Balance side is credit side
•Increase side is credit side
•Decrease side is debit side

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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

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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
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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
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Transaction

• Rebecca Van Lieu tested and

screened job applicants for $800 on
credit for a client, Donald Lynch.

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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.
Account Debit Credit
Accounts Receivable 800
Revenue 800
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Transaction

• Rebecca Van Lieu received $400 on

account from Donald Lynch.

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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.

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Transaction Analysis (continued)

Account Debit Credit

Cash 400
Accounts Receivable 400

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Transaction

• Rebecca Van Lieu withdrew $500 in

cash from her business for her
personal use.

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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
Account Debit Credit
Rebecca Van Lieu, Withdraw als 500
Cash 500

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 4-19

Accounting Terminology

•Owner’s equity accounts

•Withdrawals

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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.

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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.

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Chapter Summary (continued)

• Withdrawals are subtracted from the

net income to show the net increase
or decrease in the owner’s equity.

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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

TRUE
is the debit side.

3. If withdrawals exceed net income,

FALSE
the owner’s equity is increased.

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 4-24

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.
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1. The balance side of a revenue account is the

debit side.

FALSE
The balance side of a revenue
account is the credit side.

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 4-26

3. If withdrawals exceed net income,

the owner’s equity is increased.

FALSE
The owner’s equity is
decreased.

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