The Accounting Equation Expanded:
Revenue, Expenses, and Withdrawals
Revenue
— Amount earned by performing services or selling goods to customers
— Increases Owner's equity
— Recorded when earned
• Assets increase
— Cash if the client pays right away
— Accounts receivable • client promises to pay in the future
• Expenses
— Cost incurred in its efforts to create revenue
— Decreases owner's equity
— Recorded when incurred
— Paid in cash or can be charged
• Withdrawals
— Cash or other assets removed from the business to pay personal expenses
— Decreases owner's equity
— Not related to the business
— Not an expense