Accounting for Beginners - Level 1 | Chris Moore | Skillshare

Accounting for Beginners - Level 1

Chris Moore, Chartered Management Accountant

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8 Lessons (22m)
    • 1. 1 Introduction Level 1

      3:05
    • 2. 2 First Transactions Level 1

      5:06
    • 3. 3 T Accounts Intro Level 1

      2:47
    • 4. 4 T Accounts Conclusion Level 1

      3:01
    • 5. 5 Trial Balance Level 1

      1:49
    • 6. 6 Income Statement Level 1

      2:40
    • 7. 7 Balance Sheets Level 1

      2:43
    • 8. Test explaination video

      1:00

About This Class

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Transcripts

1. 1 Introduction Level 1: this video will give you an introduction to what's coming in the next six videos. This is in effect, level one, and later we can talk about late level two and beyond. The individual parts of accounting are definitely not difficult. The only difficulty is the sheer number of roles to remember. We're only going to concentrate on the important roles, the fundamentals, some of the accounting job and you do need to understand. But the vast majority of it can be put on the back burner for the time being, so we can concentrate on the really important stuff. We're going to look at how the financials are created by first during some basic accounting entries that leads into the trial balance, which in turn creates the company financials. Once you understand the fundamental stuff, the variations are much easier to understand. After all, it should be just the account on the gifts, totality questions. You should be giving him financial questions on your company. You're a counter my mind. In fact, your accountant will be pleased that you're shown interest. The introduction says course will concentrate on smaller companies because the only difference between a small company on a large company is the sheer number of transactions and, of course, the size of the transactions. So this is their introductory course, and we would not be starting at Level two and analyzing large company finances. We will instead be starting with a basic fundamentals, and this will also help you understand level two and beyond. Much better. The good days is you definitely do not need to be mathematical to be an accountant or to understand financials. If you can add and subtract items, you are most the way there. Occasionally you need to most ply and divide, but these are the only mathematical tools you really need before we start. Please remember that T accounts are made up off debits and credits and that debit accounts are always on the left hand side and the credit accounts. Ah, yes, you've guessed it always on the right hand side. Oh, debits and credits are allocated to a specific account. Imagine met and accounted a simple folder, even though it will be an Elektronik folder. In larger companies, there are a lot of revenue, and expense accounts on the transactions will be a lot larger in value. The company's computer or cloud accounting system will allocate the various debits and credits based on the account code in in all companies, there are also balance sheet accounts, which are assets, liabilities and equity and reserves. In the next video, we'll look at a new company starter where the founder has a startup capital. We will see how this affects the new company bank account and what the opening balance sheet will show immediately after the company has made its first transaction. 2. 2 First Transactions Level 1: in this video, we're going to follow a fictional startup company to see how the first transactions go. Before that, we will see how having a credit balance in the bank is necessarily a good thing. Do you know that banks and accountants fundamentally disagree on this? Banks. I think that the credit balance is a good thing that countenance it is a bad thing. Let's find out. Did you know that banks and accountants fundamentally disagree on what to call a bank account? Surely not. I thought Bankers have accountants for best buddies before we start on the accounts less cover why banks and accountants disagree on what to call a bank balance. And why is this important to his course? If you understand this, debits, credits and T accounts will be much easier to remember and to correct me, master them. Banks confuses by courting the money we have in the bank. A credit talents. Everybody has heard that if you have money in the bank account, you have a credit balance, don't you? After all, that is what the bank calls it, doesn't it? Well, it isn't how accountants double entry works, so an accountant would say that money in the bank is an asset, and as such, it is clearly a debit pounds. Take this extract from the bank statement that shows that money coming into the bank account off 1300 actually increases the positive pounds. In a count in terms, money in the bank are actually debits. The big take away pull into is that if you can remember how bank account works, almost all of the other accounts fall into place. Just a reminder. Before we get into the bank account, get this guy on the left and credits going. The right bills are usually pay out of the bank account. So how do we deal with the accounting? A payment of 10,000 is made out of the bank for either and as it or expense. The entry is Credit Bank 10,000 and debit as it or expense account dependent on what you spend, the 10,004 15,000 has been received into the bank account, so this is a debit because it's added into the bank bones. The officer entry could be a cash sale or a loan from the bank, or even a reduction of an existing asset such a customer pain for an outstanding invoice, which would reduce the accounts receivable. A payment could be a reduction in a liability, such as a bank loan or pain and outstanding invoice. A receipt could also be equity money from issued shares in the company. The major point to remember is that once you've worked out how to deal with back camp, the other account will simply be the opposite entry. Just to emphasize remembering how the bank cam works is the key to remember and all the other accounts, Let's move on to a new start up company. Tom has come up with a new business idea, which is convinced will work out because some of his contacts have already said to him, When are you going to start your own business? Tom has 28,000 capital. He forms a new company. Then he goes into the bank and opened up company bank account. He then transfers 28,000 of his own personal money into this company bank account. Dumb pays 28,000 into the company bank account. On the take out it is debit bank and credit owner's equity account. If we were to do an opening trial bounce. It will simply be debit bank and credit owner's equity. And, as you can see, it bounces. The opening balance sheet reflects the open trial balance. As you can see, the assets have 28,000 on the equity has 28,000 the balance sheet balances. The horizontal style balance sheet shows that the debits are on the left hand side on. The credits are on the right hand side, which is just the same as accounting T accounts. Now for the second transaction, Tom Needs and computers, this money will come from the bank account. 7000 is placed on the credit side of the bank, and as this entry must be a double entry, the opposite entrance This is Debit 7000 to the computer account. The extract from the balance sheet before the completed purchase was as follows. The bank shows 28,000. If we were to do a balance, she immediately after this transaction, the any change will be that the computer assets would raise by 7000 on the bank would reduce by 7000 a simple transfer of assets from one part of the balance sheet count assets to another part of the balance sheet. Fixed assets. In the next video, we'll be looking at six new transactions. No, it won't be that complicated. What I meant to say was six simple transactions. Well, maybe not that simple. We're simply enough. 3. 3 T Accounts Intro Level 1: we're going to follow six simple transactions in Tom's company. These are some of the first entries he made in the third transaction, Tom Bias Demonstration REFILES for the company. The bank account is account, as it account on the station account is an expense account. The money comes out of the bank. Therefore, the double entry is credit bank and debit stationary. Tom has managed to set a day services for 520. At the end of the day, a check was produced by the customer and come paid this into the company's bank account. The double entry for this was debit bank and credit cash sales. The reason it is called cash sales is no because it was paid in cash. But the fact that he went straight into the company's bank account and know the normal sales on account. As you can see, the debit entry in the bank increases the back bends and because the exiles are expected to be a credit, parents, the trade entry also increase the sales. When you sell to larger companies, the customer will usually expect you to invoice them. They will, in effect, pay you later, usually 30 or 60 days later, these sales are called sales on account. The debit doesn't go directly into the bank because they haven't paid yet. But to accounts receivable in some countries, this account is called trade debtors. Terminus Stuff have managed to perform sales on account for two companies. Tom has invoiced them. If it was cash sales, the double entry for this would have been credit sales and Delic Bank. But as this is on account sales, the double entry for their says credit sales and debit accounts receivable for simplicity. I'm ignoring local country sales tax civilly because it's different in every country. One of the conditions that come gay for providing a good deal for this first company was that they paid the invoice it before the end of the month, and three weeks later they fulfilled their promise and paid 11,201. As it reduces the asset accounts receivable, the entries are credit accounts receivable and debit bank. Although the amount owed Tom's company have decreased is still very happy because his company's bank account has increased. Final entry is Thomas paid his first monthly payroll from the company bank account, the double entry for this is credit bank and debit stuff costs. In the next video, we'll put this all together but you for the next stage of creating a simple set of financials. 4. 4 T Accounts Conclusion Level 1: But take a look at Tom's bank account in more detail, and also look at other transactions that don't affect the bank account. Just remind you off the open position. Before Tom did any business, Tom had 28,000 in the company bank, which was matched by the equity and I've seen in a take out format. These were the other six accounts that we worked on. The debit balances are indicated by the black arrows, and the credit balances are shown by the red Arrows. So what about the accounts receivable that has entries on both sides? How do you get it bounced from that? First, we would total up the debit side, the left hand side. Next, we will put in a balance that gives us the same turkey on the right hand side. This balance, an item of 4460 is carried forward to the brought four parents off the next period. As you can see, this balance is the same as invoice 534 for 4460 because this hasn't been paid yet, so it's still outstanding in accounts receivable. The any other complicated account is the bank account simply because it's have six ends and six outs in the bank account. This was the opening bank position from Tom's Equity Money Ready put into the company Bank . The three items on the left were money into the bank, and the three items on the right were payment out of the bank, debits on the left and credits on the right. The dough is on the left exceed the credits on the right. We will total up the debits and use the clothes and bounce off 15,487 to balance the atoms on the left to reconcile. This is correct. Let's add up all the entries. We have an opening balance of 28,000 from Tom's initial equity injection. The receipts jury Nagase was the cash sale classed invoiced for 94 that was paid by the customer. This ended up to 11,721. The three expenses that will paid join August were added up to 24,234. The closing barracks agrees with bank account closing bounds. It's Justus Well, that Tom started off with money. The bank isn't it the 15,487 balance and thicker is now carried forward and entered as a balance brought forward on September the first. So now you can see where the end of the month bank figure comes from will be used in the bank closing balance and the equity balance in our next video. In the next video, we will see how to use tear counts to extract a trial balance. This will enable us to extract and produce a balance sheet and also an income statement or , more commonly, code a set of financials. 5. 5 Trial Balance Level 1: the drug violence is a link between the transactions on natural financials. It must have. If you going to do financials, you could understand that where the trial balance comes from and what it does. The trial bans also approach that the credits and debits equal each other, which always brings a smile to the accountants face. Just a reminder is the way we're heading in these lessons. Our ultimate aim is to produce a simple set of financials. To do this, we need to extract a trial balance. Before that, we entered the T account accounting entries. This is where we left the last video showing the closing balance off the bank and the equity accounts. So we start off with the cows and bands. Please note that B, R and C R are common shortcuts for debit and credit. Let's put in the bank balance as a debit on the equity balance. As a credit, our computer account shows a debit balance off 7000 so that goes into the trial balance. The Accounts receiver were N balance, is a debit and transferred to the trial pounds. Both sales accounts are credit balances and transferred to a T B. Remember that the term TB and try bones are interchangeable. Finally, the staff costs and stationery, our debit balances and the balances are transferred to the teepee. That's at this up. It balances as of course it should do. The next step is to extract an income statement, which we will do in the next video. 6. 6 Income Statement Level 1: the income statement gets most of the management's attention for good reason, Really, it drives all of the business decisions in the company and have all the financial statements. Income statement balance, she case statement. Income statement is one that gets most attention. The reason for this is that management feel comfortable looking at sales costs, compare it with budget and see how they're going to get Onda. Uh, this is why always Income statement is the most interesting statement of all. Most trial balances start with the balance sheet accounts. Why is that? Well, this is the normal order of a typical account code in that it's fairly simple to follow in accounting programs like Quikbook Close age. But it is more complex and accounting problems like Oracle. But they all seem to follow the same logic. Off balance sheets first and income statements. Second, after balance, she items come the income statement items just to confuse things. Different countries called the statement that majors revenue and profit by different names . The US call it an income statement, but the UK say it's a profit loss count or even appear nail for short. Whatever it's called, it's the same thing. It shows the revenue, the costs on the profit stroke operating income. It's a pity that we call the same thing by different names, but I think we're stuck with the differences back to the trial balance. The first time to extract are the sales accounts. There's combined both sales accounts and show them in what is sometimes called the top line off the income statement. Next comes the staff costs as one of the main expenses and next the stationary costs. Next, we would total up the expenses to give us the total close. You may have noticed that the coast exceed the income Well, this is the first month of trading did out on the total cost from the sales. Revenue gives us the operating law school a month. Hopefully, the revenue would be better in the following months. Given the amount of staff costs that Tom has committed. To comes first income Saillant, or profit and loss statement, depend on which country he is operating in. In the next video, we'll look at how to extract a balance sheet from the balance sheet accounts, and surprisingly, the income statement accounts 7. 7 Balance Sheets Level 1: Bowman just like to look up balance sheets for two reasons when it shows you how much you come here is actually worth. And secondly, it shows how how much a company can afford. In the short term, he looks a current assets. That's the current liabilities, and it can usually tell you come, you can afford to pay its way in the short term, this wiping my just psyche Under In this video, we will see how to get from the trial balance to a completed balance sheet and also see why it balances the balance. She items are all at the top of the trial pounds. First, we will list. The company has it. The first is computers. Let's less thumb under assets. The next is accounts receivable, which also goes under assets. Next, we will put in the bank balance. Now we can take up the assets. Next comes the equity that was contributed by Tom. Okay, I see you've used all the balance she items, but it doesn't seem to balance. Remember the income statement, which had an operating loss off 1000 and 53? The period profit or loss is put in the equity section. As you can see, the equity section now agrees with the total assets. Normally, the final Palin she items are double underlined. If we take all of the income statement items shaved in green, you can see that it all adds up to a negative 1000 and 53. Debbie's less Pretty's. The balance sheet is now complete in the vertical format, with the net assets of the top and the reserves at the bottom. This is the same fears in the horizontal star balance sheet that is commonly used in the United States. The as its air on the left on their liabilities and equity are shown on the right. Tom's company didn't have any liabilities. Thomas First set of management accounts have been produced. This has been simplified to give you a helicopter view off how simple accounts can be produced in the next course level two. We will see some of the fundamentals reinforced and introduced new elements and accounting . We'll also look at a crow's accounting on why it is essential to understand this concept, and we'll also look at different style of balance sheets. They look totally different, but they're not really different at all. Plus other double two points 8. Test explaination video: before. You don't know the Excel sheet. Please note. There are two main tabs. The test Tap yellow tab and the green tab, which is the answer tab. So the idea is to do the test first, and then the answer. See the answer after the main area to focus on is the trial bans Drop down box. As seen on this video, you'll ever get two choices income statement or balance sheet, and it's the same for all nine boxes I field in the 1st 1 to say no. Where is if you're feeling really adventurous? You can try and fill in the income statement and balance sheet. I've already filled in the sales income in the income statement and the operation Income in the bone sheet. See how you get on and when you finished. Try looking at the green tab to find out how it my matches. Oh, I recruited to excel Workbooks 1 2003 style on one. The latest style. It's up to you, which, when you take good dog