How do revenues and expenses fit into the accounting equation? Revenues minus expenses equals net income, and net income is a significant source of change in owner's equity from one accounting period to the next. So revenues and expenses, then, may be thought of as temporary subdivisions of owner's equity.
- Now at this point, we must bring revenues…and expenses into the picture.…Obviously, they're going to be a part…of every ongoing business.…Recall from our discussion of the income statement…that resources provide resource inflows.…They are increases in resources…from the sale of goods or services.…Expenses represent resource outflows,…they are costs incurred in generating revenues.…Note that revenues are not synonymous with cash…or other assets, but are a way of describing…where the assets came from.…
For example, cash received from the sale…of a product is recorded as the asset Cash,…but the source of the asset would be considered revenue.…In contrast, cash received by borrowing…from the bank would not be revenue,…but an increase and a liability.…By the same token, expenses are a way…of describing how an asset has been used.…Thus, cash paid for interest on a loan is an expense,…but cash paid to buy a building represents…the exchange of one asset for another.…So, how do revenues and expenses fit…into the accounting equation?…
- Reviewing financial statements
- Analyzing transactions
- Categorizing transactions
- Obtaining financing and buying equipment
- How revenue and expenses fit in the accounting equation
- Recording the sale of goods or services
- Posting journal entries to accounts
- The accounting cycle: step by step
Skill Level Beginner
1. Review of the Financial Statements
2. Fours Steps in the Bookkeeping Process
3. How Transactions Affect the Accounting Equation
4. The General Ledger
5. Illustration of the First Three Steps in the Accounting Cycle
The role of computers3m 44s
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