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Principles of Debits and Credits Debit and Credit Tutorial for Income Statement Accounts Debit and Credit Income Statement Accounts Exercise	Now we are going to look at how to debit and credit income statement accounts. Remember that income statement accounts are revenue, cost of merchandise and expenses. Revenue is the money generated from sales of goods or services. Cost of merchandise is the goods we purchase to resell to our customers. Bromley's Formal Wear, a merchandising company, uses these account types when it buys dresses, shirts, bridal gowns, etc from its suppliers to be sold to its customers. Expenses are money spent to obtain that revenue. Examples of expenses are salary, insurance rent, utilities, etc. There are two kinds of income statments: One for a service business and the other for a merchandising business. The service business income statement has only the revenue and expenses accounts from the general ledger. The merchandisng income statement has a special section designed to show the cost of goods sold. If you look at the two scroll boxes below this one, you will see the service business one, Bromley's Tuxedo Rentals, on the left and the merchandising business income statement for Bromley's Formal Wear is on the right. To review from the last chapter: In its simplest form an account has only three elements: 1. A title, consisting of the name of a particular revenue or expense account 2. A left side, which is called the "debit side" 3. A right side, which is called the "credit side" This form of account is called a "T Account" because it resembles the letter"T" Title of Account ________________________________________________ Left or Debit Side | Right or Credit Side | | | | An amount recorded on the left or debit side of an account is called a "Debit" or a debit entry. An amount recorded on the right or credit side is called a "Credit" or a credit entry. Accountants use the words debit and credit as verbs. The act of recording an entry on the left-hand side of the account is called "debiting". The act of recording an entry on the right side of an account is called "crediting". If there are both debit and credit entries to an account, the balance in the account represents the difference between the two amounts. If the debit side has a greater number, then the account has a debit balance. If the credits are greater than the debits, then the account has a credit balance. All revenue accounts normally have credit balances. expenses have debit balances. Click on the link above called "Principles of Debits and Credits" and print it out. You will find this document invaluable when completing the tutorials and exercises. Click on the link above called "Debit and Credit Tutorial for Income Statement Accounts" When finished with the tutorial, click on the link for Debit and Credit Income Statement Accounts Exercise. Record your scores and show your instructor. Make sure that you answer the questions on this screen and record your answers on the sheet provided. If you are wondering why debiting and crediting is important, this will become clear in the next chapter on journalizing transactions. Every transaction must have a debit and a credit part and all accounts must be in balance so that the accounting equation always remains true (Assets - liabilities + stockholders' equity.)
Bromley's Tuxedo Rentals Income Statement For the period ending November 30 REVENUE Sales 118,328.00 Other Income Total Revenue 118,328.00 EXPENSES Salary Expense 83,328.00 Rent Expense 3,500.00 Repairs Expense 50.00 Alterations Expense 1,500.00 Dry Cleaning Expense 8,514.00 Advertising Expense 2,000.00 Supplies Expense 150.00 Depreciation Expense 3,268.12 Insurance Expense 750.00 Miscellaneous Expense 100.00 Payroll Taxes Expense 8,957.70 Legal And Accounting Utilities Expense 1,875.00 Bad Debts Expense Interest Expense 1,508.00 Delivery Expense Total Expenses 115,500.82 Net Profit 2,827.18	Bromley's Formal Wear Income Statement For the period ending November 30 REVENUE Sales Contract 132,241.53 Grand Opening 125,000.00 Total Revenue 257,241.53 COST OF MERCHANDISE SOLD Beginning Inventory 100,000.00 Purchases 148,065.71 Mdse Avail for Sale 248,065.71 Less End Inventory 97,064.94 Cost Of Goods Sold (257,241.53 X .587) = 151,000.77 Gross Profit 106,240.76 EXPENSES Salary Expense 83,328.00 Rent Expense 3,500.00 Repairs Expense 50.00 Alterations Expense 1,500.00 Advertising Expense 2,000.00 Supplies Expense 150.00 Depreciation Expense 491.12 Insurance Expense 750.00 Miscellaneous Expense 100.00 Payroll Taxes Expense 8,957.70 Legal And Accounting Utilities Expense 1,875.00 Bad Debts Expense Interest Expense 1,508.00 Delivery Expense Total Expenses 104,209.82 Net Profit 2,030.94
1. Income statement accounts are called? Assets, Liabilities Assets, Liabilities and Revenue Revenue, Cost of Merchandise, Expenses	2. Money generated from the sale of goods and services is called? Expense Revenue Liability
3. Money spent to produce revenue is called? Sales Gross Profit Expense	4. An amount recorded on the left side of an asset account is called? Debit Credit Expense