Accounting 101: A 60 Minute Introduction | Brendan McCoy | Skillshare

Accounting 101: A 60 Minute Introduction

Brendan McCoy, QuickBooks Pro Adviser

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13 Lessons (59m)
    • 1. Intro

      1:19
    • 2. Welcome to 1 Hour Accounting

      0:46
    • 3. What You Made vs What You Spent

      1:39
    • 4. What You Own, Owe and Worth

      1:58
    • 5. Accounts, Debits and Credits and The Book

      3:46
    • 6. Welcome to Fun

      2:08
    • 7. The Key

      10:59
    • 8. Google Drive vs Excel

      1:55
    • 9. Step 1 2 3

      12:44
    • 10. Balance Sheet

      7:03
    • 11. Profit and Loss

      4:07
    • 12. Cash Does Not Equal Income

      10:33
    • 13. Thank You!

      0:20

About This Class

In this Accounting 101 course: 

You will

Make $200,000

Buy a Rolls Royce

Go out to a fancy dinner

All in 60 minutes!

Well...we are going to learn how to account for this :) 

This Accounting 101 course is a basic, yet effective, course on the fundamentals of Accounting ,in just 60 minutes 

It will go over the following

The Fundamentals of Accounting

The Principles of Bookkeeping

Debits

Credits

The Ledger

Revenue

Expenses

Assets

Liabilities

Equity

We will use interactive learning to understand and dive into real world examples of what happens in Accounting when you make financial transactions.

At the end of the course, you will be able to prepare a simple Profit and Loss Statement, as well as a Balance Sheet.

There are assignments and quizzes throughout....best of luck!

Transcripts

1. Intro: 2. Welcome to 1 Hour Accounting: 3. What You Made vs What You Spent : 4. What You Own, Owe and Worth: 5. Accounts, Debits and Credits and The Book: 6. Welcome to Fun: everyone OK, so welcome to the fun part of the course or what I hope is the fun part. Of course, I know that I'm definitely not as attractive that some of those cartoons that I made and I definitely don't have a great of the voice as some unusual victory listens who were. Maybe it's a little better than those. Um boy, just a recap. You know, kind of where we got to this point. Uh, whatever. Some of the you know, the technical definition is that that are important to know we went over some of the very fundamentals of accounting. So we whenever we went over the debits and credits, you know, the building blocks of kind of how everything is made. We went over what you own, which is your asset, one of what you owe which your liabilities one every year, equity or what you're worth, which is the difference between your assets and liabilities. We also went over how much you make, which is your revenue and also whenever how much you spent materia expenses. So it is easy to, you know, kind of look at a power point and kind of hopefully retain a lot of the information blood. What I wanted to do here is actually walking through a debit, walking through a credit, walking through what happens when you debit an asset. What happened to new debit and expense? You know what happens? You know, how does this all get into the journal? And then once it's in the journal, where does it go from there? We'll go to the profit or loss or goes down, cheat and finally. Okay, well, how did the balance sheet and profit and loss talk to each other? How are they? Um, you know, how are they intermingled with one another. So at the very end of it, we're gonna We're gonna kind of talk a little bit about, you know, the real stuff. Like I talked about earlier. You know what, actually, what does it actually mean? You know, wants me, You finish this. So in this section, we're going to do some interactive learning we're gonna deep dive into, you know, actual accounting there. It's very simple accounting. Hope it's a little fun for, you know, I try to make something examples farm and, uh, the real life. So you know, if if There's other things that you want to know. The things that you want to learn, know how to debit or credit. You know, feel free to leave me a comment or you write me email. I leave my email to end of this like I said before, so let's go into the fun part of the court. 7. The Key: All right. So if you're looking at the same screen that I am right now, um, like I said, there's two ways to get this information. The first is a Google drive link, and the second is the Microsoft Excel down. So you have any questions about the Google drive or the Microsoft download? Feel free shipping email or leave a comment in here? Eso Like I said, hopefully looking at the screen here. This is the template that we're gonna use to go over everything. So, as you see, there's a couple different tabs down here. We're actually filling the profit and loss would create our own civil profit and loss, and we're gonna create our own simple balance sheet. The first thing is, Oh, So how do we create this? What are we like? What I'm gonna use? What are we doing here? So the first thing I want to go over is the key. The key time down here, the key tab. You'll see these red little things. These air kind of the headers off the most important section that we're gonna do here. So the first section here. So the transactions that were going to record eso. What I did was I went through six different kinds of transactions. As you remember, there's debits and credits to each and every transaction that we have someone over six different account transactions that we record each and every single level. So the first thing we're gonna dio is you took this course and you automatically became $200,000 richer. So someone said, Wow, you must be really smart. Took this course Here's $200,000. So when you get that money as revenue as we call it what, um what happens? How do we record that? So the first is going to go over money coming in. What are the two transactions that happened there? And then where do they go? The profit and loss really go to the balance sheet. The next thing that we're gonna go into is now, you have some money. You wanted to purchase a car, so a car is an asset and it also creates a liability. Now we, um we want to know. OK, what? What do we do when we get the purchase? The car? How did you know that? We're gonna go in to the car purchase and step to. Now, in step three, we're gonna go over. Okay, So you took this course decided. Okay. I want to go out to a nice dinner tonight. Um, what happens when you spend money? Now we know we could spend money on anything. It could be on Netflix. It can be on, Um, a meal is it could be on subscriptions. You know, anything and everything that we're spending money on is an expensive going over how to record an expense and step number three. So instead, number four. He took this course and you want to know suddenly how much it works. So you just got $200,000. You just bought a nice car and amount to a nice dinner. So after all that, how much are you worth? What? What is your net much a net value That that you can tell people, right? Everyone wants to know how much worth. So instead for going over how much you actually worth. And if you remember, it's your assets minus your liabilities now and stuff. I we know how much worse. So how much do we actually make? What do we net for? The year, and sometimes what you're worth equals your net. But not it's not always the case. Right, So set five running over their money in minus your money out. This is how much you made for the year and step six. We're going to come back to step six. This is a little more advanced in a little more complicated, but basically, we're gonna figure out, OK, now that we know how much were worth and how much we need, How do they tie together? And are there any adjustments that happens? So we're gonna do is run a change some things around, I'm gonna show you how a balance she changes, how profit loss changes and how they don't always agree with each other. So, like I just said, you know, sometimes your net income or how much meat is how much you're worth, but sometimes it's not. Um and that's kind of what we want to go over how all this is gonna tie in together, um, to the next section, the next part of this key these names are going to use. So I'm sure you know by now that terms and definitions are probably the most important thing in accounting. Knowing the difference between a debit and credit is important knowing what an account is, where it goes to, how it gets there, all the names along the way, I'm sure you can tell where the most important thing here. So in this area, I'm gonna go over the names of the accounts ever going to use. So if you remember, we have different account types of the account types are assets, liabilities, revenue, expenses and equity. So you can call an account type whatever you want. For example, you can call a, um, an asset. You know, Let's just call your bank account. You call it your bank account. You can call it cash money. You can call it whatever you want. The account name is totally up to you. The account type is something that is kind of already pre defined for you, he said. The account type there's only five or six of them are the assets, liabilities, revenue expenses, and there are some other ones for further trainings. But for now, these are the five ever go over. So these are the account names and using, so we have to two different kind of asset accounts first is we have a bank account, and the second is we have that car that just bought that nice Rolls Royce, Um, is also an asset for us that we want. Oh, they want track. So these are the two asset names ever gonna use again. And asset is what you have or what you own. Okay, so the next account type that we're in Grover's liability. So, like we said, the liabilities, what you owe to people, there's a refresher, and we're gonna call what we're owing. We only owe money to the car. So from these steps over here, we only made one transaction that actually recorded a liability for us. So we're gonna call the liability that we have the loan on the rolls. Third, the third account name never going to use. I'm gonna call it your income. So that $200,000 that you got, you know its revenue, but would want to call it You can call again whatever you want. But for this training, call it your income again. Revenue is what you made the top line of your revenue. The last two. So this one, the the account type is an expense. And, you know, just from doing my own bookkeeping work, I can tell that the expenses are easily the biggest part of profit and loss statement. You can call on expense, whatever it is you want. I've seen a 1,000,000 people call it a 1,000,000 different things. Some people call Amazon office supply. So call it cost of goods sold. Some people say, you know, Hey, I'm just gonna call Amazon because I'm gonna figure out how much I spent so anywhere. Anything you're spending your money on should be considered an expense. And for this, for this training, I'm gonna call the expense for food. Really, really purchased one thing over here in step three, we went out to eat, So I'm gonna call at your food. Finally, the last accountant and we're gonna go over is we're going to use is your net worth. So, like we talked about your net worth Is your assets minus your liabilities equals your networks. So what you own minus what you owe? He was how much of that you have. So again, this account type is an equity type, and I'm gonna call it your network. Okay, so down here we just have one more refresher for you. So I'm sure by now you know how important debits and credits are. You know how important it names are. So I just wanted to go through one more time, debits and credit information. So here's my little fresh air. Is this is what we called it earlier on the training we have. What you own is an asset. What you spent is an expense. While you, oh, are your liabilities What you made it your revenue and what you're worth to directly. So here's a little chart I created for you to kind of just at again. This is just a refresher. There's not much to be doing with this other than, you know, coming back to it for your own review. So in order to increase an asset, you need to debit it in order to decrease that you get credit. So example, I just got $100 I put it into my bank account. My bank account went off $100 so I'm debuting my bank for 100. Now, let's say, two days from now I go to the store and I spent $75 in two days from now, I'm going to credit my back account for $75 and those were the both sides of an asset account. Now, the next is we have are expensive. So what? You spend your expenses now, in order to increase an expense, you must debit. So in order to have your food count go up, up, up figure and how much you spend there, you need to debit it. And if for some reason you to credit expense, let's say the most common credits to an expense are gonna be like return. So if you went to Walmart, you spend 50 bucks. You debited Wal Mart for $50 right? And then let's just say you return in two days. You credit? So you're bringing that back down to zero. So you spent 2 50 You have a $50 expense, and then two days like you return it, you're bringing it back down. 50. So now you're at zero. Really? Didn't spend any money since you got it back. Okay, So the last three while you Oh, now again, will you owe your liability? So in our case, What we owe is we owe the money on the Rolls Royce, so in order to increase the value of the liability now the value is what we owe back. So let's just say that the Rolls Royce cost us $200,000. Our liability for the Rolls Royce is now $200,000. In order to get that balance to, say, 200 we must credit the liability which will increase the liability. And when we go to make payments were going to dab it. The liability this is going to decrease the value of the loan as it was on. A good example of this is let's say you have, um, $100 in the bank account and you put that money towards the payment of ah ah, car payment, right. The liability side, you owe the car and you're paying you with the cash out your bag. So you know what we're gonna take to here? You have the asset implying you have the liability in play. So as you can see here, if we want to decrease the amount in our bank account, we're gonna credit it. So on the other side, we need to debit something, right? So we're debuting alone on the car so that debit goes down by $100 off for the liability. It decreases that and also decreases the asset by $100 which is our bank account. No, the last one is what you made. Now this one's pretty straightforward. It is pretty easy. So what you made, like we said earlier, is the $200,000.8 made from the sports. Right now, what happens is you. In order to increase your revenue account, you have to credit it. So in this case, we're in a credit to $200,000 to the deputy her excuse me to the credit, and then what happens on their side? We'll figure that out forward. But it's very rare that you're gonna debit a revenue account, if ever. Um, finally, this is something that is way more advanced accounting. You know, you'd never really want a debit or credit equity unless you're, you know, pretty much well beyond this stage. But just as kind of a refresher. In order to increase your equity, you credit it in order to decrease your debit. It 8. Google Drive vs Excel: Okay, So in order to do the fun part of the course, we actually need something fun to do. So here, I'm gonna tell you how to get what we're what we're gonna do, what you're looking at here on the screen. So there's two ways to get, uh, what I'm looking at here on the screen. The first is a Google drive link. So in the resource section of this lecture, there's a link to your Google drive. I made it so that you can view it, but you cannot edit it now. There is a work around here, and I'm gonna show you how to do that right now. So if you want to use Google drive, all you do is go into the resource section, copy the link to the Google drive, and then go to a browser and paste it into your browser just like this up here. Now, the next thing that you want to do is just make a copy. If you don't have a Google account, you need to create one. It takes, you know, two minutes. It's not that difficult, Dio, Um and basically, you're gonna be able to see this if you have any trouble with the Google drive? If you're not familiar with how it works, if something's going on, um you know, write me a message or, you know, shoot me now I'll be able to help you out, Um, city differently. Um, the other resource is here is in a Microsoft Excel download. If you have Microsoft Excel, I'm assuming you kind of have a general idea of how how to save something into your file. Um, Google Drive and Microsoft Excel are exactly the same thing. Ones slower. So if you want to use Microsoft Excel, you know, since you just know your name, you know, connection needed for that. You certainly can. Eso I just wanted to, you know, kind of point that out, that what we're gonna do are available in two places. It's a Google drive link, and it's in the Microsoft Excel. So, you know, take a second to download this information, and now we're gonna go into actually, you know the key. What? What are we gonna do? What's going on here? What are we gonna perform in this part of section? So C in the next one 9. Step 1 2 3: All right, so in this section, let's go over the ledger. So, like we talked about earlier, the ledger is, uh, summary and the pile ation of all of our deficit credit. So the ledger is the book, so we keep everything recorded at. So when we ever have a question, anything we can go back to the ledger, we could go back to the book and figure out what happened on a particular day to a particular account for particular about, um, you know, as an accountant, this is the most important part of counting. The ledger told you where everything goes to each other. They got there, and that's where you kind of make adjustments and really play with the accounts. You know, moving forward. That's not for this session, but it's the most important part of accounting is where everything is stored. And like I said, it's the summary. Is the final resting place for all of your debits and credits. Um, so now they were in the section of Ledger. Let's actually record some of our transaction. So, like, remember, in a key, we have step one. So he took this course and you instantly made $200,000 now, Like I said, great for you. But how do you record? So what? You know what happened. So let's simply go here. Now, if you can remember, let's say that this just happened today, right? Today is November 11th. Excuse me. Uh, November 8th 2 as 19 spoon. Put the day now. Like we said, every time you recorded transaction, two things need to happen. He'd had a debit and credit some step along, made a ton of money. So if you think about it logically, we know that in order to increase an asset, we must debit it. So if you're getting $200,000 where does that money gonna go? Well, it's probably go to your bank account, which is an asset, right? So in order to increase the asset account, we must evidence. So let's do this one. First one go. You're big bank account is going to be debited for 201 23 $200,000. Right now, the other side of it is we have revenue. We have the account type revenue. This is your income. This is who page right now we're gonna go your income is the account name account type is revenue that you said and we know that in order to increase our revenue, we must credit it for 200,000 as well. Another easy way to do this is if you just know one of the sides of it. The other side's on balance out. It has to balance out. There's nothing in accounting that will let you record an entry without, um without equally. So, for example, if I put in $150,000 here, this is not double entry accounting. There's $50,000 missing. We don't know what where it is. It could be in a different account. But we know that this is wrong because the debits do not equal the credits, so made it $200,000. Now, over here, you have your big bank account. We know that your big bank account is, and asset that we know that your income is revenue. Okay, so whoops. Okay, So where does this go? Now? You know, the whole point of this course, and the whole point of this project is to record a simple balance sheet and record a simple profit and loss. So an asset is gonna go on your balance sheet, right? I think we remember that familiar assets affect the balance sheet. So this is gonna go are balance sheet. And the next part is, did it get there? This is gonna be our reconciliation, our reconciliations, a whole separate training. And it's a whole separate part of accounting. But this is a very simple, A very simple reconciliation to make sure that each of our steps get recorded on a bouncy or on a profit and loss. So without you know all that, let's go back to the revenue. So the revenue it goes on the profit and loss, right? So as you can see, even though we have a asset and revenue, they go to two separate places and they're not gonna show up on the other one. So, for example, the $200,000 going into your bank account is not going to show up on a profit and loss, and vice versa. The $200,000 in year revenue account is not going to show up in your balance sheet. It's only gonna show a profit and loss, so we'll come back here when we're creating our balance sheet and we're creating our profit and loss just to make sure that movie that we have everything recorded. So Step two. Now that we made it up kind of money, we want to buy a car, Right? So maybe don't have a car. Whatever it is, you want to buy a nice car. So something. We bought the car arm 11 $8. 19 and the accounts affected. So if we go back to the key here, we're gonna look at the accounts that are gonna be affected. Right? So Step two, you took this course and instantly bought several tours, right? So if you think about it logically, you just bought a car. So you own the car, right? You own $100,000 car. So what is car? If you remember, a car is an asset, and here it is here. So we have the Rolls Royce Asset account. The account type is an asset, and the name of it is the Rolls Royce. So the value of the car is $100,000. So let's go over here and say OK, so our account is the rules was car in order to increase an asset. Needed evidence of what we're saying here is that we now have $100,000 car that belongs to us. So the value of us at the end of the day is increased by $100,000. With that cars, are we paid for? It's our car. That's how we're increasing the value of us. We're gonna say, OK, this is a $100,000 car now the next step. But I'm gonna keep this very simple for, um, for our own sake here. But most people don't buy a car out, right? They don't, you know, take 200,000 from here and spend $100,000 in the car. Usually there's a liability recorded with it. So in order to get the car, we need to pay for it. So in order, instead of paying for it now, cash, we're going to extend that out over time. So over time it's gonna create a liability for us. The liability is how much we owe if you remember. So if you got the car 100,000 you can assume that it cost 100,000 and used to pay back. So what I do here is going to go back to my key and I'm gonna say OK, so I have the loan on the rolls. I have a liability now. I owe $100,000 on this nice car that I have. So I know that the account name is alone on the world is going to go back here ago. Okay. My county and is alone on roles. And like we said, in order to increase a liability account amount that we need to pay back, that we must pay back there were to increase that. We need to credit. And we got said it's that one each debit and credit moss degree of each other. So we know that this is $100,000 car for $100,000 loan. I guess you never go back over here to our little refresher. So the Rolls Royce car is a fixed asset account. It is also our asset of him. The alone on the road sources a lie, a ability account. Now, where do these two things go? Well, we know from appear that an asset goes to my bowel cheat someone go Allen's and on the liability side of things. So if you remember from earlier, we have the equation, which is what you own, which are assets, which is right here, and it's minus what you owe. So our liabilities are what we owe. So we know that this also goes on the balance sheet, and then down here, we're gonna get into did it get there? So once we go to record this on the profit loss and on the balance sheet, we're gonna just reconcile, make sure that we got there the right way. Okay, so, step three, let's go back to the key here. She wanna go, OK, you took this course you made the money, Bought the car. Now you want to go out to dinner, right? You wanna go by my standard for whoever made so Step one of record of the purchase of a dinner. So what happens? You know, we spent cash, and we also, you know, had an expense of what happens here. So let's go back to our ledger here. I'm gonna say OK on 11. 08 2019. And remember, two sides need to happen on every single transaction So the first is that we put this in here for the first is ever gonna have, um, two things happen. We spent money out of our bank accounts, so we physically went to dinner and we paid $500 for the dinner itself. Right? So there's two accounts affected here. There's the bank account, the cash account, the asset account, your big bank account. And there's also the expense account. The expense account is what we're actually buying More buying. Here's food, so we need to increase that account as well. So let's put these two in here. So you have your big bank account, which is an asset. Can we have your food, which is an expense. So if you go back over here, uh, he's in here for you. So if you go back over here to our key, you're going to see down here just as ever another little refresher, you have what you owns. Well, you're only you're assets. So we know that we own the bank account, right? So, in order to, um, in order to make a bank account balance go down, we need to credit, right? And you can see the other side of it right here. What? You spend all your expenses. So in order to increase your expenses, you need to debit. So let's go back over here, realize you record this. So let me said, in order to decrease your bank account, you know, Step three went out to a dinner, paid cash were decreasing our bank account by $500 and the other side of it, which we know they need to agree. But it also makes sense is that we went out to dinner and we're increasing our expect. So we're saying that we went out to dinner, paid to $500 of what happened? Well, we increased our food, right? We increase the expense of countless someone say $500 here as well. Okay, so? So the next step here is that we need to say, OK, what is the bank account? Border the food Where these gonna go? Are they gonna go on the balance sheet? Are they gonna go on the profit falls? So we know that just from up here that are big bank account is an asset. Hopefully nothing at this point that your bank account cash any money you have on hand. Anything that you own is your bank account. Some say that this is gonna go on my balance sheet and your food. Okay, so your food is an expensive something that you paid for, right? We know that we didn't pay for the car in cash, right? We got a liability. We had alone on it. So that's why I went down here to balance she and the other side of things. We actually spent $500 here, so the $500 is coming out of her bank account. Right? So if you think about it like this, you have what you own first, will you owe our balance sheet on the profit and loss? You have what you make of this what you spent. So we spent the $500 so that that purchase of the meal is gonna go on the profit loss. Let's look at it here. Now. Hopes up with these into are also sure this is an asset, and this is expense. And it goes on the battles. She and it goes on profit and loss. Okay, so at this point, we recorded three separate transactions were recorded money coming in for $200,000 recorded the purchase of an automobile with a long so didn't put any money down the old $100,000. We got $100,000 car. So the quarter both of those step three is we went out to a nice dinner. So we recorded the the, uh, negative bank account, you know, the 500 hours from my back account, but they also recorded the expense. So we're increasing the amount that we spent there were increasing their expense account by the $500. 10. Balance Sheet: Okay, so now that we recorded the 1st 3 steps we recorded, how much made we recorded buying a car, and we recorded some of the expenses of money that you spend on dinner. So after those three things you want to know? Okay, Well, how much of my suddenly worth? Now, you know what's the total value after the 1st 3 steps? So in order to figure out how much you're worth, I hope you remember at this point that is taking what you own minus what you owe equaling your equity or your total value or what you're worth. So you know what kind of walking through this? I'm gonna go back to the ledger What we just did. So here's our recording of making it a bunch of money, buying a nice car and going out to a fancy dinner. So these three things gonna tell us how much that were worth after this? So the easiest way I thought to do this would be taking these accounts over here and figuring out where it goes. So we know again that in order for going how much worth we need to go to the Valachi, So I'm gonna do is go and, uh, highlight a bunch of these everything that says balance sheet on it so that I know that we need to enter it onto my balancing. And again, this shows how much that we're gonna be worth here. So can you feel these until this as well? So let's record the first part of Valachi. The first thing is that we need to take the bank account and increase it by $200. So over here to my balance sheet here, the account name is gonna be your big bank account. We know that we debited it for 200,000 200 to 3 and we know that this is step. Want to go back here just to reconcile? This was, say, Yes, I admit it. Made it there. That's the next balance sheet. The actual purchase of the car. So the car is increasing our value by heart, $1000. That car is $100,000. We can add it to our name. We can add it to this $200,000 that we have here. Okay, so let's go and record this fixed asset asset home that she so we're here. Have to say, OK, the roles Royce car. And it's worth debited the car for 100,000. So you know that we have, uh, step three. No. Excuse me. Step two recorded. So go back here to say OK? Yes, it made it there. Now we know that in step two there also was a liability created when we bought the car. Now, this liability also lies in the balance sheet, so they want to get this liability onto the balance sheet. So we know that we credited alone on the Rolls Royce $100,000 is how much we owe on the car . So we're worth 100 but we all 100. So I'm sure you kind of follow on what happened here. So back to my balance year, I'm gonna say, OK, we have the loan on the rules roars. And we credited this for 101 23 Right. And this was also Step two. Somebody back here in my letter, I must say yes. It may that they were made to the Balaji. Okay, So the final thing that happened, we have one more asset account that was affected on balance sheet, and this was spending the $500 out of our bank account. This is a There's a similar step one where there wasa a balance sheet and profit. Also is that three? There's a balance sheet and profit and loss for this. We're just in record that balance sheet side of someone to say. Okay, this was a credit to the bank account for $500. Someone go back up here. To my credit, 500 12 years. I'm gonna some bank account total some of the Rolls Royce total sum of liability total and have down here what you're worth, right. This is what the whole point of this project was to figure out how much will work, some would say, OK, we had the $200,000 someone in, and I'm gonna subtract the 500 that we took so in in a net total, I have $199,000.199 $500 in my bank account. I also know that I have the value of a car 100,000. So the value here is 100 so actually worth $299,000 just with my assets alone. So this number here told of what you have. I have $299,000 worth of things. $299,500 worth of things. Um, this is the top line of your balance sheet. This is how much you have. This is your assets. This is what you own. And like we said in the very beginning, you take what you own is a top part of Balanchine minus what you owe, which is the middle part. And then you have the bottoms. What? You're what you're worth. So let's go to the middle of the balance sheet. This is the liabilities or what you owe. So we know that we have $100,000 loan on the car. We know that is a credit account, and we're going to say that the total here is this debit minus the credit, which you have on is $100,000. Right? So we have $209,000 that we own. We have $100,000 that we owe. And this is, um, issued. This is wrong. Let me subtract this minuses. So now I have again 209 $100,000 of assets, $100,000 liabilities. So what's the difference between to what I'm actually worth? Well, I'm actually worth down here. Um, in the final $199,500 is how much I'm worth right now, because even though I have $199,000 in the bank account, I have the $100,000 car that I bought, so that increased my value, but also Oh, pretty much the whole card back. So in reality, I don't really own it. Even though I have on paper, I want it, you know, Let's just say stop making payments. I don't actually own any more. Now have liability as well, so as you can kind of see how it's gonna flow a little bit more about later. The the value of the car is pretty much mended out at zero, because we owe money on the car. So in the end, we're actually only worth what's in her back account, and you could see here Now this is very fundamental accounting. This can definitely be way more in depth and way more advanced. But hopefully this is kind of a good picture of just because you own a car, you actually owe money on it. So in reality, you really you know the difference off what you own. That's what you are. Eagles, how much your work. So that's the balance sheet now in the next debt was move onto the profit and loss. 11. Profit and Loss: All right, So now, now that we know how much you were worth on the balance sheet. But whenever the balance sheet over these three steps, there's nothing else to do with balance sheet. We know how much work that's not changing at this point. So now let's figure out how much we mates was my net income. So again, the net income is on the profit and loss, and the profit and loss is how much he made by minus how much you spent. Okay, so very simply, let's go back to here. So, as you can see, we still have two missing things that we record, which are on the profit loss. So that's recordings in the profit and loss and figure out how much we may. Okay, so the 1st 1 is need to go to the rapid go right, and I'm gonna copies into a different color just so that it's easier to say that this is my profit losses green. Okay, the 1st 1 1/4 profit loss is gonna be directed. So as we can see here, very first Step one. We made a ton of money, so we debited the back account at bank account went up by $200,000 the other side of that is we need to credit some case what I'm crediting, crediting the revenue, the amount to be made, the wages, salary investment, come whatever you know, the the revenue that you're getting, the income that you're getting for performed services or whatever, maybe is credited to increase its. So let's let's do this now. So on the profit and loss of over here, as you can see, it's pretty much the same layout of the balance sheet of the top, the bottom excusing the top in the middle, and the bottom bottom is gonna beat your net. And 1st 2 we're gonna be how much you made versus minds. How much, Oh, let's go over here and say, OK, your income, we credited. This accounts for 201 23 something over here, and I must say that the total equals this minus no debits for the for the revenue side of things in the bottom side of things go back down here to my ledger and I must say yes, he made it there. So now American styling, I said, Yes, we have this year. Let's go down. The last thing that we need to dio lasting that didn't make it there yet. Is this last expense. So we debited our food account, Remember? So said three were not too much thinner. We spent the money, so I'm credited The bank account Credit asset. Now the other side of is me to increase something debit something. So what we're debuting is the food account, the food expense, the food account type. And I called it your food. So let's record this on the profit and loss. So we go down here. So here I have what you made at the top. And then over here in the middle of what you spent much of the expense. So what? We spent you say your food and we debited this amount for the 500 something about her here and with some knees, I will say this debit minus no credits. And this one This is a pretty, pretty straightforward one. We have the $500 so up. Here are total revenues. $200,000 is so much made. We spent 500 of it, right? So very simply, We have 200,000 minus the $500. What's the difference? So my difference is my net income. My net income is $199,500. This is a very simple profit and loss. And as I'm sure you can tell, there's going to be way more information in here as as you have more data. But very simply, you take what you made a revenue. How much more than whether it's a salary uber, you know, income. Er, whatever it is, take all the money you made. You subtract out all the money that you spent and then this leaves you with your netting. This is how much actual, Um, this is normal, but you won't pay taxes on. But this is your net income. This is how much united for the year, if you ever hear you say that. So now they went over the balance sheet, we went over the profit and loss. We created a simple balance sheet and create a simple profit loss. How did these two talk together? So in step except six, I'm going to show you how if we change things, how they're these two reports are going to be affected and how they're going to kind of talk to each other in this in a way. So unless we want to step six here. 12. Cash Does Not Equal Income: aren't everyone. So in this last section we're gonna go over how the balance sheet and profit and loss time together Russian go over. Why cash doesn't always equal income or value. Um, there's, you know, trainings that go just into this, how they're related, how they tie in together I'm gonna try. Show the simplest way of how your net income doesn't always equal your worth and you're worth doesn't always equal your bank account. Now, in a very simple world amount of money you have in the bank account, that's how much you work and the amount of money brought in minus money. You spent it so much that income is that's how much you're worth and that so much of your bank account, right? So normally, all those three tied together. But that's not always the case. So I'm gonna show you an example of how these can all kind of tie together and how they all internally a little bit, um, again, there's more. There's multiples trainings just on this video, I'm sure going Teoh, you know, an hour long one on how they relate how they correlate. But just for this training was trying to show you very simple. A very simple explanation of this. So I'm gonna go back to my ledger here, and I didn't put this in the key or anything like that. But what I'm gonna say is that, um during during the course of a day or so, we paid $50,000 right? So on, Let's a say on 11. 2019 my big thank account, he went down $50,000. I paid out $50,000 right? Some would say, OK, 51 23 So, because we know treaded it, right? No credit, credit and asset account to bring it down. So what's the other side of it was to debit. Well, I wanted to pay some of that big car down, right? So I took $50,000 in my bank account. I decided that I want to pay some car off, you know? So I paid $50,000 sorts of Carson say 11 9 2019 I have. The long on the through is, and it's the liability. I wanted to pay the loan down, not paying the car, often paying down. I need to debit it, so I'm gonna reduce the balance in the liability count by 50,050 50,000. So now let's go over here just to kind of walk through it again. The big bank account, your big bank account is an asset. It goes on the balance sheet and we'll go. It's out, gets there in second, and then the loans alone is also a liability, right or the loan is a liability, and it's also on the balance sheet. So we have to balance sheet affecting transaction from one transaction Democratic, both affecting balance sheet. So as we know, both these air need to be 1/4 in the bouncy. So as you can kind of see, I have way more balance sheet items and and profit and loss on. The reason for that is problem. Loss is pretty simple. The track, you know, just what you mean, what you owe. So what we want to do here is kind of fair how the balance sheet plays in, and most foreign thing is, you're going to see your cash balance go down by $50,000. What, you're not going to see, um, you can see your value 50,000 So let's kind of walk through this. Someone go back. Excuse me. Over here. Record the big bank account. $50,000 credit. Right. So over here I have appointed a new one call. You're a big bank account is already in there. I know. I'm crediting this account for 50 15. 123 total is 51 23 right? I have no more credits are I have these, you know, appear. And I'm gonna go into the bank account of second to show you how may not be too happy for, um to also know that we have a second side of this. We have the liability, right? This was the other side of that Step six. We just need the introduce made. So this again is the loan on the Rolls Royce. This time I'm debuting it. Right. So when I first got the loan, I increased its right accredited by 100,000. Now so much we Oh, so now saying, OK, I'm actually going to decrease because I made a payment. I mean, a big payment. 50,000 to 50 total. 123 So, as you can see here, the total amount that I owe went down by 50,000 and total amount that I have went down by 50,000. So what you're worth didn't change, you know, just from you know, think about it like this. If you're you are taking the money out of your back account and you're putting it towards the wall. So as we move before, you know, just because you got the car and you have alone that kind unedited out. So the same thing kind of happened here, right? The whole inside of this, and probably the side of how they all tie together. Why? Kasas knows incomes this. So here's your big bank account, right? You have $199,000 in it on put a day in here. But on 11 8 I remember we had $199,500. We got the car, had no effect in our bank account. We also just spent $50,000. So if you do some simple math here, I'm gonna take just your big bank account. And now this is called T count. And this is something that you contract each individual account in every transaction in it where it goes up and down, and you want to figure out You know how much it is left on the wall. How much is in the bank account? You can do it by doing what we just did here. Deficit credits. You could just do it with an individual account itself. So let's do a pretty quickly and pretty simply hear someone say okay? Your big bank account on 11. 18 of 19. Open this up for you. I must say, that had 199. 500,000 on 11 8 And then on 11 9 I made a $50,000 payments of the car. So this is just the bank account, right? Someone say, Okay, you're the bank account. Went down by 50,000 right? Some second. What's the total in your thank account? Some ago. Here, take this. We're gonna take this so on. Let's just say this is 11. 10 2019. So, on 11 10 2019 I had $149,500 in my bank account. Okay? That's the actual cash that I have. So I'm gonna go back over here for this little exercise now, Michelle K step six is down here. So my bank account has won 49 500 it that's on my balance sheet. We already know that. So let's go back here to the ledger. Let's say OK, yes, we did toward this and we did record this, right? So now let's go back to this. OK, so we know that what we're worth also includes press the car, right? So even though the cash that we have A 149,000 the mother worth is actually 199,500 not to make any net income changes on this one. No revenue accounts. But this revenue account, you know, it's only going to increase if you're spending money on expense. So we know that the $50,000 car payment was really reducing the liability. It wasn't a car expense, you know, if we went toe smell go and bossom gas, that's a car expense. But if we're paying down the wound on the car, that's a liability. It's simply just a transfer between your bank account to your liability. Okay, so my net income back over here is 199,005 This is 1 1995 100 Now, before we did this exercise, how we can kind of pile these together were, you know, like this. I'm going to say that before we did this $50,000 payment, we had $199,500 in the bank account. So my net income agreed to my worth going to the cash in my bank account when I first originally started. After doing this project, you can see now that you're getting home hasn't changed. 199,500 worth. Then it changes 199,500. But the amount of cash that you have is $149,500. All right, so now that we know how much we made, how much we spend, how they kind of tie together just briefly, I hope you have a better understanding how Count works accounting world. And you know, if I have to emphasize its debits and credits terminology and following along this ridge that I went here, this is a very simple balance sheet. It's a very simple profit and loss statement. Like I said, very high level bounce sheet. What u minus what you owe process lost what you made. That's what you spend your They don't always agree in a perfect world that they do, but they don't disagree. So, like I said, if you have any questions while you're going through this, if something doesn't make sense, if there was something that, um, something you need some help with, you know, feel free to reach out to me, these spreadsheets are available for you. I'm gonna put a finished copy of the spreadsheets. They kind of, you know, if you made a mistake like that would put it in a resource section here as well. Kind of cross. Check yourself in. You know, pause and stop throughout their recording to see you. Make sure. So have you enjoyed this fund section? I know that it was quick, and there's definitely way more information to learn. So if you know if you need any other information, if there's something that you know you wanted more to know about over there holding topic, that you like me going to go more into my profit, Moss doesn't exactly agree. Or Balanchine was first going to What's a better system for recording this. You know, I I use QuickBooks. I do. Keeping four people across the country. High use QuickBooks. I trains about Justin QuickBooks training. Well, keeping keep proper track of everything. So feel free to let me know what you want for, Thanks. 13. Thank You!: