Mini-Video C – Accounting 1 – Chapter 2 “Clarification of a Common Confusion”

Occasionally individuals obtain perplexed with the accounts:
Accounts payable and also accounts receivable, all right? Is it, like, is it a debit? A credit? They try to put them both on the liability
side or the property side or sometimes also in the earnings statement. Okay. A receivable is a possession since
it implies that you have the rights to receive some cash money as a company in the future. , if I had a piece of paper that stated I have

And also it goes on the equilibrium sheet on the liability.
side, are you with me? Currently in some cases people obtain perplexed with accounts receivable as well as revenue, all right? And also they go, alright, I'' m doing the income declaration. Do I include the receivable total up to the incomes? Or just how does that work? No, those are 2 different accounts. Receivable is a possession, income, of program, is an earnings account that takes place the earnings statement. Now they could relocate conjunction with each various other however receivable is not included in revenues or anything like that. Allow me offer you an instance that occasionally aids, fine? Allow'' s claim we started a firm at the end of the month, like allow'' s claim we began it, oh like, December, you know, 28th. We started it right after the Xmas break. Okay. And we only made 1 transaction to a consumer for that last 4 days of December, just one, alright? Let'' s say we sold solutions worth $850 on account to a customer, fine. Well what ' s the Chapter 1 method of recording it? Oh, not cash money, is it? Since it'' s on account

or on credit.So we sold$ 850 worth of solutions on account or on credit report to a client. Accounts receivable is influenced, isn'' t it? And also that increases by 850, you with me? And also what else is impacted? Utilize your words. What various other account? I'' ve given $ 850 well worth of solutions on account to a consumer. What is it? >>> > Revenue? Or no >
>>> I heard it out of there. >>> > Is it a responsibility? >>> > No. > > No, due to the fact that'they ' re paying you >>. >'> It ' s earnings. We gave the services? Did we keep in mind the Profits Recognition Principle? We recognize income when it is gained. When is it earned? When we supplied the service or product. Okay. I want to make sure you men have that. , if you guys require a little brush up on your transaction evaluation, this is where I desire you to return to those exercises that we simulated 1.12, 1.11, 1.13,1.14, around there. Because you, and also I want you to exercise that need to understand those. You constantly require to know what accounts are influenced, do they go up or down and by exactly how much? Okay. So if you'' re a little unclear on that particular, make sure you assess that, all right? Okay.But do you

recognize now where we are? Okay. If I was doing an income statement at, now December 31st, and also again this was the only revenue deal we had, would I say my earnings for that month finished of December 31st is 1,700? No, it'' s 850? Okay. You see what I'' m claiming? You don'' t include that over on the revenue statement, no, no, no, no. There'' s 850 earnings on the earnings statement and afterwards 850 on the annual report that shows it'' s still receivable. You can have millions of dollars well worth of revenue and also no receivables, couldn'' t you? What kind of circumstance would certainly that be? >>> > When they pay cash. >>> > If you just sold on cash, right? Okay. So I wear'' t desire you to assume that accounts receivable is added to income or anything like that. They may relocate combination with each other They'' re not the same thing.

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