AUDIO SPEAKER 1: Hi, once more. We'' re continuing chapter one.
least 2 accounts in each and every purchase. It'' s constantly going to be a minimum of 2, two or more. So'we ' re going to have some examples. So let'' s say the business simply started the service,
they simply signed up the company, they'simply had their very own place. And afterwards they ' re going to
Increase cash money by providing stocks.So that would certainly be the
transaction to document. Now constantly believe, what are the two accounts that I require. And afterwards the second step is to remind on your own where every account is identified under the accounting equation. And afterwards determine if you'' re. mosting likely to increase that account or lower it.
There is constantly an. $100,000 money from issuing stocks, that implies we'' re going. Money is a possession.
investors' ' equity.
Cash money is going to. rise by'$ 100,000. Remember it ' s the company ' s cash money. It ' s not the owner ' s cash.It ' s the firm ' s money. So we, as accountants because. firm, from our perspective, our money is boosting by $100,000. And also on the other.
side of the formula, the ordinary shares is raising. by 100,000, too.
So under the possessions, we. understand that cash money is a possession. We will certainly say cash plus$ 100,000
. As well as then beyond of.
the formula, you will claim, we will state that typical stock.
Raises by$ 100,000. Constantly keep in mind something. extremely, extremely important.
That the equation has. to remain equal permanently. Regardless of how several deals. we ' re going to have, no issue how old the.
company is, the formula is always going to be equivalent. after tape-recording any type of deal.
That was the. one we just increased cash money. Now we have sufficient cash money. The next action we, allow
' s state, we ' re. going to purchase a tool for$ 20,000. And also let ' s state that we ' re. going to pay money for it, OK? So the two accounts'that. we ' re going to require below are devices, which is. mosting likely to enhance
by$ 20,000. The various other account is the cash money, which. is mosting likely to'decrease by $20,000. Because we ' re going to spend. the money as well as obtain tools. To tape-record that we ' re.
mosting likely to state money decline.
So it ' s a, which is. a minus by$ 20,000 and after that devices. boost by$ 20,000.
Currently the concern is, the. formula still equal? Well, it is, because. under the assets side you can plainly see that you. have a decrease of$ 20,000, along with a boost of.
$ 20,000 under the properties. It ' s still $100,000.
And also then I still have$ 100,000 on. the various other side of the equation, which keeps us well balanced.
OK, let ' s document one. much more transaction.
Allow ' s claim that we ' re going to buy. materials, which is an additional asset.But this moment we ' re not. going to pay cash money for it. We ' re mosting likely to purchase.
materials on account. Now when we claim on account or on. credit scores, on account'or on credit, it suggests the same thing. It means that we ' re.
not mosting likely to pay now. It suggests that we will pay in future.
Now remember, if you ' re going. to pay something in future for a quantity that is already. owed by you to a person, that comes to be accounts payable, which.
is among your liability accounts. So you are going to.
Bear in mind, we ' re going to have two. Materials, which is an asset.
And also let ' s say the. supplies deserve$ 1,000.
Just an instance. Due to the fact that we did, as well as then. not pay money for them, our money account is not. going to be impacted. We ' re going to have a liability.
account, which is accounts payable. And also after that typically we document. accounts payable like that.A reduce B
, accounts payable. That is also going to. increase by $1,000.
When payable goes up by, since.
$1,000 it indicates that what we owe is being enhanced from absolutely no. There was no responsibility.
Responsibility goes up by $1,000. Now if you look at.
We just added the$ 1,000. Look at the various other. Under obligation we simply.
So the formula is still equivalent. OK, allow ' s have a fourth deal. This time around'let ' s claim that. we are going to offer
a service to a customer for cash money
. Remember, if I ' m. going to receive money. Let ' s state it was.$ 4,000 worth of solution.
Under the possessions, we will. just return to the money account as well as we will simply state plus$ 4,000.
Since we provided the. service and afterwards right away we got money on spot. So my cash was enhanced by $4,000. And afterwards keep in mind that on
the. various other side of the equation typically an income assesses. investors ' equity. So I will certainly state that profits,. and after that once more, bear in mind that it shows indirectly.
Profits, it ' s not identified generally. It will certainly show.
And also later on we will. describe much more carefully in just how the partnership in between.' revenue and investors
' equity looks like.But in the meantime, you just require to understand.
that profits once it goes as soon as it rises, equity also rises. Income plus $4,000. So we provided a solution. It'' s worth $4,000. It'' s thought about a profits. $4,000 in money increases by $4,000. The formula is still equal. Now let'' s do an additional purchase. that ' s our 5th purchase. This moment we ' re going to say.
That we gave an additional solution for a consumer for $3,000.
this moment we provided a solution on account or on credit.That implies we
' re not going.
to obtain the cash money right away from the client. We'' re going to end up.
the service today. It'' s going to be formally.
a revenue, a service revenue. Yet we can not enhance the money.
Because we did not obtain cash. Rather we will make use of.
balance dues, A reduce R implies receivables. As well as bear in mind, accounts.
receivable is among our possessions, due to the fact that there is some money.
because client'' s pocket since is coming from us. At the very least from our.
point of view as accountants. Plus $3,000. As well as then on the various other.
side of the formula, there will be revenue once more. And by the means, we'' re. going to call it solution profits, so I'' m simply. mosting likely to include an S below, S there, service revenue. And also after that I will include $3,000. Now the equation is still equivalent. Keep in mind, accounts.
It'' s not yet money. Now let ' s talk about costs. Let'' s have,
let ' s have.
And after that let ' s claim. We'' re going to have. We'' re going to call that expenditure.
account marketing cost. And afterwards we paid cash, so our.
Cash money will be included. So both accounts below are cash money.
and then if I'' m mosting likely to pay cash, that means my money.
will certainly decrease by $500. And afterwards my expenditure,.
which is also mosting likely to review stockholders''. equity just like earnings. Keep in mind that expenditures.
normally show adversely on the investors' ' equity. That suggests whenever.
It ' s increasing, yet what I ' m attempting to reveal here on. It ' s going to be minus$ 500. You ' re constantly going.
Those two accounts may be not two. The two accounts that we used,. One of them was going up,.
the other one was decreasing. Although they are both on.
the one side of the formula, yet the total possessions did not change. Because we obtained a plus $20,000.
and also we obtained a minus $20,000, which is not mosting likely to.
transform the overall possessions, which will maintain the formula equal. As well as after that you see that.
in some transactions we had two accounts raising.
or 2 accounts decreasing or 2 accounts, one.
And also after that we lowered it by$ 20,000. And also after that we raised it by$ 4,000. $80,000 plus$ 4,000.
that'' s $84,000 minus $500. That makes it $83,500. My ending balance.
for cash is $83,500. As well as after that you do the exact same.
thing for equipment, materials, accounts.
receivable, accounts payable. Each as well as every.
account that you have, that you have actually used.
during that duration. And afterwards what we.
will certainly speak about following is how to take care of.
those ending balances. What is the following step after you.
determine the ending balances for every as well as every account? That will be in the next video clip.