expanded ledger

equity until now...

multiple accounts in equity going forward

Revenue

expenses

drawings

income statement

shows detailed whether business

new equity shows

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until now equity was just

but this doesn't provide enough information

Revenue

Revenue is an increase in equity resulting from the sale of goods or services in the usual course of business

how to show this as a transaction?

BEFORE WE WOULD JUST DEBIT BANK

now we have to credit fees earned

tHINK ABOUT IT THIS WAY...

• Revenue means an increase in equity
• An increase in equity requires a credit entry
• So, the Fees Earned account it credited 

Revenue recognition convention

States that revenue must be recorded in the accounts (recognized) at the time the transaction is completed.

record revenue when

not always so easy...

expense

Expenses are the costs associated with producing revenue - rent, wages, utilities, advertising, etc.

decrease in equity

both bank and equity have to drop

Think about it this way...

• Expense represents a decrease in equity
• A decrease in equity requires a debit entry
• So, the Wages Expense account is debited 

typical expense accounts include...

not all expenditures are for expenses..

net income or net loss

Net income is the difference between the total revenues and total expenses, where revenues are greater than expenses. If expenses are greater than revenues, net loss.

drawings

Withdrawal of funds by the owner for personal use. Represents a decrease of equity.

drawings are not expenses!

cash is most common item withdrawn

owner can buy something for personal use

convenient, special deal for business, etc

regardless, debit to drawings

4 types of accounts in equity

• Capital
• Revenue
• Expenses
• Drawings