4. Match these words with their meanings

Contra-accounts, Equity accounts, Expense accounts, Asset accounts, Liability accounts, Revenue accounts or income

Types of accounts

	represent the different types of economic resources owned or controlled by business, common examples of these accounts are cash, cash in bank, building, inventory, prepaid rent, goodwill, accounts receivable
	represent the different types of economic obligations by a business, such as accounts payable, bank loan, bonds payable, accrued interest
	represent the residual equity of a business (after deducting from Assets all the liabilities) including Retained Earnings and Appropriations
	represent the company's gross earnings and common examples include Sales, Service revenue and Interest Income
	represent the company's expenditures to enable itself to operate. Common examples are electricity and water, rentals, depreciation, doubtful accounts, interest, insurance.
	Some balance sheet items have corresponding contra accounts, with negative balances, that offset them. Examples are accumulated depreciation against equipment, and allowance for bad debts against long-term notes receivable.

5. Complete the following sentences

Revenues and gains are recorded in accounts such as Sales, Service Revenues, Interest Revenues (or Interest Income), and Gain on Sale of Assets. These accounts normally have _____ balances that are increased with a _____ entry.

The exceptions to this rule are the accounts Sales Returns, Sales Allowances, and Sales Discounts - these accounts have _________ balances because they are reductions to sales. Accounts with balances that are the opposite of the normal balance are called contra accounts; hence contra revenue accounts will have ______ balances.

Expenses normally have their account balances on the _______ side (____ side). A debit _________ the balance in an expense account; a credit _________ the balance. Since expenses are usually increasing, think "_______" when expenses are incurred. (We credit expenses only to reduce them, adjust them, or to _______ the expense accounts.) Examples of expense accounts include Salaries Expense, Wages Expense, Rent Expense, Supplies Expense, and Interest Expense.

Asset, liability, and most owner/stockholder equity _______ are referred to as «permanent accounts» (or «real accounts»). Permanent accounts are not closed at the end of the accounting year; their __________ are automatically carried forward to the next accounting year.

«Temporary accounts» (or «nominal accounts») include all of the revenue accounts, expense accounts, the owner drawing account, and the income summary account. Generally speaking, the balances in temporary accounts increase throughout the accounting year and are «zeroed out» and closed at the end of the accounting year.

Balances in the revenue and expense accounts are zeroed out by closing/transferring/clearing their balances to the Income Summary account. The net amount in Income Summary is then closed/transferred/cleared to an ___________________ account, such as Mary Smith, Capital (or to Retained Earnings if the company is a corporation). The owner drawing account (such as Mary Smith, Drawing) is a temporary account and it is closed directly to the ________ capital account (such as Mary Smith, Capital) without going through an income summary account.

Because the balances in the temporary accounts are transferred out of their respective accounts at the end of the accounting year, each temporary account will have a _______ balance when the next accounting year begins. This means that the new accounting year starts with no revenue amounts, no expense amounts, and no amount in the drawing account.

By using many revenue accounts and a huge number of expense accounts, a company is certain to have easy access to detailed information on revenues and expenses throughout the year. This allows the management of the company to monitor the performance of all parts of the company. Once the accounting year has ended, the need to know the balances in these temporary accounts has also ended, so the accounts are closed out and reopened for the next accounting year with ______ balances.