BA 211 Chapter 1-1: “Accounting Equation”

AUDIO SPEAKER: Hey there. My name is Haitham Abdel-Hadi. I'' m your teacher for
this accounting training course. And also we will certainly begin chapter one. And also prior to we start phase
one, I would like to speak to you about, what does accounting suggest? What is the major
purpose of bookkeeping? The primary purpose in
bookkeeping is to keep documents of your accounting purchases. And after that when you maintain records
of audit purchases, generally you'' re going to use some accounts. So every single company would have a listing of accounts, 10, 15, 20 accounts. It relies on the company. And after that they'' re mosting likely to use those represent mirroring and also videotaping purchases. Normally, in each and also every purchase, you'' re mosting likely to utilize at
Now, let me describe what each one of those methods before we start videotaping transactions and reflecting them on this formula.
If they have a building, if they have an item of land, if they have an item of devices, anything they own, it has to have its own account. And it ' s going to be thought about an asset. And also it has to have a value.So we can not just say that, OK, there ' s an open tissue box
that the company owns. So if you try to market that, you are probably not going to obtain money back
for that. Yet if you have a piece of tools or a land or a building, clearly, you can still offer it as well as get some money back for that. So this will certainly be considered a property. It has to be owned by the firm, and also it has to have some value. That ' s an asset. The various other side of the formula, liabilities as well as investors' ' equity. Obligations', it ' s' the financial institutions '. or the loan providers ' insurance claim against the property. In various other words, liabilities,. it ' s what
we owe'to the lending institutions

or to the lenders.

The stockholders ' equity, it ' s the.
owner ' s claims against the assets.So if you add what the shareholders. can claim against the possession plus what the loan providers can.
case against the properties, that will be the assets.
If a business does not. have any kind of responsibility in any way, the possessions will equate to.
That ' s the very same principle. If I owe $4,000 out of the. $10,000
, if I sold offered for $ 10,000, that ' s the assetProperty
I need to repay. $ 4,000 to'the bank, and after that I come back, as. a shareholder, $ 6,000. The $ 6,000 plus $ 4,000. equates to the $ 10,000, which is the car, which is the property. Now, returning to. firms, let ' s look what every one of.
those, what accounts– or in fact, we ' re going to take.
some instances on some accounts that drop under every one of these. categories, we call them.So properties.
Certainly, money,. it ' s the primary account that falls under the possessions. It can be money in the financial institution.
or cash money– mobile cash money. The various other very common account.
that practically every business has is devices. The various other account is,.
let ' s state, Products. And after that when I state materials below,. I ' m discussing the materials that we
acquired, but. We did not utilize them. We still have them secured.
That suggests they still. have some worth in them. Remember, once'you utilize them, they ' re. not mosting likely to have value in them any longer, so we ' re not going to. consider them as assets anymore. They have actually to be transferred. to a different place.
Prior to you start making use of. them, when they still have some value, some. holding value in them, we will certainly consider them properties.

If it is'a product business,. they will certainly have inventory.So that ' s exactly how they make company. They buy inventory, it comes to be.
among their belongings, and after that they sell them. eventually for making cash from. We can state Structure, Land.
Possibly not every company. We consider prepaid accounts,.
example, Prepaid Rent. As well as that is considered a possession,.
Or perhaps you paid it at the.
start of the period, so the period is not over yet.You did not start utilizing. That place with that quantity that you paid. So it'' s like transferring.
money in the financial institution. It'' s not in the financial institution, but.
it'' s with the property owner, however then you will start. eating that amount gradually. At least from the.
accounting perspective, it'' s still taken into consideration. part of our possessions, due to the fact that it ' s money that. Still belongs to us, and we did not eat it. Currently, later on, once you.
consume it, then it'' s not mosting likely to proceed.
being an asset any longer. We need to take it away from property. The various other account is.
Accounts Receivable, it'' s
the. It'' s us.
If we offer a. service, for example, if we
supply a. service to a consumer, and afterwards we
finish. supplying the service, we'' re made with
the. service, that indicates it ' s formally becoming a profits. Which'' s an additional account. that we ' ll speak about soon.So because that service. was supplied and also is done, the amount owed by. the client to us comes to be officially.
one of our properties. The method just how I describe it to.
people, a minimum of my method, simply to make it much more clear, it'' s. like money in somebody ' s pocket that belongs to us currently, OK? This is taken into consideration.
accounts receivable. Accounts receivable, it'' s. the cash money that will certainly be gotten. It will be. You can press, at.
least in your head, you can squeeze the words “” will certainly be.”” It'' s cash money that is not yet with us. It will certainly be can be found in.
future from the customers. So we are currently thinking about.
that amount component of our assets.So once you

add all these.
accounts– so every one of them, we call it an account. Once you include them up, you.
get the complete properties, OK? Those are examples on properties. Allow'' s chat concerning the liabilities. Once again, responsibilities, it'' s
any. quantity that we owe to someone. One of the most important account.
under the obligations, it'' s called Accounts Payable.
As well as it ' s called Accounts. Payable, due to the fact that it means that there ' s a. specific amount that we will pay to

someone'in future, OK? We will certainly pay it.So that ' s why we call it payable.
There ' s one more example. It ' s recorded.
Typically, in some cases. we bill the– so we get billed rate of interest ahead.
of that quantity that we owe. In Accounts Payable,.
We'put on ' t pay interest, typically. We don'' t indicator documentation,. There'' s likewise Financing Payable.
call Built up Responsibilities. As well as what that indicates is if.
we have any type of, for instance, energies, any utility bill that.
comes to be due, it has been built up. Accrued suggests it'' s due for payment. It'' s formally cash we owe for.
That indicates it'' s going
to. We can also state Utilities.
That account is called. Unearned Income, since when a person.

we are going to supply them a service in future, and also he.
pays us money beforehand, as soon as we get that cash, we.
end up being reliant supply a service to that consumer.
at some point in future. That quantity ends up being.
a responsibility up until we provide a solution to that client. In the meantime,.
in between the day we get the cash up until we supply.
the solution to the consumer, that quantity will certainly be considered a.
responsibility under Unearned Profits. Stockholders' ' Equity. We ' ve got Ordinary shares.
So when a firm issues stock,. that suggests they will elevate money. They will certainly raise fund from supplies.
They will certainly provide stocks. to the shareholders, and they will certainly obtain cash from them.
The shareholders will.
become one of the proprietors, and also they will certainly

come to be part of.
the possession in the company.And the amount of money we. obtain from those stockholders goes to'ordinary shares.
There ' s additionally Maintained. Revenues account, which I will describe.
in my following video clips, since it has as well many.
points included in it. There'' s likewise– we will speak
. regarding the income as well as expenditures. Profits, it'' s the cash money. being available in from– it'' s the worth of the solution or the. stock we offer to clients or the worth of the service. we provide to clients. That quantity comes to be profits,.
because that'' s what we will anticipate from them to be paid to us. And also it does mirror on.
Stockholders ' Equity accounts, yet it mirrors on. Revenue, it mirrors positively. Extra income will certainly mirror.
on more stockholders' ' equity.
And afterwards, also,. Expenses as well as Rewards.
Expenses, it ' s anything we pay. for running business.
So for instance, incomes expense,. energies expense, marketing, tax obligation expense, all those are expenses.
That means we pay that amount. for running the company. It'' s for running the organization. It ' s not like paying cash'.
for acquiring equipment, because there ' s a. holding worth there.
But when you pay cash money for energies. or salaries or rent or insurance policy, this is cash gone,.
as well as the value is gone. It'' s not going to.
We consider that a cost, OK? Rewards, it'' s the part of.
section of the earnings that earns money to the shareholders, that.
part is thought about a reward. That amount is rewards, OK? Incomes will certainly mirror favorably.
on the shareholders' ' equity, and returns and expenditures. will show adversely on stockholder equity. As well as after that I neglected to point out.
right here that as soon as you add up all those responsibilities,.
you obtain Complete Liabilities. And afterwards right here, whenever.
you add ordinary shares and also add the retained.
profits, it'' s actually going to integrate incomes.
and also expenses and returns all in one account. And also that'' s what we will.
clarify in the complying with video. As soon as you have all.
those built up, you will certainly obtain Complete Stockholders' ' Equity. That was the very first.
video for phase one. That'' s just the part one. We will speak about part.
2 in the next video clip.

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