SPEAKER 1: Hi, once again. We'' re continuing chapter one.
the very least 2 accounts in each and also every transaction. It'' s constantly mosting likely to be at the very least 2, two or more. 'we ' re going to have some examples. So allow'' s say the company just started business,
they just signed up the business, they'just had their own place. And after that they ' re mosting likely to elevate cash by issuing stocks. That would certainly be the purchase to document.
Now always think, what are both accounts that I require.
And after that the second action is to advise yourself where every If you ' re, account is identified under the audit equation.And after that determine. mosting likely to boost'that account or decrease it. There is always an. boost as well as decrease, OK? When you increase, for example,.
$ 100,000 cash money from providing supplies, that suggests we'' re going. to have two accounts, money account and ordinary shares. Money is a property. Usual stock is.
shareholders' ' equity.
Money is going to. It ' s not the owner ' s cash.
It ' s the firm ' s cash.So we, as accounting professionals in that. firm, from our viewpoint, our money is raising by $100,000. And also on the other.
side of the equation, the typical supply is increasing. By 100,000.
Under the possessions, we. And after that on the other side of.
the formula, you will certainly state, we will certainly state that ordinary shares.
Enhances by$ 100,000. Always bear in mind something. incredibly, super vital.
That the equation has. to continue to be equal forever. Regardless of just how numerous deals. we ' re going to have, no issue how old the.
company is, the equation is always going to be equal. after recording any kind of transaction.
That was the. one we simply elevated money. Currently we have enough cash. The following action we, allow
' s state, we ' re. going to buy an item of tools for$ 20,000. And also allow ' s say that we ' re. mosting likely to pay cash for it, OK? The two accounts'that. we ' re mosting likely to require here are tools, which is. going to enhance by$ 20,000. The various other account is the cash money, which. is going to'lower by $20,000. Since we ' re going to spend. the cash money as well as get equipment. So, to tape-record that we ' re.
mosting likely to claim cash decline.
So it ' s a, which is. a minus by$ 20,000 as well as after that equipment. rise by$ 20,000.
Now the concern is, the. formula still equivalent? Well, it is, due to the fact that. under the possessions side you can clearly see that you. have a decline of$ 20,000, along with a rise of.
$ 20,000 under the assets.So that'amount to properties. is not altering. It ' s still $100,000.
And after that I still have$ 100,000 on. the opposite side of the equation, which keeps us balanced.
OK, allow ' s record one. a lot more deal.
Let ' s claim that we ' re going to get.
materials, which is another property. This time we ' re not. going to pay money for it.
We ' re mosting likely to purchase. products on account. When we claim on account or on, now.
debt, on account or on debt, it means the exact same thing. It means that we ' re.
not mosting likely to pay currently. It implies that we will pay in future.
Currently keep in mind, if you ' re going. to pay something in future for a quantity that is already. owed by you to a person, that ends up being accounts payable, which.
is among your obligation accounts. You are going to.
Remember, we ' re going to have two. Products, which is an asset.
As well as allow ' s claim the. products are worth$ 1,000.
Simply an instance. We ' re going to have an obligation. And also then usually we create down.
A reduce B, accounts payable. That is additionally going to. rise by $1,000.
When payable goes up by, since.
$1,000 it indicates that what we owe is being raised from no. There was no responsibility. previously and currently it ' s being boosted. from absolutely no to $1,000.
Responsibility goes up by $1,000. Currently if you look at.
is still equal or not, well look at the assets side. We just included the$ 1,000. Look at the other. side of the formula. Under responsibility we simply. included the$ 1,000,'as well.So the formula is still equivalent. OK, allow ' s have a 4th deal. This time around let ' s claim that. we are'going to give a service to a consumer for cash
. Keep in mind, if I ' m. going to obtain cash. So let ' s state it was.$ 4,000 worth of service. So under the assets, we will. just go back to the money account and we will just say plus$ 4,000.
My money was enhanced by $4,000. And also then keep in mind that on
the. I will state that profits,.
Revenue, it ' s not classified usually. It will certainly show.
And later on we will. discuss more in details in exactly how the connection between.' earnings and shareholders ' equity looks like.
For currently, you simply need to know. that income once it goes when it goes up, equity also goes up.So revenue plus $4,000. So we supplied a solution.' It ' s worth $4,000. It ' s thought about an earnings. $4,000 in cash money rises by$ 4,000. The formula is still equal.
Now allow ' s do an additional transaction'.
This time we ' re going to claim. That implies we ' re not going. We ' re going to complete.
the solution today. So it ' s going to be formally. an income, a service revenue.
Yet we can not increase the money. Due to the fact that we did not get cash money. Instead we will use.
accounts receivable, A slash R suggests receivables
. And remember, accounts. receivable is just one of our properties, because there is some cash money.
because customer ' s pocket currently that is coming from us. At the very least from our. point of view as accountants.
It ' s not yet cash. Currently let'' s chat concerning expenditures. Allow ' s have, let'' s have.
get, allow ' s pay for marketing.
We ' re going to market. It ' s a brand-new company, we.
need to market it. And after that allow ' s state. that we supplied, so'we were provided an advertising and marketing occasion.
or perhaps it was an advertisement on a magazine for allow ' s claim$ 500.
Which we paid money.
for it quickly. We ' re going to have.
a cost account.We ' re mosting likely to call that expense. account advertising and marketing expenditure. And after that we paid cash money, so our. Money will be entailed. So both accounts below are cash. and also'then if I ' m mosting likely to pay cash money, that indicates my cash money. will lower by$ 500.
And also after that my cost,. Bear in mind that costs.
typically mirror adversely on the investors' ' equity. That suggests whenever.
we have an expense, the investors''. equity will certainly reduce. It ' s not mosting likely to increase. It will reduce. So advertising cost,.
although it'' s boosting, however what I ' m trying to show here on.
the formula on how is that expenditure is mosting likely to assess the equity. I will simply claim that it.
will mirror negatively.It ' s going
to be minus $500. So my equation'' s still equivalent. I have $500 decline.
under the possessions and after that I have one more.
$ 500 decline of equity on the various other side of the equation. So that'' s how we show.
purchases on the equation. You'' re always going.
to have 2 accounts. Those 2 accounts might be not two.
different areas in the formula. They could be in the very same.
place of the equation. If you look back in.
One of them was going up,.
the various other one was dropping. Although they are both on.
the one side of the equation, however the overall assets did not change. Since we got a plus $20,000.
and we got a minus $20,000, which is not mosting likely to.
transform the overall possessions, which will keep the formula equivalent. And after that you see that.
in some transactions we had two accounts boosting.
or 2 accounts reducing or 2 accounts, one.
As well as then we decreased it by$ 20,000. And 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 finishing equilibrium.
for cash is $83,500. As well as after that you do the same.
thing for tools, products, accounts.
receivable, accounts payable. Every.
account that you have, that you have used.
during that period. And afterwards what we.
will certainly talk regarding next is how to handle.
those finishing equilibriums. What is the next action after you.
calculate the finishing balances for each and also every account? That will certainly remain in the next video.