Question

Describe how debits and credits affect temporary owners' equity accounts.

Option 1: Temporary Equity
Option 2: Debit/Credit Impact
Option 3: Owners' Equity
Option 4: Financial Statements

Answer 1

Debits and credits affect temporary owners' equity accounts by increasing or decreasing revenues, expenses, gains, and losses.

Step-by-step explanation:

Temporary owners' equity accounts are affected by debits and credits. These accounts, also known as income statement accounts, include revenues, expenses, and gains and losses. Debits and credits impact these accounts in the following ways:

• Revenues and gains are increased by credits and decreased by debits.
• Expenses and losses are increased by debits and decreased by credits.

This means that when a business earns revenue or incurs expenses, it will record credits and debits accordingly to reflect the impact on the temporary owners' equity accounts.