Talk:Expense account
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Some common expense accounts are: administrative expense, amortization expense, bad debt expense, cost of goods sold, depreciation expense, freight-out, income tax expense, insurance expense, interest expense, loss on disposal of plant assets, maintenance and repairs expense, rent expense, salaries and wages expense, selling expense, supplies expense and utilities expense.[1]
Normal Balance
To increase an expense account, it must be debited. [2] To decrease an expense account, it must be credited. [2] The normal expense account balance is a debit. [2] In order to understand why expenses are debited, it is relevant to note the accounting equation, Assets = Liabilities + Equity. [3] Expenses show up under the equity portion of the equation because equity is common stock plus retained earnings and retained earnings are revenues minus expenses minus dividends. [1] Expenses are considered temporary accounts in this equation, because at the end of the period, expense accounts are closed. [3] Because expense accounts decrease the credit balance of owner’s equity, expenses must be debited. [4]
Closing Expense Accounts
At the end of the year, expense accounts need to be closed, or zeroed out.[5] Expense accounts need to be closed because they are temporary, meaning that they pertain only to a given accounting period and won’t carry over into the next one. [1] When expense accounts are closed, they close to another temporary account, known as Income Summary. [1] So, the expense accounts must be credited, and the Income Summary will be debited. [1] [5] The net loss or gain in this account transfers to Retained Earnings, which is a permanent account. [3]
Contra Expense Accounts
Contra accounts are accounts that are related, yet separate from its particular account. [6] A contra expense account will behave in the opposite way a normal expense account will; instead of debiting to increase, a contra account must credit to increase. [6] Instead of crediting to decrease, it will be credited to increase. [6] An example of a contra expense account is Purchase Returns and Allowances. [3] Gina at Stockton College (talk) 13:14, 19 April 2014 (UTC)
References
- ^ a b c d e Kieso, Paul D. Kimmel, Jerry J. Weygandt, Donald E. (2012). Financial accounting Tools for business decision making (7th rev. ed. ed.). New York: John Wiley & Sons Inc. ISBN 9781118162286.
{{cite book}}:|edition=has extra text (help)CS1 maint: multiple names: authors list (link) - ^ a b c Austin Community College. "Rules of Debits and Credits".
{{cite web}}:|access-date=requires|url=(help); Missing or empty|url=(help) - ^ a b c d Bluest, Kate. "Why Do Assets and Expenses Both Have a Debit Balance?". Demand Media.
{{cite web}}:|access-date=requires|url=(help); Missing or empty|url=(help) - ^ Crosson, Belverd E. Needles, Marian Powers, Susan V. (2014). Principles of accounting (12th ed. ed.). Mason, OH: Cengage Learning. ISBN 978-1-133-62698-5.
{{cite book}}:|edition=has extra text (help)CS1 maint: multiple names: authors list (link) - ^ a b Nelson, Stephen, L. "Close Out Revenue and Expense Accounts in QuickBook 2012". John Wiley & Sons.
{{cite web}}:|access-date=requires|url=(help); Missing or empty|url=(help)CS1 maint: multiple names: authors list (link) - ^ a b c Kimmel, Paul, D. John Wiley & Sons http://www.wiley.com/legacy/products/worldwide/canada/kimmel/student/s_faq_04.html. Retrieved 8 April 2014.
{{cite web}}: Missing or empty|title=(help)CS1 maint: multiple names: authors list (link)