Now here is the part 2 of my bookkeeping tutorials. I will be discussing the Income and Expense accounts. Income is the revenue that a business earns from selling of goods and services. Increase in Income or Revenue - Credit while decrease in Income is Debit. On the other hand, Expense is a cost of an asset used by a business to produce income. It is also created not only when cash is paid but also when an asset is used up (in case of depreciation). Expense is a contra account with debit balance.
Income and Expense are Income Statement accounts. Income Statement is also known as Profit and Loss statement / Statement of Revenue and Expense, it is a financial statement that reports the company's financial performance or results of operations for over an accounting period.
Important Equation:
Revenue - Expenses = Net Income / (Net Loss)
Example 1: Sold merchandise at P100,000.00, 50% cash and balance on account.
Journal entry:
Cash (Debit) P250,000.00
Accounts receivable (Debit) 250,000.00
Sales (Credit) P500,000.00
Example 2: Defective merchandise sold for cash P10,000.00 returned.
Journal entry:
Sales returns (Debit) P10,000.00
Cash (Credit) P10,000.00
Example 3: Paid Meralco - electric bill P7,000.00
Journal entry:
Light and water (Debit) P7,000.00
Cash (Credit) P7,000.00
Example 4: Depreciation of van costing P500,000.00 with the estimated useful life of 10 years with salvage value of P20,000.00. Van was purchased January 1, 2xxx.
Journal entry:
Depreciation expense (Debit) P48,000.00
Accumulated depreciation-van (Credit) P48,000.00
How to compute the Depreciation:
Sample Income Statement:
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