Watch the video below about the expanded accounting equation.
- Watch the video Expanded Accounting Equation.
- You can turn on the captions by click on the "CC" button on the bottom-right of the screen.
- Owner's Equity can be subdivided into four elements: capital, revenue, expenses, and drawingSame as withdrawals.
- Revenue and capital increase owner's equity; withdrawals and expenses both decrease owner's equity. A withdrawal is not a business expense; it is the owner's taking something out of the business for personal use.
- Revenue is money coming in and will create an increase in assets. Expenses will cause an outflow of money resulting in a decrease in assets.
- Permanent accounts continue from one accounting period to the next; temporary accounts accumulate amounts for one accounting period only.
- Temporary accounts start each new accounting period with a zero balance. As you will learn later, their balances will be closed into the Capital account at the end of the accounting period.
- Can you name the permanent account categoriesAssets, Liabilities, Capital?
- Can you name the temporary accountsRenenue, Expense, Drawing which is also called Withdrawals?