Revenue: which are related to the sale of goods or services. (an increasing in equity resulting from the sale of goods or services)
Expenses: which are the costs related to the revenues.
Drawing: which are the owner’s withdrawals for personal use.
Purpose of expanding the system:
-The new accounts in the equity section of the ledger have one main purpose.
-Provide essential information about the progress of the business.
-Information need by managers and owners to see if the business is being run profitably and make decision.
Trail Balance: Shows the assets and the claims on the assets end of the time and it didn’t show about another time.( can not provide the information that the owners want)
Shows in a details way whether the business is profitable or not.
New equity is organized to show the net income (or net loss) of the business for a given time.
Ledger work with has single equity account- the capital account. (Record any changes equity)-(not provide sufficient)
* Transaction increases both bank and equity.
1. Revenue represents an increasing in equity.
2. An increase in equity requires a credit entry.
3. The feeds earned are credited.
(Total feeds earned for the fiscal period to date)-(one revenue account)
GAAP-The revenue recognition convention
* States that revenue must be recorded in the accounts (recognized) at the time the transaction in completed. * Recording revenue when the bill for it is sent to the customer. * It is important to take revenue into the accounts correctly.
Presents a decrease in equity resulting from the costs of producing the revenue. * Represent a decrease in equity.
* Decrease in equity as the debits entry
(Not all the expenditures for expenses)
Net income and Net loss
* Net income: the different between the total revenues and the expense, that the revenue grater than expense. * Net loss:...
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