Accounting 101: Learn Basic Accounting Concepts With Ease | Chris B. | Skillshare

Accounting 101: Learn Basic Accounting Concepts With Ease

Chris B., Instructor, MBA and CFO

Accounting 101: Learn Basic Accounting Concepts With Ease

Chris B., Instructor, MBA and CFO

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18 Lessons (1h 14m)
    • 1. Course Introduction

    • 2. Instructor Introduction

    • 3. Overview and What To Know

    • 4. Accounting Concepts

    • 5. Debits and Credits

    • 6. Accounting Cycle

    • 7. Balance Sheet

    • 8. Income Statement

    • 9. Revenue Recognition

    • 10. Short Term Liabilities

    • 11. Cash vs Accrual Accounting

    • 12. Reading the P&L

    • 13. Dos and Donts

    • 14. Case Study 1 Error Detection

    • 15. Case Study 2 Running The Business

    • 16. Case Study 3 Projections

    • 17. Ten Point Checklist

    • 18. Course Conclusion

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About This Class

Are You A Business Owner or Entrepreneur?

Are You A Business or Accounting Student?

Do You Want To Learn The Fundamentals Of Accounting With Ease?

Have You Ever Wondered What Is Involved In Accounting?

If You Answered "Yes" To Any Of The Above, Look No Further.  This Is The Course For You!

Start today and join the 100,000+ successful students I have taught as a Top Rated instructor!

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  3. You will are being taught by a professional with a proven track record of success!

  4. Bonus reason: I am an accountant by trade! My BA & MBA are in accounting,and I currently work as an outsourced Chief Financial Officer.

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Recent Review:

Draymond P says "Great course, exactly what I needed.  Instructor is easy to follow, I was a little scared to take an accounting course but this course made me realize accounting isn't as hard as expected.  A great introduction to accounting, looking forward to moving on to additional courses with Chris to really get into learning accounting."

Why You Should Take My Course And Let Me Teach You Basic Fundamentals Of Accounting

Accounting concepts can be difficult to understand until you have a fundamental background in accounting.  Learning the basics of accounting with 20+ year accountant Chris Benjamin in this course, and be well on your way to an accounting career and/or understand your business much better. 

Start becoming an accounting pro today with this course!

In this course we go step by step, starting with terminology, the accounting cycle, several accounting concepts, and reading financial statements.  From there we look at specific areas of accounting that deserve more attention.  As well we will go through a few situations and how to best apply accounting knowledge.  By the end of this course you will be comfortable talking about accounting and understanding what others are talking about themselves.

What We Do In The Course:  

  • Learn Accounting Terminology

  • Learn the accounting cycle

  • Learn about the major financial reports and how to read them

  • Learn debits and credits

  • Learn about cash vs. accrual accounting

  • Review 3 case studies and how accounting applies

  • And Much More!!!

At any point if you have a question, please feel free to ask through the course forum, I'd be happy to answer any and all questions.  


About The Instructor

Chris Benjamin, MBA & CFO is a seasoned professional with over 20 years experience in accounting, finance, Microsoft Excel and budgets.  Having spent the first 10 years of my career in corporate settings with both large and small companies, I learned a lot about the accounting process, managing accounting departments, financial reporting, external reporting to board of directors and the Securities and Exchange Commission, and working with external auditors.  

The following 10+ years I decided to go into CFO Consulting, working with growing companies and bringing CFO level experience to companies.  I help implement proper best business practices in accounting and finance, consult on implementation of accounting systems, implementing accounting procedures, while also still fulfilling the CFO roll for many of my clients which includes financial reporting, auditing, working with investors, financial analysis and much more.  

Thank you for signing up for this course. I look forward to being your instructor for this course and many more!

Chris Benjamin, Instructor, CFO & MBA

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Chris B.

Instructor, MBA and CFO


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1. Course Introduction: Hello, everybody. And welcome to the course accounting. Wanna one basic accounting concepts. My name is Chris Benjamin. And in the next video, we'll give you a little bit more information about myself in my background. Uh, in this course, we're gonna be learning essential exact what the title says, just sort of a basic accounting concepts. So anyone who is sort of vaguely familiar with accounting or maybe have no knowledge whatsoever this would be the course for you. We're gonna be going over things like accounting terms, basic financial statements, how accounting works essentially sort of the very fundamentals of accounting to give you an idea and whether it's you're trying to decide if accounting is maybe something you want to get into for a career. Or maybe you're in a position where you need to know a little bit of accounting. Maybe, you know you work at a company, and now you need to take on the accounting or bookkeeping function and and you really don't know what where to start. So this would be great course toe, get your feet wet and get a feel for what exactly is accounting and sort of the main things that go with it. So I hope you enjoy the course I like. I said in the next video I'll do a little bit more introduction about me and my background in accounting and finance. From there we will jump right in. 2. Instructor Introduction: Okay, So before we get started on the actual course, that's want to give you a bit more of an introduction to myself and my background. So ah, and why I'm a good person to teach you all about accounting 101 us. First of all, my name is Chris Benjamin. I'm a CFO, which is a chief financial officer on I have an M b. A s, a master's degree in business and as well, Most importantly, I'm your instructor for this course. So my background is I got a bachelor of arts degree in accounting and finance Ah, from University of the Fraser Valley. It's in Canada. And then afterwards I went on to get a master's in business from the University of Washington, where I really focused on entrepreneurship. At that point, I have over 20 years experience been in the accounting world for a long time, and I've been with all types of companies so as it says but large publicly traded companies on the stock markets as well. Early stage start up type companies where I'm CFO rolling. I'm essentially running the entire accounting process. Everything from bookkeeping entries all the way to create financial reports to working with the Securities Exchange Commission. So a lot of times in smaller companies, you end up sort of doing it all when it comes to accounting. Ah, when you're with bigger companies, you tend to take on a specific role, like maybe it's a general account or accounts payable or fixed accountant are fixed asset account, those types of roles. So the most recent 10 years for myself, I start working as an interim part time CFO on a partnership basis, adding value to growing ventures. I'm so essentially what it is I wanted to go into consulting. I want to help as many companies as I could. And since I had sort of a vast background, I want to take that to companies that maybe didn't need a full time CFO, um, or couldn't afford a full time CFO. Or maybe they were growing quickly, and they just weren't able to fill the role yet with somebody permanently. So I go into those type of companies and essentially helped them with all sorts, things, accounting and finance, whatever whatever is needed. That's how I help of works with close to 100 companies in different capacities over the last 20 years. Like it says ongoing CFO. Sometimes it's a one time project to command help create a financial forecast evaluation. Start of consulting. Sometimes it's helped clean up the books. The accounting ah, are installing accounting system. So, um, and the last point I brought I brought companies from seed stage to AIPO, which is when they go public on the stock market. So I really had my hands in all the aspects of the accounting cycle again from the basic, you know, journal entries and bookkeeping to cutting checks and receiving checks, and all the way to the financial reports and reporting to the board of directors. So definitely have ah long history in accounting. And I'm looking forward to helping all you potential accountants out there with your journey as well. That said, we're gonna get started on the course. If during the course you have any questions, feel free to send me a message always happy to answer your questions. And with that, let's get started 3. Overview and What To Know: Okay, everybody. So let's get to the course on the content. So first of all, welcome again. So let's just talk. This is just three sort of general overview points about accounting, if you will, just to sort of get a started. Ah, so first of all, it's important to have an understanding of all aspects of business. So just because you go into accounting and it's very easy to get lost in the numbers and accounting procedure and doing your day to day job, But I'd encourage you were at whatever your environment might be to still try to understand the big picture. And, you know, the type of company worked for it will actually help. As you go through the your world of accounting. You might run into a transaction, and you don't quite know how toe classify it. Let's say you don't know what the debits and credits are gonna be, but if you then think about it from a business perspective of what it is you're trying to accomplish, that might help shed some light on it. And as well, the nature of the business will also impact the accounting that you're doing, you know, different business. I mean, as a rule, as a whole, accounting has its own rules that you have to follow. But certainly then there's some things that are specific to one industry which will apply to you that might not apply to another industry. Just a simple example. If you work for a company that sells a product versus a company that sells the service well , the counting is gonna be slightly different just cause you're dealing with two different types of ways that your company Aaron driving you the second point here, you can apply to your own your own practice or your clients need. So if you're, uh, for an independent accounts to someone like myself, let's say, even though I'm more of CFL role in accounting, you know, I want to be able to apply, um, that general business knowledge to everybody. So I want to be able to swell to take what I've learned and apply it to the next person as well. And you really do you sort of pick up on different ways of doing things as you work with different people, you know, best business practices, or maybe just something you haven't been exposed to, and you get to learn a new sort of concept or accounting rule, and then you get to apply that later on. And then the third point here is just accounting isn't always intuitive, Nor is it always black and white. I would say it's 90 to 95% black and white. I mean, there's specific accounting rules, But even then there's There's room for judgment sometimes on how something can be accounted for and as well, there's ah when it comes to sort of debits and credits. Certainly there's rules, but one say it's something like accounting policy. You know? How do you treat your accounts payable? Do you pay them on time, or do you try to pay them in advance to get a discount? So there's judgment calls to make on. That's where that intuitive part comes in. You have to do what's right for your business, given the situation that you're in. So that's just three served over three points on the next slide, we go to here just second. Well, so, um, over the next five videos, these air five concepts we're gonna be talking about, so I just want to give a quick introduction to them here, so you know what's coming up. And then in the next video, we'll start talking about them. Eso first. We'll just talk about general accounting concepts again. Get your feet wet, gets you sort of in accounting mood. From there, we'll go into debits and credits, which is a huge part of accounting. You will never escape them. It's sort of the fundamentals of accounting. Well, then we'll talk about the counting cycle, and basically, that's the process that you go through when you're doing counting. Um, and sort of every business will go through that, and we'll talk more about it, obviously, Then the next to videos, we're gonna talk about a balance sheet and then an income statements to the fundamental financial reports, pretty much the two main ones that you will ever see. There's definitely other ones that I conventional bring up later on in the course, but these air sort of the fundamental ones that I think you should have at least a an understanding of again. This is accounting wanna Once I'm not trying to make you an expert at any particular topic in this course. I'm just trying to get you up to speed and give you at least an idea of what different things come with accounting and what you could be looking forward to and give you a little bit of knowledge about each of these subjects as well. It's just so you can speak intelligently about them, and then you'll have an idea. So when the topic comes up again later on, or you do decide to go in accounting and you'll remember Oh, yeah, I already learned about debits and credits or the balance sheet or what it is, and now you get to learn more about it. So that is it. That's what we're going to be covering in the course. So let's jump on into the next video and learn all about accounting concepts. 4. Accounting Concepts: Okay, So first things first. Some accounting concepts for you. So, um, these were just general over viewed serve accounting concepts. You'll run into these, they won't necessarily be discussed in your day to day accounting life. Too often, some of them will. We'll get to them here and see it. But overall, this is just good things to keep in the back here. Back your head when it comes to accounting. So first fundamentals of accounting, um think of accounting is almost like a pyramid. And this is the base. This is really what accounting is based on its based on conservatism. So when you're faced with a decision where, you know, say it's making an estimate and again when it comes to accounting, most things have hard and fast rules. But sometimes there is some interpretation. So ah, for example, conservatism. You have to make a ah bad debt reserve and you'll learn more about bad debts later in your counting world. But you basically have to set aside money. Um, so say there's 10 people in the each of you. $10? Well, there's a chance wanted to. Those people just won't pay. So that's we have to make an estimate, you have to make an accounting entry for that. So do you lean on the conservative side? Say, Well, maybe three won't pay or do you lean more on the No. One person will pay. So, um, always tend to leave towards the conservative side when having to make judgment calls in accounting, you'll never be faulted for being too well, maybe two to conservative. But I'm always sort of lean towards conservative timeliness. Everything needs to be done on time. So whether it's you know, your month and close your financial year enclosed the financial audit, whatever might be the so at the end of the day, you're creating reports and information that other people in the company and the business can use and even outsiders as well. Maybe it's investors or are, ah, parent company. They need the information. So if you take three months to create your income statement, well, that information is already old and that they can, uh, quick adjustments to that information cause now three months has already gone by, so you need to be fairly timely materiality. So some things are more important than other things, so it's not worth spending a day researching how to do the accounting for a transaction, which is only $2. Um, so there comes a level where you know what's important. Where is the transaction for $100,000 is obviously very important, and you want to make sure it's done correctly. So what's the materiality of something and how much does it really matter? Um, when push comes to show and then there's the matching principle. So essentially, when you think about it, you know you want all of your revenues and expenses to sort of be reflected in the same periods that they happen. So, ah, for example, if your companies sell something and you sell it, you know this month. But the company doesn't receive the money for two months from the person I sold it to. Well, you know, When did you earn that money? Will you actually earn the money when you sold it? So that money should be recognized as revenue in the month that it was sold? Not in the month that it you actually collected on it. So just as an example of the matching principle, you want a match transactions when with the period with which they they actually, like, apply to. All right, So our next concept here is accrual accounting, and that kind of goes back to the matching principle. So revenue expenses, air recognized when incurred, not when cash is exchanged. A lot of smaller companies, like certain Mom and Pop, think of, like wrote a small grocery chain for examples. When I like to think of, um, it's probably easier for them to just go on a cash basis. So the other type of counting is cash accounting. And that's where you recognize, you know, expenses and money coming in when the cash is exchange. Now. Typically, those businesses you know are doing the transactions and receiving money in the same period when they're earned anyways. But to be completely correct, you as an accountant need to sort of take the accrual accounting aspect. So, for example, if you on current expense sale on December 31st you know, maybe hire a consultant or you're done with consultant, they've already done their services, but you're not actually gonna have to pay them now till January the next year. Well, you need to recognize that expense in the period that happened and happened in December. So that's we need to make an accounting entry to reflect the fact that you know, you you owe somebody money for consulting. And that expenses reflected in December, Um, third point here is going concern. So, um, you always assume the business will continue on. And that might seem sort of, you know, like you should always assume that regardless. But when it comes to accounting as well in some accounting policies that you have to follow if you're doing estimates and what now we have to assume the business will continue on forever, and it's not gonna end next month or next year. The account equation. So this is one that will pop up in your counting life often, and it's fairly simple. And once you sort of, uh, we take a look at the balance sheet, you'll understand this a bit more if you don't already, so assets will equal liabilities plus equity. That's always, I mean, that's a that's just a rule of accounting. You will not get around that rule of accounting. If this equation doesn't work for your numbers, then something is incorrect. Um, and just to give you a little bit of flavor on this. In case you're not familiar, assets is basically everything you own is the way I like to think of it. So things like cash. You know, you own a desk, a computer, all those things. Sometimes they're intangible. Can't touch them. It might be like a patent or trademark while it has value, though, and you own it. So that's assets. It's things that your company owns as well. Money people owe you. See your accounts receivable. You know, you you sell some goods and they haven't page event. Well, that's still an asset to you because you are owed money, and that's legally yours. The liabilities is somewhat the opposite that this is things that you oh, so it's things like accounts payable. You know, you owe vendors for different things that you bought. Um, you might have a loan, um, your payroll. So when you have to pay a payroll that's a liability until it's paid and then equity is essentially the difference between the two. But essentially, it's sort of the think it's somewhat of the value of your company. Mean there's some people would have a problem with using that terminology for basic sort accounting course. I think that use this way to think of it is just the value. So, for example, in this on equation, if we had, let's just use very simple numbers if we had $10 in assets, well, that has to equal are liabilities and equity. So say we have $10 in cash, but we owe somebody else $7. Well, the $7 is our liabilities, so equity has to be $3. So $3 equity plus seven liabilities equals 2 10 and assets. Uhm and the $3 at the end of the day is what are actual value is you know what our ownership is in this company that we just created. So, um, so $3 really reflects the balance between the assets and liabilities. Next point full disclosure. So financial statements typically accompanied by notes with verbal discussion of numbers. Now this is getting a bit more into sort of bigger companies. So if you work for a small company that probably won't be notes, you would probably an accounting role just decreeing financial statements. Maybe you have to explain a few things. Bigger companies though, where they actually have to produce the financial statements and distribute them to investors. And, you know, the upper management team board of directors. They will have come with notes that basically then sort of explain the numbers as well. I wouldn't worry too much about those, um, unless you are in a bigger company environment and then lastly compared to value. So you want to compare over similar periods. So, you know, just in your accounting world again when you're, you know, if you ever just have to sort of do some analysis, um, you want to compare similar periods as it says. So maybe, you know you want to compare this December 2 last December because it's the holiday season and wants to help the sales did this month credit last year, So there's not much value in comparing December to say June when you know those are very different months, especially, say it's a retail business. I mean, those were just different months. So the values, usually in comparing it to the month before just to see how the business is growing or not growing or comparing it to the same month or quarter. The previous year. So again in December, um, this year vs December last year and see how sales there. So there you go. There's some general, just sort of accounting concepts. Hopefully, you're still there with me again. Encourage you have any questions? Send a message through the website. I'll be happy to answer for you. 5. Debits and Credits: Okay, everybody debits and credits time. So debits and credits air Definitely when it comes to counting one a one. Ah ah, fundamental of accounting. You'll never get away from this. And let's just go through this. We'll talk about it. So counties about balance that the other day everything needs to balance out. So the second point here, double entry accounting system is standard. So, um, any enter you make So when I mean entry, it's for transactions of something happens. You buy supplies from somebody, you sell something to somebody, you pay your payroll, you know an investor and rest your company Any transaction that affects the financial statements and they won't always be cash. Um needs to have a debit and credit, and I should say they should have at least one debit on one credit. It's very easy, very possible to have multiple of each or one of one side or the other. But as long as at the end of the day, they all balance for that transaction. That's sort of accounting. 101 Definitely. Uh, just a, um, side note. Most accounting systems wouldn't even let you do an entry without it being double sided, you're gonna have a hard time forcing an entry that isn't already balanced. So, um so Gap, What is Gap? It's generally accepted accounting principles. And what that means is they're basically the set of rules that are out there that we follow in accounting eso for any given sort of situation, you can always go to the gap and see what the rule is. If you're unsure how to book something or what's the right way to handle the transaction, going to Gap would probably be your best resource to to start things off, UM, T accounts. So left side or right side so you won't see many tea accounts. You will definitely learn these if you're going into taking accounting in school, but in practice to use them typically not it really. A few times in my career I've seen a T account is when we have a very complex transaction. It's almost easy just to go back to basics and sort of right out the tea accounts. And usually it's not just a transaction, it's a series of transactions, and you're trying to figure out you know what the process should be for, um, for those transactions. So, uh, without seeing them basically, what a T account is picture like a capital letter T. There's obviously a left side on the right side of it. The left side represents the debits, the right side of the credits. So you might have you would have multiple T accounts. And again, just think of writing these out. Um, you might have a t account for your cash. Might have a t account for accounts receivable Island for payables and equity. And so any time you do a transaction, let's just say it's you sell something. Well, uh, in that situation, you're debit while you're owed money, right? So you sell something to somebody, but they haven't paid you yet. Your debit, so, uh, would be an increase in accounts receivable. And an increase in assets is on your left side. So you'd have ah, left side entry, say, for $10. And then on the right side is the sale on Ben for your income accounts. The credit I the right side is kind of the increased side. So you'd have a debit to cancer sealable a credit to sales or income again. We don't get too much into that. That's getting a little bit beyond the scope of this course. But, um, just you know what a T account is? It's basically a way of actually writing out transactions and the debits and credits. Still, every transaction has at least one debit and growing credit. So, as I said, sometimes, um, you know, it might have multiple. So just thinking again of our sales. So say you sell something to somebody for $10 they give you $5 in cash and they still owe you $5. Well, you made a sale, so we know that the credit is $10 to sales or income. But then on her left side What? We have $5 in cash and we have $5 that toto us. So we would have a $5 debit to our cash account or bank account. I would have a $5 debit to accounts receivable, so in that case you have to debits and one credit. But the two debits add up to the amount of the credit, and then, as it says, total debits must equal total credits again. That's very standard again. If you go in any accounting system. Say we tried to do that Prius transaction I just described in an accounting system, you know, you would enter sale. They would say, Well, how they pay ago cable filers, cash. And then it's going to force you to to somehow set them up as an accounts receivable for the remaining part and the accounting system. Let's just assume it's QuickBooks. We'll take care of the behind the scenes sort of transactions. 6. Accounting Cycle: Okay, so our next sort of accounting concept here is the accounting cycle. So what is it? So before we get to these points, essentially no transit accounting is very sort of cyclical in nature. In the end, sort of point is toe have no financial reports and set of books which are balanced and closed for the period. And let's just think of the years over the course of a year, you know, you have a bunch of transactions, Um, and then by the end of the year, you have financial reports and start a new year. Let's go through these one by one. So first of all, you have transactions. So the first thing that happens in the accounting world, it's some type of transaction has to happen. Otherwise, there's nothing for us to do. So again, it's make a sale or pay your payroll or investors come in, whatever it might be. So for this example, let's just say it's make a sale. So you make a sale. This probably happens on a daily basis. I mean, whether it's a retail store or companies selling software, I mean, whatever it might be, there's transactions every day, so um so with those transactions come journal entries. So journal entries is where we book those debits and credits. This is how you go from having an event like a sale and getting it into our accounting system. So, uh, depending on again the nature of where you work and how it how it is, you know, this might automatically would be happening behind the scenes in the accounting software. So, for example, think of a retail store and they make a sale. Well, as their internal information in the computer and the person pays well, those entries air being, you know, created automatically, they're saying Okay, well, we sold, you know, whatever a new shirt. And then we also received $20 for it. So it would automatically be doing the debits to cash in the credits to sales. Um, the third item here is posting. So what happens is again think of ah, retail thing of a big retail chain, for example, has lots of locations, so they're not booking every single sale as a specific journal entry because the volume would be too much. It would be a lot of, you know, ripe for air. Basically. So What typically happens in those situations is they do things in batches or the kind of summarize. So what might happen is at the store level, they take all the sales for the day and they summarize them. So they add up all those cache entries, all those sales entries, and they just make one posting. You know, we sold $2000 worth of T shirts, so we debit, you know, cash for 2000. We credit our sales for 2000. So posting is the actual posting of those transactions to the General Ledger. And the General ledger is essentially just wear all these, um, those accounts that we talked about like cash cancer, Siebold such are listed out. So posting would be say, at the end of the day when the store closes and they run their final reports and they upload the numbers to the corporate office. That's when they would then get posted to the accounting system. The trial balances seven. So we have all these transactions happening, right? And so they're happening every day. Essentially, what happens at some point is the trial balances run, and it's either by you or somebody in accounting typically, it's once a month is when you're going to do it on a trial balance. Basically, list out a summary of all these accounts on what the balances are. So at the end of that first day, you know, we had $2000 in cash. Okay, well, so we have a debit of $2000 in their cash account, and we have a credit of $2000 in our sales account. Well, maybe we also painter payroll. So we, you know, our cash account got credited $200 because they went down and our accounts payable, um, or pay. Let's just say our payroll expense, um, went up. We, you know, incurred the expensive payroll for $200. That's a debit. So all these transactions happen at the end of the day or the week, The months, whatever it might be when you run a trial balance, it has the balance of all those transactions. So cash now would be $1800 because we brought in 2000 but we spend our we sent out $200. So, um, trial balance should balance is well again. These transactions are all both sides like there's a debit and a credit. So all your accounts and combined need to balance. Let's a trial balance. It's Ah, it's a good way to make sure things balance and make sure there's no weird numbers like it would be weird if you were to look at it and your cash account had a had a credit balance. That means you have a negative cash balance, and that's kind of hard to do so. But it's possible. Say you wrote more checks than you have cash for. That's quite possible. So next is a worksheet. So worksheet is where you start putting together, Um, all these trial balance numbers and then because different numbers go to different financial statements, So you kind of break them up now and say, Well, here's these numbers, you know, like cash goes on the balance sheet. Pero expense goes on the income statement, and you worked through those on a worksheet again. A lot of this stuff is automated these days, so but you will still need toe, learn what it is at its core and understand it, because if something ever goes wrong, you don't want to be completely lost. You want Tobe able to say, Well, let's let's print off a trial balance and see what's happening. Um, so be adjusting journal entries. So again, we're thinking now of a month and close a year. Enclose, um, you know, you do everything. There's always gonna be a few adjustments you might need to make. So, for example, early in the course, I talked about a reserve for bad debts. Will say you have 10 people that owe you money and you're pretty sure at least one or two won't pay. You need to do a journal entry for those s o journal entries. Airways of manually again. We already talked about journal entries manually entering things in accounting system. So there isn't so much a wait. It's not a transaction in the sense that it's not like you made a sailor repaid your payroll. This is more of a decision that you need to adjust some of these numbers. Lastly, after all, you're adjusting journal entries. You'll create financial statements. So get and we're gonna look at income statement balance sheet coming up. Um, so we won't go into those, But there's other financial statements as well, Like your statement of cash flows and your statement of equity. Then you can also run very specific, of course, like your accounts receivable aging and see who owes you money and how late they are. So you create your financial statements on, and there's more to this, obviously, than just create them you dollars to review them. Look for any mistakes fixing the problems, discussed them with the management team. Lastly, once everybody agrees. Okay, up these are the final numbers. Everything is good. You didn't close the book, so essentially what you do is you set your accounting system so that no more entries can be done. Those were the final numbers, and you don't want somebody to mistakenly go in and enter something, and it happens. It's very easy, especially think of a year end. You know you're currently in 2018. So but then on January 1st or second, when everybody comes back, they're doing entries, and they're just used to entering like 2018. So they're probably entering January 2018. Or think about yourself. If you've ever like written a check, you know again, January 2nd, improbably, if there's a chance at some point in the life he wrote the wrong year because that the gears changed. But you're just not used to thinking of that. So I'm closing the books officially is a way of preventing that because this system physically won't allow someone to go in and make an entry or an adjustment with around dates. And that way your financial stay true and they're kind of memorialized. All right, so that's it for the accounting cycle, we will move on to the next one. 7. Balance Sheet: All right, So next let's talk about the balance sheet. So I'm gonna show you a battle of sheet. But first, let's let's just run through this. So this is one of the key financial report. Think of it is a picture. It's a snapshot of your business as of a specific date. And that's important because when we look at the income statements actually more of, like a video and tell the story of a period of time. So balance sheet is how your company looks financially right now, as of the date of the balance sheet, I should say. So it's gonna show, and we talked about these a little bit earlier assets, your liabilities, their equity. And if you remember, your assets always have to equal your liabilities plus your equity. Or if you want to mix that formula up your assets, subtracting your liabilities should equal equity. Um, again. And those are what you own is your assets, will you? Oh, is your liabilities and what's left your equity so further? Sort of breaking down some of those sections so under assets and we'll see this. You have current assets, and you also have another underlie abilities. You'll have current liabilities. So it's kind of the near term items, if you will, things that are less than a year. So cash cash is always near term. You have cash right now. They're Pedro expense that you have Maybe a crude. You're gonna have to pay that soon than later. Compare that to your long term assets and liabilities. Things that are over a year. So fixed assets? No, you have a computer that's gonna last you more than a year. You have a loan. Usually alone will be for a greater period than one year. And again, we'll see this on the balance sheet we look at. So the way how do you interpret a balance sheet? So use ratios is one of the key ways to do that. So you compare current assets. The current liabilities, for example, you know, should you should be able to pay all your current liabilities two times or more. So if you know if you have $10 current assets, you should have, you know, no more than $5 liabilities. That means you could pay your current liabilities now and you could pay them again if you had to. I'm not that you would, but it's just if say, things happen with your assets and you don't bring in some cash, you can know that you would have that safety that and that's just a very simple, um, example of a ratio. There's lots of different ratios out there, and they're fairly standard ones. Toe look and compare numbers on the balance sheet. So you also want to look for growth and strength over previous periods. So you're comparing a balance sheet to this, you know, this current bouncy toe, One to say from last month or last year. You want to say, you know, Are we doing better? Do we have more cash? Do we have, you know, less liabilities and one way to do that as well as use those ratios, because numbers might you like Oh, well, our cash group. But so did their You know what we owe our liabilities. It's kind of hard to say, like I was better or worse. Well, ratios will tell you that. So how much stronger is your assets this year compared to last year? How much stronger is your liabilities? So that said, let's take a look at it. We're gonna look at apples balance sheet here. So this is from this is their yearly balance sheet. Your end. So there you're in the September 30th 1 thing, just a sort of side note, if you will, Um, you don't have to use a calendar year is your accounting year. So, um, a calendar year would be a December 31st ending. I'm a fiscal year, though, can end whenever you want it to. So apples chosen September 30th and they're comparing it to last year for whatever reason, there their year end with September 24th not September 30th the year before. Um, not sure. Um so just looking. This is online if you want. If you go to the Securities Exchange Commission can look up any public company and their financial statements. Um, I'd already got on there. It's searched for, um, for apple. If you want to find it, just search for sec on, then. Edgar, if you search for those two words, you will find a link where you can search them for a company and you'd be able to bring up their financial statements. So we see consolidated balance sheets in millions. So these numbers are also rounded off for ease. So current assets. So here we go. We have current and let me just see here. Okay? Okay. Yes. So, um, when that we see here, there's a total current assets here, and then they have their long term assets. Anyway, so cash and cash equivalents, and we're not gonna analyze these numbers right now. Just kind of to show you what a balance sheet actually looks like. You know, we talk about all these statements, but what do they look like? Cash and equivalents. Short term rectal securities accounts receivable, some money that's owed to them. Um, And you see the word less allowances. Allowances is one of those, um, judgment call entries I talked about. So an allowance would be the bad day, You know, they think that, you know, they say allowances of 58. Remember these Aaron millions? Um, you know, So they sort of reserved for people that might not pay them. So, inventory. Apple certainly has a lot of inventory receivables other current assets, and we'd have to go through and read to find out specifically what they are. But there you go. so they have total current assets, then the long term things that will be around for a lot longer. Markelis curious property plant equipment is things like buildings, factories, equipment, um, goodwill. That's called intangible assets. So I mentioned things like patents and trademarks have value, but they're not an actual thing. It's just, you know you can't touch them. Goodwill's exact same, um, and then acquired. And then there's other intangibles, etcetera. So then they have a total assets down here, so we will see just quickly jumping head without going through these other items. Yet their total assets are 3 75 3 19 their total liabilities and shareholders actually 3 75 3 19 Remember accounting formula. Ask the tough to equal liabilities plus equity. So there you go. All right, so for liabilities accounts, payables is in my day. Oh, people, crude expenses. We talked about accrual accounting these expenses that they've incurred like consultants when there's probably a complete array of different ones, but they haven't yet paid. So these air crude expenses as a year end deferred revenue was revenue you haven't yet earned. So it's techniques that somebody's paid you those let me give you money up front to do something, but you haven't done it. It's technically still their money's. That's why it's a liability. Is deferred revenue, Um, commercial paper would be loans essentially and a Citrus that we have our current liabilities and then they have little turned debt again. Longer term loans. Other non current liabilities would have to read to find out those and then their total liabilities. Then down here is their equity. So we said, That's kind of the balance of the two. So what's left? And this basically represents the ownership in the company, and it really is. It's common stock. And there's lots of vervet about how many shares and the value retained earnings is sort of earnings from prior years, and other comprehensive income is more of a complex topic we won't get into and their shareholders equity. So this is basically what's left. You know, this is what's what makes up the balance of the company. And then, as I said, those two ah liabilities and equity will equal your assets. So there you go. There's a balance sheet, and they and they do give you the previous year for exactly for the reason we said it's for comparative purposes. You can skim down this even and see you know what's changed, you know, to total current assets are are up quite a bit. Um, how our current liabilities, they're up quite a bit as well. So that's one of those things where you have to then compare like, Well, how strong is your current assets to your current liabilities? And how has that changed? So there you go. That is a balance sheet. 8. Income Statement: so up next we have our income statement. So, um, also sometimes referred to as the profit and loss statement or consolidate statement of income. There's lots of little sort of different variations on the name, but they're essentially the same financial report. So well, it's called Income Statement or Profit and Loss or PN Ellis stuff. Abbreviate it. So think of it is a video. So it shows movement over time. You know what happened in the last month? The last quarter of the last year? Toucher. So the bounce she was at a certain date, and usually it's like the month and or the quarter. And now here's where we are at the end of the month. Income statements gonna show you what happened over the course of that month. The totals. So it shows again. We're gonna look at Apple's income statement after we go through this slide so it shows your revenues and that that's your income, that your sales shows your cost of goods, sold your services so that's money had to spend. So think of apple. They sell iPhones, for example. Well, it costs him something to make those iPhones. So your cost of goods is the actual cost of, you know, the parts that went into that iPhone then it also has expensive. So expenses be other things. You know, they pay rent on their facilities, have to pay their employees. So those are more general expenses. They're not directly no part of the phone, but their expenses that the company incurs. And then once you take your revenues to subtract your cost of goods or cost of services, your expenses you're left with your net incomes. That's the bottom line. Um, the next point here says it all. It is premised the most popular financial statement for something to look at because it basically shows you how much did we make? I mean, and that's kind of what people want to know right off. How much do we make this month or this year? And that's essentially what your Net income represents from what it doesn't represent his cash flow. So we've been talking a lot about accrual accounting, so revenues maybe earned, but not yet collected. And if you remember from the balance sheet Apple had in accounts receivable lines, that's money that they've earned already but haven't received. So so you don't want to say? Well, net income say the company made $10. Again, We're using just very simple small numbers. If you run through your income statement at the end of the month, you made $10. Well, that doesn't mean that you brought in $10 in cash yet. I mean, you eventually would, in theory. But what happens then? If something doesn't pay you, you know, or somebody returned something. So there's lots of other adjustments to net income, so you don't never want to think of net income as your actual cash unless you run a very sort of strict cash based business than it would. But, um, you know, we certainly won't incur that too often out there in the world on the last point. Here is so it's best one again when compared to previous periods. You know, you're looking for growth and areas of improvement. So, you know, you obviously want to see your sales increase. You want to see your expenses decrease, but it doesn't always happen. I mean, with increased sales. A lot times comes other expenses, like you had to hire more people and pay them where he had to spend money on marketing. So, um, again, that's where financial ratio analysis comes in really well, cause you're able to compare your sales to your expenses and to previous years. Let's go ahead and take a look at apples so they call theirs that consulted statement of operations. It is the exact same thing as an income statement as a profit and loss statement. It's consolidated because they have multiple different businesses and different countries. So this is the entire company consolidated into one report. Okay, so they represent three different years here, just again for comparison purposes. Their year end September 30th. So this is over the course of a year how much these different line items happen. So, for example, they had nine, um, net sales of 229 to 34 then millions, so I had a bunch of zeros after these. Then we sear a cost of sales, which is same as cost a good. So that's how much they spent, like buying parts for phones and ipads and Mac books and everything else they make on gross margin. We didn't have that on the previous slide, but that's essentially your net sales last year cost a good sale sold. So, um, you know what's kind of your top line? How much did you make on the things that you sell? So they're ahead by 88? Well, and then millions after that. But then they subtract out all their other expenses on research and development. Certainly spent a lot there selling General Administrative. It's often abbreviated as SG and A or just SG and A People say it really quickly. So if you ever hear that term, that's what it is that selling general and administrative expenses against selling things like marketing, sales department, General administrator. You know your payroll departments are not payroll department. Your payroll in general, your employees, your accounting staff. You yourself are part of the S G and a expense. So then you have your total operate expenses, those two and then their net income. So that's their gross margin. Subtract their expenses. They're left with 61. And again, we're rounding completely as well. Um, then there's often other outline items. We won't worry too much about those for now. Again, this introductory course just know there's other things like income taxes, that you have to, um, you know, book that you haven't yet paid. And so But they want to represent that. That's in reality. They're gonna have pay income tax on this eso their net income after income taxes is 48. So you want to show how much the company actually made like themselves, like through their own efforts. Unfortunately than they do have to do things like pay income taxes, there might be some other expenses, non business related. And then that's where you come up with. Well, you know, we made 61 but technically, after everything is said and done, we really made 48. We won't go into this too much, but basically they're showing now because it's a public companies. They have shares out there in the stock market. Um, here they are, right here on again. There's basic and diluted. We won't get too much into, um, but, you know, they have 5.2 million shares out there. So if you divide their net income divided by that money shares, here's how many. Um, here's how much in theory, each share made. So in some sense, they are doing one ratio for you. You know, you can compare to previous years. So in 2000 this was 15 made $9.28 a share. Then it went down, and now it's back up. But it's pretty much just the same total as two years ago. Um, so I mean, do you do what you will with that? But obviously this number reflects. And I mean, this number is subject to interpretation as well. You know, this number might be down because they issued a much of shares. And if you see, they've actually reduced the number of shares out there. And I do recall, just and some other announced this is doing of Apple, they actually bought back a lot of their shares. That's why they have less shares out there now than they did two years ago. Um, but that certainly is also gonna impact these numbers. So even though their net income has gone down, I went down it up. It didn't quite come up to the same amount, but their earnings per shares promised the same. So it has to do with these numbers shares. So lots of ways to interpret data. Just a fun example. If you will off things you can do with the number seven. All right. That's others move onto the next video 9. Revenue Recognition: Okay, so next we're moving into what we've labeled what to do. So it's similar accounting, sort of just terminology and policies and things you need to know about on sort of that fundamental level that we haven't introduced you to yet. So, and rather than tell you what's coming up, we'll leave that to be a surprise. There's five more about videos coming up with information. Then we're also gonna have some do's and don't when it comes to accounting and a few case studies as well. Just a brief, just kind of an overview of different companies and how they handle their accounting. So unless first things first, though, let's talk about revenue recognition. So revenue was recognised when it's earned, not when it's collected. And hopefully that rings true now because we mentioned a few times about accrual accounting and the matching principle. If you remember, you know, think revenues expenses need to be matched with the period in which they were earned or incurred. So if you earned review in December, you need to recognize it in December. I'm not when it's collected, somebody might not pay you for a month or two. That's accrual accounting versus cash accounting so we can skip over that. You know that now on. So the reason is the matching principle. So I can already jumped ahead and told you all this. So you match your revenues and expenses with the periods in which they're incurred. Um, so for revenue, uh, let's go back to our debits and credits we debit accounts receivable. It's a current asset. It's on our balance sheet. That's money people owe us. We credit revenue. So just to give you a quick overview, if you will hopefully remember, um, asset accounts. If you want to increase in assets or whether that's cash or accounts receivable or your inventory, it's always a depth. And obviously a decrease would be a credit when it comes to your liabilities. And it's the flip and same thing with equity. And if we think about it that balancing that you know everything has to balance. It kind of makes sense on increasing the liabilities that's like accounts payable. You know, payroll counts your payroll not expense, but your payroll payable, or somebody invested company to increase a liability or an equity account. You actually credit them on your on your income statement. So which is your revenue and your expenses? Um, increase in revenue is a credit and increasing expenses, a debit. So hopefully keep those in mind. If not, once you get more into accounting, you will definitely learn sort of the how each account is treated and whether you debit or whether your credit that sometimes is the confusing part. But once you kind of get the hang on, which you know which way you have to do it to increase something or decrease that, um, you'll know and you'll become a pro. But in this transaction suddenly bought something from us. We debit accounts receivable. We credit revenue. So when the money is collected, so now somebody hands us cash. Now we debit cash because we have received cash and we credit accounts receivable were decreasing our accounts receivable. If we go back and think about those tea accounts and we didn't drawn out, but if you have a T just for your accounts receivable, so we originally debited, it's a $100. We had a transaction for $100 where we sold something we debit accounts receivable, and now they've come and paid. We credit accounts received $100. So what's the balance is zero. You know, we had a balance owed to us, and they paid it. So they don't always anymore. So the balance in accounts receivable zero. And that would be reflected by adding the debits and credits within the accounts receivable T account. And then, as it says here, Councillor Cibeles cleared out. We recognize the revenue when the transaction happened. The original transaction. We recognize the cash when it was collected. So say these two things happened in two different months again. So we did the proper accounting. We matched all of our transactions, uh, to the correct periods. 10. Short Term Liabilities: All right, so next we're gonna talk about short term liabilities were actually gonna focus a little bit on, um, deferred revenues. So let's walk through this. So, in general, short term liabilities or things that you're gonna Oh, um, it's, you know, you have a dad in the near term payments, and a short term is considered anything under a year. So if you have a loan, um, whatever loan payments are due within the next year would be classified a short term, Um, your accounts payable a short term. You, in theory, you have to pay your accounts payable within the next, probably 30 to 90 days exact. Those are good examples. So let's talk about deferred revenues a little bit more tricky concept, but still, it's it's ah, good to know these things. So if you collect money up front and it's on unearned revenues, so also called deferred gravity. So the example. We're going to use this kind of like some type of service. We're going to say it. It's a consultant. Um, you know, they collect a retainer up front, so let's go through this. So Nel say, the consultant takes $10,000 upfront from a client, but they haven't done anything yet, so that's unearned revenue. It's technically money you owe back to your client because, uh, they haven't haven't done anything yet. Now, talking about the consultants. Point of view. Um, so he earned the revenue is to provide the service. Until then, you've collected money that you haven't yet earned, so it's like the liability, so example is collecting a retainer. So what happens when we collect a retainer again? Now we're in the seat of the consultant themselves and how they're doing their accounting. So it collector retainer. We debit cash because we've collected money. That's $10,000. We put the bank and we credit under earn revenue. So and if you remember from last video I mentioned, um, the ways you increase the liability is by crediting it so unearned revenue. So, you know, months later we build a client for one month, and we, you know, use it against their retainer and say it's $2000 so we would debit under and revenue. So we're reducing the liability, and we would credit revenue so there's no cash transaction here, but that's correct. Is it not? Because we already collected money up front. There was no cash in the in this transaction and this transaction. We're just trying to reflect the fact that we have now earned part of that money. So we've debited under and revenue to reduce that, and we've credited revenue. We've actually earned revenue. I'm so over time you'll deplete the honor and driving you. And you'll repeat that when you collect a new retainer. So you know, once that complete $10,000 is used up, it's all been earned. You probably to collect a new retainer. Maybe you're done at that point. Um, so tracking wise on this, you would be tracking each client's separately, but you would consolidate would make it one line on your balance sheet of under driving. You certainly people readers your financial statements don't need to know the details of who your clients are, how much each of them you know has paid you and how much of that is under and stuff. That's essentially what unearned revenue was all about, and in general, short term liability because you would expect to perform these services over the next year or hopefully and then the near future 11. Cash vs Accrual Accounting: so we've mentioned several times. But let's just sort of devote, Ah, a little lesson here to it, to cash verses. A cruel so cash accounting is more or less a thing of the past. Um, in the past, you got to make a choice, and as long as you ran your business the same way consistently, it was okay. Um, but over time, a cruel has just become the way a way to go is accounting rules get more strict, and it's been this way for a long time. This isn't anything recent, um, at a big part of his, because in a cruel you are doing those matching principles, your matching the revenues when they're earned. You could certainly see how a company would, with cash accounting and be a little bit more subject to scrutiny. They could, you know, take in cash, but not record until the next month. So say it was for tax purposes. You know, it's December 31st. Just wait a few days and account for it in January, and then it's next year's tax issue. So, um, cruel account has become the way and, you know everything needs to be recognized when it actually happens. So, um, taxes, though, are done on a cash basis. So that's part of what example I just gave us all about. It's when cash actually happens. So, um, small businesses, some mom and pop stores. I was again Think of a small grocery chain corner store. They often use cash basis, since its simple I mean part of it, too, is your audience. I mean, if you're a mom and pop store, you're probably don't have investors. You don't have other stakeholders. This is just your business. It's your livelihood. They might not. They probably aren't running their income statement balance sheet and doing ratio analysis . They are just, you know, very much on a cash basis. So that's okay in their situation. Pretty much anything bigger that, though I can't think of any examples where they wouldn't want to use accrual accounting and sort of be held accountable to doing that, Eso proper accounting worldwide uses a cruel accounting. It's the matching principle. Again. There's a gap is very much sort of, um, US based. Can a base the rules very slightly in Canada, not too much. And then there's also sort of an international accounting standard out there as well. So which again is very similar to gap. But there's a few differences, so you kind of have to decide which one you adopt. But for the most part, people just follow Gap, and that's close enough to the international rule side. If you did have it, a reason to go international. Um, your accounting would still hold up. So remember, a cruel is matching revenue expenses with each other and in the period that they earned or incurred versus when money is collected or paid. So that's just how to remember what a cruel accounting is. It does take a bit more accounting work, but provides more accounting, more accurate reporting. So, um, the example we had where you maybe make a sale. But the person hasn't paid you yet? Well, it essentially ends up being two entries, right? You have to make an entry now when When you sold the item and then the person pays you in a month, you have to make another entry. So it kind of doubles down, if you will. The accounting work, but at the end of day isn't really that difficult. Not really. And honestly, accounting systems. Thes days handle all these transactions, were you? So it's a quick, simple transaction and us and the near counting is done, uh, correctly. 12. Reading the P&L: Okay, so next just talk a little bit about reading the profit and loss that we looked at, That profit and loss. Hopefully, Now you kind of get remember the flow of it. Um, well, just mentioned here, you always read from the top down. Kind of like reading a book or anything else. Your top down and left to right. Um, so the organ will always be the same. It will be a revenues first, followed by a cost of service or cost of goods or both, then followed by your expenses up next. We didn't see it on the apple, but it's called a but ebitda that that abbreviation there were six letters what it stands for its earnings before income, tax, depreciation and amortization. And they kind of did have if this didn't call it that, um, then lastly and I'll talk about it about it a bit more in a second, then after that, they'll have other income and expenses. And lastly, they'll have that income eso before we move on the so that if you do remember, they had kind of, ah, earnings number. And then after that, they broke out. What the taxes be and then they have, You know, the very bottom line. Uh, the reason companies do that is because they have control over pretty much everything up to this line. No, they they can work on how to sell more. They can control their costs of services, a cost of goods, other expenses. You know, they're barely in control in these are all business related items. Um, so you want to show this? This is business related earnings. Other income and expenses is things like your taxes, your depreciation. We haven't talked about depreciation all, but it's an accounting entry. It's a way to write down the value of your assets, essentially over time. So you know your computer isn't as valuable four years after you bought it as the day you bought it. So you need to reflect that in accounting, that's depreciation. There's no cash transaction involved. It's just reducing the value of it. But that's just a very sort of mandated accounting rule that you depreciate your assets and there's sort of defined periods, depending what the asset is. Um, so that's not something you have control over. You know, if you have computers, you have company vehicles buildings. They'll need to be depreciated. Um, and that's not really a business transaction. That's, uh, you know, the only weak control it is by not owning the building or not owning the vehicles. But again, that's not a business decision. That's sort of the driving revenues. So that's why all those other expenses and income taxes were broken out again separately and after the fact. Nonetheless, to keep going, um, so the piano can have as much detail or be a summary as you like. So again, you know, we looked at apples and it was sort of, Miller wrote, like they broke out. You know, revenues, concerts, etcetera actually would say, it's really summery. Um, on the flip side, you could list out every single revenue stream with say, Well, here's the revenue from iPhones. Here's the revenue from Mac books, etcetera. You typically don't do that when you're giving financial statements to other people. When it's confusing to read. There's a lot of detail in a lot of times to they don't necessarily want to give away all the information about their financial results stuff they don't have to. So, um, ultimately have again have to think of your audience. You know, if this is just for you and it's your business and you want to, you know, no, every single detail, you probably do want to look at revenue by product line. But if it's again just for your outside investors, they just need the summary information, um, best use when compared to other periods. Again, you're looking for trends on the financial statement, and the best way to do that is to look at ratio. So your girls profit your net income, the revenue expense growth, and there's standard financial ratios out there. So if you do get into sort of create financial statements and doing analysis, I'd encourage you to go search what those financial ratios are and how to apply them to financials. 13. Dos and Donts: okay, Something next to have some do's and dont's for you when it comes to accounting and sort of learning accounting. So, first of all, learn the basic terminology and concepts. We've done some of that through this course, but there's certainly lots more out there. So if you sort of decide to go down this road, whether it's a decision again, what you're trying decide whether to go in accounting for educational purposes or, you know, you are in an accounting rule of some sort with your company. Go ahead and research some more of that terminology and the accounting concepts, the standard ones. Anyway, um, so ask questions of your county staff to understand better. So if you're in a position, you know, maybe you're taking this course because you know, you work in a company and you are the CEO, but you don't really understand accounting. You just know what the final numbers are. You go ahead and ask questions. That's what people are there for. People like Teoh be able to inform other people and teach them, so I'd encourage you to do that. Um, you know, think about how a sale will materialize for accounting So, you know, if you're just starting out again, you know, think of your own situation and Okay, well, what would you know? What debits and what credits would happen. What would be the timing, You know, Do our customers pay us on time, do they not? Do they pay partially up front, or do they pay in full up from all those types of things? Um, you know, maybe you sell something, but you don't actually physically have it. Maybe you sell something that you then order, and then you ship it to them when it comes. Well, it's not deferred. Revenue used. You haven't earned the sale yet. You haven't, actually, you know, given them the item that they bought. So think about all those types of things when it comes to your company. Uh, next understand the relationship between the balance sheet and profit loss. So again, all those accounts, you know, cash accounts receivable, deferred revenue, you know, under and revenue liabilities. Where are they? What financial statements are they on? And how did they How did they work together? On the last on the dues is used your understanding of financials and look for ways to become more efficient. So at the end of the day, you're creating financial statements. One to show how the business is done, reflect on it. But then you're really looking to improve and always make things better. So that's where a lot to the financial ratio analysis compares. See what's going good, what's not going good and make changes for the better for your company. Eso some don't These are things you do not want to do, so don't expect to be in accounting wizard overnight. There's a lot to accounting. There's a reason that it's a four year degree to get an accounting degree. There's just so much to it. So, um, you know, certainly taking this course is a terrific first step toe learning all about accounting and finance. But there's lots more information out there, and I encourage you to go and look for it. Just a side note actually do have an accounting sort of basics, more elaborate something. It's believe that eight hour course a swell. So if you look at my other courses, you'll see accounting and finance. I believe it's for startups and for small businesses, that would be a terrific place to start. If you If you're in that situation, don't get too tied up in the minor accounting details again. Accounting at the end. A. There is a lot of black and white, so don't get too frustrated cause you can always just search and find out what the answer is or how to handle the transaction. Don't get don't make decisions based only on the financial reports, so you definitely don't. You know, sometimes people are under pressure there, so they they have to make a certain earnings amount or they need to, You know, they really want the revenue to show one million and revenue and the company only or 990,000 this year. You know, cos then try to find ways to to sort of make that extra bit of money happen. You know, maybe they book an entry early or something. Um, you don't want to make bad decisions that way. Come and make decisions based on how financially they look. Don't neglect your accounting. You see this a lot. In small companies, they just don't do anything. I mean, they handle the, you know, they make deposits in the bank account they pay for expenses with cash, but they don't account for all these transactions, and at the end of day, they have no way to really reflect that and run financial reports. So you don't want to do that. So ah, stay ahead of your counting. If you're the small business owner, and then lastly, don't get overwhelmed with the terminology and techniques. There's a lot to it again. Sell them Will you have to do every single thing that you learn in accounting. You know, you need to know about accrual accounting and the fundamentals of accounting and DeMint's and credits. But a lot of the stuff just happens in your accounting software. So it's the understanding in case something went wrong, or you have to explain it to somebody. You don't actually have to do that. So I think you're gonna be booking debits and credits every single day of your life. 14. Case Study 1 Error Detection: Okay, so next we're just gonna talk about three case studies in this each video, each case said it'll be a separate video and there not hard core case studies, if you will, where I'm trying to give you some real world examples where accounting comes in. So in this first study, um, talk a bit about error detection. There's some absolutes and accounting. So again, this accounting formula, the balance sheet must always balance Assets has to equal liabilities plus equity. If they don't, something went wrong. It's very tough to do that in counting system these days. But that's not to say that people don't find ways to do it. So you need to be aware that this is a is a given. If you ever produced a balance sheet that's out of balance, something's wrong. You're gonna have to fix it. So, um, so you typically don't see credit balances and assets or debit balances and liabilities, So that's kind of your first sort of hunting spot. Um, you know, and so say you're kind of system doesn't sort of defaulter doesn't force you to make sure things balance. Um, sometimes people just put transactions in run you know, maybe they went to enter a debit and credit and they entered to debits. So if you run your trial balance, if you remember, we talked about trial balances early in the course, which will show your balance in every single account. You shouldn't. As it says here, you typically don't see it credit in an asset. So think about it assets or things like your accounts receivable or your cash. You know, if you typically see debit balances, you know, positive balances. If you have a negative in cash or negative receivable, that means somebody either overpaid you if it's correct, or, you know you wrote too many checks, but most likely there was an air, and that's where you're gonna be able to spot those same thing. Then with liabilities, you shouldn't see debit balances. Um, that means you overpaid something, uh, you know, say alone for $100. Well, if he has a negative balance or debit balance, that doesn't make sense. That means you overpaid alone, and he most likely didn't. So that's a good way to start to look for errors in your accounting system, so as well know how to read the financial statements and quickly spot problems. So it's kind of the same thing. If you read, you know, you pull up your income statement and shows negative revenue. Well, that doesn't really make any sense again. Already run your balance sheet shows negative cash, negative cuffs, people. Things like that are kind of automatic red flags that something's wrong. Um, as well. What a lot of companies do toe look for errors and problems is over time. They kind of learned, you know what standard, like maybe gross margin is always 5%. Or maybe it followed between 4.8 and 5.2%. So they'll run ratios and they'll say, Well, it's, you know, it's 7% this year, Um, or this month, so something is obviously wrong or something was booked incorrectly because a lot of times two errors don't pop out. You know, you if you think of a big company like Apple, that billions and billions of dollars in sales and transactions, you know, are they really going to notice, you know, a $1,000,000 issue? They might not, because it just blends in with the numbers. Um, but if they have sort of standard ratios that they look at then that $1,000,000 might be enough to throw something off, that somebody would investigate it and look into an issue. 15. Case Study 2 Running The Business: So our next sort of case study, if you will or things. I think you should be thinking about doing it. Just running a business. Now again, I'm thinking of am ah, smaller business where you know you're doing the counting yourself. But you may probably also run the business and maybe your consultant or, you know, you have a small retail store on Amazon. Whatever the case might be, um, so I encourage you to review the monthly financial statements, and they help you gauge performance. Obviously, that's ever been doing. We've been looking for, you know, how do we find better ways to increase our revenues are reduced our expenses. So if you keep accurate accounting records, you're able to run those financial reports and then sort of run all those numbers and see how you're doing. Comparing the previous periods provides the most information. So again, you know, just looking at a balance sheet. I mean, it's good, and hopefully it makes sense. But if you have nothing, compare it to it doesn't have a ton of value. Same thing with your income statement. I mean, you might look at and say, Hey, we made money. Terrific But, you know, did you make more than last month And you make less or things going up or they're going down. I mean, you might have an idea in the back, your head, but having those hard numbers in front of you is the best way to go about it. So look for trends. Revenues, you know, Are they growing 10% a year, 10% every month. Expenses, air, they also climbing up. You know why air they climbing up, um, and then also look for specifics within each category. So don't just look at revenues as a whole. Maybe look at revenues by product line. Look at your expenses. You know, look at your payroll. Look at your R and D. If you have such you're selling expense, maybe even you've been selling a lot more about your marketing expenses has doubled. You've spent way more on marketing than you realize, so there's lots of ways to interpret the numbers, and it's easy to get caught up into sale. Good revenues are going up, but if you're, you know, spending, you know twice as much on marketing than it's not necessarily a good thing. And then, lastly, I encourage you to look at the ratio. So liquid. So these air names of some of the ratios liquidity ratio. Um, capitalization, look at your margin rates. Um, you know, liquidity has to do with the balance sheet. Those current assets and liabilities. How liquid Ari, would you be able to pay all your current debts if they were all due tomorrow? And would you have any money left over? Capitalization? How strong is your company? You know, that equity section and then margins. That's more about your performance on the income statement. So take the time you really dive in, understand the financial statements, and, uh, and do that announce that sort of put them, put them to use, but being on just generating them. 16. Case Study 3 Projections : Okay, so next sort of case study number three projecting forward. So, you know, we've been learning a lot. Just about accounting and account of basics and terminology and reports. You know, I'm thinking ahead now a little bit, you know, you're getting your feet wet. A little bit of an accounting pro. Now, um, So you want to kind of the next step? If you would if you're in that accounting world, So use your history and your run rate and look into the future. So that has has to do with productions. Essentially. So again, you're in that accounting rule. You've got a bunch of numbers. You've got financial statements, if you know, went through the accounting cycle, all your debits and credits match. Now, what do you do with all this information? While one way is you make projections. You wanted the entire financial goals with your overall strategic goals. So, you know, you start to get a sense of like, Okay, well, our company seems to be growing, you know, 10% of years, So let's project forward. Can we grow maybe 15% next year by, you know, tightening up a few things. Um, and That's where you start making strategic goals within the company. Like, you know, we want to reach out to, you know, so many new markets, and we believe it will contribute this much revenue. Well, what does that mean in terms of revenue? How much more revenue and how much? How efficient are you with that money? Um, look for efficiencies. You can implement a lot of times that has to do with your expenses. You know, is there way you know you can automate processes? Can you? You know, maybe some of your marketing, you could have someone else do it. Or it would be cheaper to hire an outside marketing firm versus hiring an additional marketing person. Look and think about all those things that can almost go line by line and kind of calculate . Well, does it save us any money? And is it a smart decision as well? I mean, there's always lots of ways to save money, but they're necessarily intelligent decisions for your business. And then Leslie here, planned capital asset purchases, expansion, marketing. It's such a so capital. Assets are things like buildings, vehicles, you know, or even if it's just other smaller assets computers. You know, if you hire a new employee, you know that probably means well, we have to buy a desk and a chair and a computer. There's a cost that goes with hiring staff, so doing a lot of planning will go a long way. So now we're kind of going beyond the accounting role and really projecting forward. But we're using all the information that we gained through proper accounting. So you kind of see now as well. Accounting isn't just about, you know, putting much numbers in a computer and printing reports. There's a lot that it then contributes to a swell on an occurred duty, then use that information and sort of, um, you know, do more with it than just sort of print reports. 17. Ten Point Checklist: Okay, so now just sort of a 10 points or summary check last settle again. Some will apply it to some people. Some apply to other people. It really depends on the situation you're in. Uh, let's go through these just things that keep in mind when it comes to accounting in a county 101 So, basically, you know, you're just starting off in accounting. Learned those basic fundamentals. You know, we talked about debits and credits. We talked about the different types of reports the accounting cycle. Learn more about them. They will come up time and time again, and they really are the fundamental sort of parts of accounting. So secondly, think about your own business while learning accounting concepts. So, um, you know, if you have a business, you know, think about how this applies to you are if you're maybe just a college student starting out , you know, think about type of business you might want to run in the future. That's tried. The best way to learn a lot in accounting is to think about how it applies to a real world situation. Ask questions when you don't understand. So whether that's in this course, you know, feel free to send a message or you're out there in the real world and, you know, ask questions of other accountants. Certainly there's forms you could go onto our groups. You can meet up with. You could Google things. I mean going on. Google is asking questions in and of itself. Number four Determine what need to have from accounting and finance. Learned how to get the answers you need. So again it's completely relevant to your situation. So if you're going into accounting your student, you know, ask your teacher. That's professor last year. Fellow students, If you're already in accounting, maybe you haven't accounting department. You can ask questions or you can hop online and that's forums. Ah, next understand primary financials and be aware of other supplementary reports. So we looked at the balance sheet and the profit loss. Those were two main financial reports, but there's certainly lots of other ones out there. Statement of cash flows would be what I would encourage you to look at next if you're thirsty to see what else is out there on. That was a little bit more complicated. You're not gonna understand that probably right away. You have to kind of wrap your head around it, and you really had. Do you have to understand a bit more accounting before? You probably understand that cause I feel like you understand the debits and credits and have a chart of accounts and trial bounces all flow. You need to have a fairly in depth understanding of those and real world transactions before you'll get the statement of cash flows. Um, so just know there are other reports out there. Get to know specifics related to legal, better pre pays deferred revenue. There's lots of sort of nuances in accounting. So, uh, you know, we didn't talk at all about prepaid. We did talk about deferred revenue, prepaid things like paying for, you know, when you pay your first and last month's rent well, that last month your pre paying for rent for that final month, do wherever you are. Or let's just say you pay for whatever some service you pay for six months in advance. Well, you've prepaid, and that's still asset to you. So there's lots of other accounting, and a lot of times it is tied in the things like legal and whatnot. So don't explore all those, Uh, your goal is to know enough to be dangerous. So again, this relates to your situation. I mean, if you're going into accounting, you're gonna need to know a lot more than that. But if you just want overview of what accounting is, you know how it applies to your business than perfect. Hopefully you're getting that knowledge at this point. Um, if you're in a situation where you can do this, let your bookkeeper or accountant do the heavy lifting again. If you know enough to be dangerous. Say you own a company and you have accounting staff for Justin Accountant? No, Let them handle all the day to day and the and the in depth. But it's good that you have this general overview of how things work and how to read a financial statement. I'd encourage you to continue learning beyond the basics. So I mean, we've really touched on the basics, and there's still more basics to come. So, um, really keep keep the learning process going. I would encourage you and lastly, used accounting software to make your life easy. It z, you still see people who may be used. Excel. They just kind of manly. Keep track of accounting. Um, there certainly Probably not following completely 100% correct counting procedures. Doing so. So I would encourage you to, just despite the bullet. Something like QuickBooks. Fairly cheap. Um, there's even free accounting software out there that has very sort of basic functionality, but it's better than doing it manually, so I encourage you to look at all those avenues. 18. Course Conclusion: All right, everybody, that is pretty much it. You've made it through the course. Congratulations. Just want to make a few final points here, and then we'll read the three on the screen that will wrap up a little bit and we'll go from there. So it's first of all, congratulations again getting through all the course content. I mean, certainly if you're never been exposed to accounting, I'm sure even some of that was a little bit confusing. At times, I encourage you either go back maybe rewatch courses or the videos that you didn't understand or feel free to ask a question. So unless so in general accounting, basic understanding can go a long way. And hopefully you have a basic understanding. Now, you know. So if somebody hand you a balance sheet, you would go, OK, I remember what this was cursed. Taught me, you know, balance sheet and debits and credits. And no assets equals liabilities and equity. Like you see, you have a bit of knowledge. Now you're a little bit dangerous. Um, accounting isn't always intuitive. So things like the one example is, you know, to increase the liability, it's a credit. But to increase an asset. It's a debit. Things like that don't always come naturally. But that's OK. You'll get there in time. Um and then lastly, the basic supplied everyone and then their specific niches of accounting that applied, depending on your business. So, you know, again, if you're in a service based business, you're not going to deal so much with cost a good soul, that's not gonna matter or inventory. Um, whereas on the flip side, if you are a big product reseller on Amazon, deal a lot with the inventory. But you're not gonna deal with services or sort of, um, having deferred revenue, things like that. So it really depends on your situation. That's it. Everybody on the next slide have my contact information since we skipped there. So there I am again. Feel free. Send an email, my website, Twitter. Honestly, not on Twitter. Too much rest, but is the message may through the course, if you have any questions, are comments. I'd love to hear them encourage you as well, if you haven't had a chance to do so already. Um, to go ahead and leave a review for the course. You know, I love hearing your feedback. Have you had any issues with it along the way? Semi message in advance if you could and hopefully I can make good for you some, Um, that's it. I'd also encourage you to check out my other courses. I have a lot of different courses up on the site. All accounting and finance, sort of related courses. I do actually have an accounting finance for small businesses course up there and in advanced accounting finance for small businesses up there. So if you want to continue with your learning, those are, um definitely what I would recommend. And then there's lots of other content up there as well. So thanks everybody for taking the course. I hope to be your instructor in more courses to come and good luck and accounting.