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under the equity portion of the equation because equity is common stock plus retained earnings and retained earnings are revenues minus expenses minus dividends. Expenses are considered temporary accounts in this equation, because at the end of the period, expense accounts are closed. Because expense accounts decrease the credit balance of owner's equity, expenses must be debited.
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To increase an expense account, it must be debited. To decrease an expense account, it must be credited. The normal expense account balance is a debit. In order to understand why expenses are debited, it is relevant to note the accounting equation, Assets = Liabilities + Equity. Expenses show up
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is the right to reimbursement of money spent by employees for work-related purposes. Some common expense accounts are Cost of sales, utilities expense, discount allowed, cleaning expense, depreciation expense, delivery expense, income tax expense, insurance expense, interest expense, advertising
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Contra accounts are accounts that are related, yet separate from its particular account. 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. Instead of crediting to decrease, it will be
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At the end of the year, expense accounts need to be closed, or zeroed out. 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. When expense accounts are closed, they close to another
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temporary account, known as Income
Summary. So, the expense accounts must be credited, and the Income Summary will be debited. The net loss or gain in this account transfers to Retained Earnings, which is a permanent account.
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expense, promotion expense, repairs expense, maintenance expense, rent expense, salaries and wages expense, transportation expense, supplies expense and refreshment expense.
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treated as income to the employee. Business expenses paid out of a nonaccountable plan are deductible from the employee's taxable income only as miscellaneous
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regulations. There must be a documented business purpose for the account. Spending from the account must be documentable, typically by means of
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Special rules govern certain types of business expenses, including rules for travel, entertainment, food, and gifts.
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Nelson, Stephen, L. "Close Out
Revenue and Expense Accounts in QuickBook 2012". John Wiley & Sons.
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credited to increase. An example of a contra expense account is
Purchase Returns and Allowances.
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Bluest, Kate. "Why Do Assets and
Expenses Both Have a Debit Balance?". Demand Media.
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to the employee; Where as money paid to an employee under an unaccountable plan
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Publication 463 (2008), Travel, Entertainment, Gift, and Car
Expenses
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for many employers, often to ensure funds are handled appropriately.
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Money paid to an employee under an accountable expense account
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Crosson, Belverd E. Needles, Marian Powers, Susan V. (2014).
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deal primarily with the United States and do not represent a
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Kieso, Paul D. Kimmel, Jerry J. Weygandt, Donald E. (2012).
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242:(7th rev. ed.). New York: John Wiley & Sons Inc.
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Expense accounts are also privately regulated by internal
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Austin
Community College. "Rules of Debits and Credits".
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Financial accounting Tools for business decision making
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The Most Common
Expense Account Abuses, BusinessWeek
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357:(12th ed.). Mason, OH: Cengage Learning.
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209:"5 Tales of Outrageous Expense Account Abuse"
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