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statement, the balances in the temporary accounts will end up in a permanent account such as a corporation’s retained earnings account or in a sole proprietor’s capital account. (In a manual system, the balances in...

What is a sole proprietorship? Author: Harold Averkamp, CPA, MBA Definition of Sole Proprietorship A sole proprietorship is a form of business organization that is owned by one person and is easy to start. The owner is...

the warehouse. 7. A sole proprietor's compensation will be included in the income statement account Salaries Expense. True Wrong. A sole proprietor's compensation will not be included in Salaries Expense. Any...

The next best benefit foregone. The opportunity lost. Often measured as the contribution margin given up by not doing an activity. For example, if a sole proprietor is foregoing a salary and benefits of $50,000 at...

Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...

-account. Examples of Accounts with Debit Balances The following general ledger account classifications normally have debit balances: Asset accounts Expense accounts Loss accounts (Loss on Sale of Plant Asset, Loss from...

The contra owner’s equity account used to record the current year’s withdrawals of business assets by the sole proprietor for personal use. This is a temporary account with a debit balance. It will be closed...

An accounting principle/guideline that allows the accountant to keep the sole proprietor’s business transactions separate from the owner’s personal transactions even though a sole proprietorship is not...

Revenues. The credit balance in Service Revenues will eventually be moved to the sole proprietor’s capital account or to a corporation’s Retained Earnings account (thereby increasing the credit balance in one of...

Accounts that are closed at the end of each accounting year. Included are the income statement accounts (revenues, expenses, gains, losses), summary accounts (such as income summary), and a sole proprietor’s...

This contra owner’s equity account has a debit balance that represents the current year draws made by the sole proprietor, R. Smith. After the year’s financial statements have been prepared, the balance in...

An owner’s equity account that reports the amount the sole proprietor invested in the company plus earnings of the company not withdrawn by the owner.

The owner’s equity account that reports the amount invested in the sole proprietorship owned by Tony Mandella plus the cumulative amount of net income minus the cumulative amount of the sole proprietor’s...

, general and administrative expenses interest expense How an Expense Affects the Balance Sheet An expense will decrease a corporation’s retained earnings (which is part of stockholders’ equity) or will decrease a...

of stockholders’ equity. They are somewhat similar to the sole proprietor’s Drawing account and Capital account which are part of owner’s equity. Both the Dividends account and the Drawing account are temporary...

account, Depreciation Expense will begin each accounting year with a zero balance and will have its balance at the end of the year closed to an equity account such as a corporation’s retained earnings or a...

, Drawing J. Lee, Drawing, which is a temporary account that records the proprietor’s draws during the year. At the end of the year, the account’s debit balance will be closed to owner’s capital account A...

to Retained Earnings or to the proprietor’s capital account at the end of each accounting year.) Contra-revenue accounts including Sales Discounts, Sales Returns, etc. (The debit balances in these accounts allow for...

capital account. Income Statement: Retail/Whsle – Corporation, Multiple-Step Income Statement: Retail/Whsle – Sole Proprietor, Multiple-Step Join PRO to Track Progress Mark the Question as Read Must-Watch...

Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...

Wrong. No Effect Wrong. Liabilities Increase Wrong. Liabilities are not involved in this transaction. Decrease Wrong. Liabilities are not involved in this transaction. No Effect Right! Liabilities are not involved in...

Our Explanation of Accounting Principles provides you with clear and concise descriptions of the basic underlying guidelines of accounting. You will see how the accounting principles affect the balance sheet and income...

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Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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