Beginners Guide to Accounting - Get Real World Experience | David Studer | Skillshare

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Beginners Guide to Accounting - Get Real World Experience

teacher avatar David Studer

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

15 Lessons (2h 3m)
    • 1. Introduction

    • 2. Assets, Liabilities, Owner's Equity & the Accounting Equation

    • 3. Double Entry Accounting - Part 1

    • 4. Double Entry Accounting - Part 2

    • 5. Revenue, Expenses and Owner's Equity - Part 1

    • 6. Revenue, Expenses and Owner's Equity - Part 2

    • 7. T Accounts, Debits and Credits - Part 1

    • 8. T Accounts, Debits and Credits - Part 2

    • 9. T Accounts, Debits and Credits - Part 3

    • 10. Trial Balance

    • 11. Income Statement

    • 12. Statement of Owner's Equity

    • 13. Balance Sheet - Part 1

    • 14. Balance Sheet - Part 2

    • 15. Project 1 - Walkthrough

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About This Class

Why This Course?

This class is for anyone who is new to accounting. It is expected that you are starting from a knowledge base of zero. The class is designed to get you up and running with a solid understanding of basic Financial Accounting. It gives you a real-world perspective into accounting without overloading you with information. The class is intended for you take accounting concepts and to be confident enough to apply those in the real world. 

Who is this Course For? 

This course is for anyone who is interested in learning financial accounting. If you are a university student, small business owner, or want to become a bookkeeper this course is a great place to start. 

Why I made this Course

I made this course after I came to the realization that accounting is being taught in a very compartmentalized way. You are taught a concept and given a vague explanation of how it fits into the accounting cycle. You are then later expected to recall this information and you have no idea how it fits into the big picture. I realized this when I began to work in public accounting after college. I had these problems and so did all of the new hires. It amazed me that accountants who graduated from top universities had little understanding of the flow of accounting. My objective with this course is for you to walk away with a basic understanding of the flow of accounting and how transactions fit into the larger picture. 


I have given you the notes I made for the lecture so you can follow along without having to spend a lot of time writing it all down. The notes are in PDF format and are uploaded to the Class Project section. 

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David Studer


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1. Introduction: David instructor for this intro of the financial account course. Its course starts consumption. I have absolutely no knowledge and accounting. That's fine. First, start by one had recognized business transactions, had record those business transactions and had to take that summary of information that was recorded and have applied the financial statements. It's objective. Look at financial statements being the incomes Velshi instead of owners equity. With that, I go ahead and I give you five projects. Those projects are pretty much like real world projects. Go ahead. You take that information, you have to record it on any of dissemble. The three financial statements with that being said, this course is very good for, um, people who are getting into financial accounting at the university level. So financial count 11 People who want to get into bookkeeping you are. People are starting a business, and they're kind intimidated by Kelly Course it perfectly good for that. It is a real solid foundation of knowledge and lets you apply it to the real world. It also gives with that foundation of knowledge it gives you the opportunity to add more information into there, and then you keep going on and counting, doing more complicated things. Um, so with that being said, I look forward to you taking a course. 2. Assets, Liabilities, Owner's Equity & the Accounting Equation : All right, this video, we're gonna go over the three main components of the accounting equation, their assets, liabilities and under exactly I'll get into what they are and what they mean. And then we finally get to the accounting equation, and I'll show you how all these 38 components finally get wrapped up into the accounting equation. All right. First opponent to the accounting equation, our assets. So assets and things that belonged to a company that have current and or future economic value, and you're always going to record them in dollars. So let me explain that I live in the United States. Companies I would have would obviously be in the United States. So I'm always gonna be recording in U. S. Dollars when I transact when I record anything in accounting. So if you happen to be in Mexico, you'd be recording all your stuff in the Mexican peso If you're in China, Do you are if you're in England, you know, according in the pound, So it's always gonna be like that, all throwing stuff. So don't be recording some stuff in dollars and stuff, and you are You can't do that. All right, So now we're gonna talk about different types of assets that you could have. And obviously there's more than I have appeared. But these are the basic. So think of assets. It's something that, that is, that is the company the company actually has that they own. That that is, there's so that's the first clue that something isn't acid. So cash. Obviously company could hold that, and it obviously has current indoor future economic value. I'm 100% certain I can walk down the street with cash and buy something. I'm also pretty certain I can do that in 10 years from now. So it meets both requirements equipment. Think of equipment and something is if, uh, says, If I were a Web developer and I had a bunch of computers, and with those computers, I could work on Web development, so they were carrying economic value. I can, you know, use these to provide goods and services for people. In return, they're going to give me money for it. I can also go ahead and sell the computers off. There's a current value, and I could do that both of those things in the future. So in a year from now. I can still use the computers to help make websites, and then I can go ahead and sell them off copyrights and intellectual property. That's something that I have. So I have ownership to a specific copyright or specific type of intellectual property. Think of that as if you had copyrights to a book or your copyrights to a movie. Those kinds of things obviously gonna be the only person that is allowed to sell that stuff , distribute that stuff and earn money out of that. And you can obviously go ahead and bring money into the future. And you can also sell the copyright off. So land land is always an asset is something that the company golds. Um, even if you have land that is degraded, it's still always gonna be recorded as an asset because you hold it can have current economic values. And you can use that land today to obviously have a business. Or you could just leave it there. Just let it sit there, and it's always valuable because it's land is only like I said, there's only so much of it buildings. Well, uh, obviously it's an asset company get hold onto it. You can use that building today and can use it into the future. Can obviously sell it in the future. Definitely an acid in the last one. That's kind of tricky. Our accounts receivable and what accounts receivable is is money that somebody owes you. So let's say I go ahead and I loaned somebody $1000. Obviously, I don't have $1000 in cash anymore. Somebody else has, but still on acid because I'm entitled to that. I own ownership of $1000 even though even though I do not have it right now in the future, I will have that $1000. But we have to record that as a placeholder somewhere in accounting. So we call that accounts. You see liabilities of the second component to the three main components of the accounting equation. We already went over assets. Now a liability is a dead or obligation the business owes to its creditors. So we should explain what a creditor is. A creditor is someone that you have borrowed money from, so let's say I go out and I take a loan from someone for $1000 that someone is now a creditor to me. I owe them $1000. Now that $1000 is a liability because I am liable for it. So let's say I go ahead and I saw a hail pay you back in two years, this $1000 I'm gonna have a liability recorded for the next two years until the very moment that I pay it back. Now, let's see. I go ahead and I'm gonna repay it back later. Today I It's still a liability until I've paid it back because I'm still liable for that person for that money. Now, we talked about accounts receivable when we were speaking about assets. Uhm, I'm gonna have a liability. I'm gonna on accounts payable for $1000 because I have you. I obviously have to pay it. Now that person on the other side, they're gonna have in accounts receivable because they need to receive that money. It's an asset because they're due to receive an asset. Um, I know payable. That's another thing you'll see pop up a lot. And it is definitely a liability. And no payable is typically something like a mortgage, something with a lot of money to solve. All right, so the third and final component to the accounting equation is owners equity or capital accounts. They are the exact same thing, so you'll hear them use interchangeably all the time. So just keep that in mind. What are they? Yeah, owner or investors? Position or financial interests in a company. It's basically their stake of the company, what they've put in, how much they earned and how much they've taken out, that we'll all be summarized in the owner's equity account. So, just like I said, the three different categories, which they really wouldn't be accounts. So you have three accounts under a larger account called the Owner's Equity Job. So under owners equity, you have investment. So, like we have said before, I invest $1000 into the company. I'm another $1000 going to invest. Then let's say that company earns $500 of income started income. It would show $500 Ivanenko, so I have $1000 plus $500 which would equal $1500 at that moment, an owner's equity. Then let's say that company goes ahead and pays me out $300 so I have 500 offer. I have $1000 investment, $500 in income, 1500 distributions would be $300. I'd be pulling out of my owner's equity account, so in return I would have $1200 total in my owner's equity. Right now, you are looking at the challenge you crazy in the dining equation is assets equals Why Billy Plus Owner's Equity? This must always remain true. And when these when the assets equals liabilities plus Owner's equity, it means you are in balance, right? Obviously, you have the same amount of assets as you would liabilities and Owner's Equity combined. So a quick example. Easy. That would be, Let's see, you got $100 of assets and you had $100 of owners equity. No. So that would be in balance, right? It's another example of D. Let's say you had $100 others, actually, and you had $50 in liabilities, which would mean you have a total of $150 of assets. It's really just very basic algebra and very straightforward. So extremely easy there would be you have $100 of assets. You have $75 of owners equity. How much? How much is your liabilities? Where there. How much are they? Were obviously. $100. Money 75 is equal to $25 which will obviously go right here. Little abilities, so $100 plus 25 equals 75. 3. Double Entry Accounting - Part 1: in this video, we're gonna discuss what double entry accounting is. And then after that, we're gonna go through five examples of transactions and how they affect the accounting equation. Now we're gonna talk about double entry accounting. So what is it? Double Intercounty says that every transaction effects to room or account. Now, the way that you want to go ahead and think about this is that every transaction at a business partakes in something is being given up into return. Something is being received. So let's go ahead and say I'm a business and I want to go ahead and buy equipment. So I go ahead and I give cash to another company, and in return, they give me the equipment. So that's how double entry accounting works. You're gonna start to see how this starts the play into keeping the accounting equation balanced and all that. I'm gonna start to run through you really basic examples with the county equation and start to compound on one another. If you're looking for more complicated double entry accounting things like where you have financial statements of income accounts, balance sheet accounts being involved with revenue expense accounts, I'll explain that in a later video trying to through videos. From now, if you look down below in the description, I'll go ahead and have a link to that. But if you just brand new to accounting, this is a great place to start really walking through it and you're gonna build your knowledge. All right, so now I'm going to start getting into examples, basically counting. Now, here's our first example and all the other examples that I do in this series are gonna You based there are gonna build on top of one another. So you you see example seven. You don't understand how we got to see example. Seven. Just go back in time and start to see him. Obviously, our example. One personally. So we're gonna start to incorporate the accounting equation with little entry bookkeeping or double entry accounting. So our first question is first. Example. Magnus invests $1000.6 new company. Magnus is construction company. So obviously two things are happening here because it's double entry accounting. They are. Magnus has invested money. So that's owner's equity. Here's equity in the company now, and that $1000 has to go somewhere, right? So we go back to our county equation where assets have to equal likely would expose owner's equity. That would mean you have to have $1000 back in the asset side now, since he invested $1000 he invested cash into the company. We're receiving its cash. Um, so here we go now, I went ahead and I put it into Magnus ist investment account. I review hated it. But now, if you're in class, surprising stuff that says owners equity or capital counts, you're 100% rate doing that. I just like the great get out into the three different types of owners Equity investments, income distributions. You're probably sitting there saying like, Well, why does it matter? I just know you put $1000 into it. You start getting really in depth into accounting se several years in, want to know exactly how much did say I invest in the company? How much did that company generate for me, and how much do I take out of that company? But this start to become important, but nonetheless, this part of owners equity or capital. Now he did put $1000 into the company. So we're gonna write cache $1000? No, There's two things that I put it into our called accounts. And an account is a placeholder who are specific things that we have in a company. They're always gonna be recorded in dollars. So this is the place holder over here. He invested $1000 is investment account is worth $1000 in this company's stake is worth $1000. However, here are place holder of information. It's cached. We have $1000 in cash. Every time we record the transaction, we wanna ask yourself these four basic question. So for this example, what accounts were involved? Well, obviously Cash and Magnus is investment accounts. They're both involved. Thank you. Question it. What are the classifications of the accounts that are involved? Well, caches. NASA. Magnus is invention. Is either owner's equity or capital live your call. What accounts are infusing and and D cheese. Well, we don't have any decreasing accounts in this exam. Cash is infusing by $1000. Magnus is investment account is increasing by $1000. Now, last question is, is it a ballot? Well, we have $1000 in assets. So that means you have to have $1000. Bryant of Liabilities owner. Exactly which we do have. So it does work? No. We're gonna ask yourselves this question every time we required a transaction, but I'm not gonna have a space to write all this down. You might want to write it down or taken out of it. All right. I just can't write it down. No example. Number two. Magnus invests $300 of equipment into the company. So this double entry accounting we have to touch two different accounts in this invests $300. That is indeed part of is investment account. So that is $300 and it's $300 of equipment. That's the second part over here. Over here, equipment we treated and equipment account $300. So our cash plus equipment is equal to $1300 are magnets. Investment account. $1000 was $300. Is equal to $1300 as well. If we go there are afforded for questions. Wait three wet you before. What? A counselor involved over here, you went over that. The magnets investment account and the equipment account one of the classifications. Magnus Investment is or exactly equipment is an asset. Did they increase for the decrease? Well, the investment account increased by $300 the equipment account increased by $300. And do they balance? Well, they do balance. Its $1300 over here is equal to $1300 over here. 4. Double Entry Accounting - Part 2: example, number 3 $200 of equipment is purchased. So first gonna go ahead and start with the $200 in equipment. So that is their account. We're gonna be touching the equipment account, and it is the increased by $200. So we're gonna add $200. The good minutes out. You leave us with $500 of equipment. Now, since it is purchased, that means he had to spend some money, right? Any spends? $200? Oh, cash. Now we're gonna go to the cash, and we're gonna subtract it by $200. Just gonna leave us with $800. So the balance, our accounting equation, or to make sure it's imbalance, we're gonna add our assets and prepare our liabilities. And owner's equity catches $800. Equipment is $500. That is slow to $1500. We have no liabilities. We do have $1500 of owners, actually. So what accounts are our equation isn't bad now for to go over the four questions that we always ask. They are what accounts of being use well, the equipment account in the cash account. What is there are they assets, liabilities and owner's equity. Well, that both assets. That's okay. Um, living increased or decreased? Well, equipment is being increased by $200. Cash is obviously being decreased by $200. And is the Italian equation in balance where he went over that? And, yes, it isn't about All right. So, for example, number four, we have $100 of equipment is purchased on a job, so we know that $100 of equipment has been purchased. That's gonna be one that's gonna be one account. Write their equipment. And when we say something like purchased on account, that means he didn't actually pay cash for it today. So the equipment dealer once ahead and says, I'm gonna give you this $100 piece of equipment, and in the future, you go ahead and you pay me back that $100 when you have it in the future, usually they'll set like a term will say, you have to pay me back in 30 days, 60 days a year. Usually they're gonna charge a little bit of interest for that. But for this example, we're not going to charge any type of interest. We're just going to say he's gonna pay it back in the future. So that's what the challenge is. Any time you see purchased on account, I think my ability that did not pay for it that day, they're paying for it in the future. So first gonna deal with that purchased on towns is equal to be able read it. Short accounts payable is or 80 which would be years. That's also accounts paves. What counts table is $100 and obviously the other side to the transaction is $100 of equipment. We're going to go ahead and see it for accounting Equation Balances with $800 of cash with $600 of equipment is $1400. We have $100 of liabilities at $1500 owners equities that is also equal to $1400. No, we go back to our four questions that we should ask every time, the every time we process the transaction, what accounts are involved? Well, we had accounts payable oils that equipment accounts, are they assets, liabilities and owner's equity Well, accounts payable is always a liability. Equipment is on asset that the interest of the D trees. Equipment increased by $100 and accounts payable infused $100. And are they about $1400 here, $1400 there their balance. And we're good to go. Example, Number five $50 is paid to the creditor. All right, So the last example when I had any borrowed $100 of value the equipment, I'm excited it. And I was gonna restart to pay back the creditor, not an equipment, because he's gonna keep it, but in cash. So $50 paid to the creditor. We'll start $50 is paid tracks. $50 for cash, needs you at $750 and it's paid to the creditor. So is what we do is we have this thing called accounts payable what you've already talked about, we owe $100 in accounts payable. Now, if you want to lower that accounts payable, you're gonna go ahead and start to track down, just like how you have less cash. Now you have less of a liability to the credit, right? But we're going to subtract $50 from that, and that's gonna leave us with $50 liability to the creditor. So now we're gonna go through our four different questions. Rest each transaction. What accounts are involved? Well, we have cash because being paid, and then we have accounts payable because accounts payable is being reduced through the cash payment. Now are these accounts assets, liabilities and Owner's equity or cash flow is an asset. Accounts payable is always a liability. So those two down now, the last thing last one last one of you have to ask you, though, are they being increased or decreased on this case? Cash is being decreased because it's being paid someone and accounts payable is being Dietrich's because we're lowering our liability. No, is our equation in balance? $750 plus 650 is equal to 13. 50. And then over here we have plus 1300 is equal to 13 50 as well. Our equation isn't balance, and we're good to go 5. Revenue, Expenses and Owner's Equity - Part 1: All right, This is a quick overview of what's gonna be in this video. We're gonna talk about revenues and expenses what they are. And then we're gonna talk about how revenue and expenses affect the owner's equity account . And then I'm gonna give you four examples of revenue and expenses we're gonna build upon the previous find examples that we did in the previous video. All right, now we're gonna talk about revenues and expenses. All right? So revenue is money earned by the business. Whatever the business does to earn money, that is considered revenue, it doesn't matter what it is. It's just considered having always expenses. This is money spent by the business to earn revenue. That's important part to earn ribbon. So whatever any type of expense that the business might have to spend to pity to earn revenue is always gonna be considered on expense. Now we're gonna talk about how revenues and expenses directly affect the owners Equity accounts. Now, keep in mind that revenues increase owners equity and expenses. De Treece owner's equity. So here's our accounting equation. We've added a few different things to it, so originally we had assets equals liabilities plus Owner's Equity. But now we're really gonna go through and break down owners equity and all three parts that it really is. So we have still have assets, equal liabilities, plus the owner's equity. Now this owner's equity has four different things. Before, we only really had one different thing. So our investment account, that is, where were initially putting money into the company. So I put $1000 in cash in. It's gonna go into investments now. I want to go ahead and pull out some of that money of mine from the company that's called a drawing account. So it's obviously decreased your owner's equity. It's like saying I have less stake in this company. My monetary value of the company has now decreased. Owners equity are now. Revenue increases. Your owner's equity, right? So it's like saying the company has earned this money on my behalf. It's like saying my stick in this company in terms of dollars is now greater than it was before. And if we go ahead and we spend some of that money that we earned in expenses, it's like saying my stake in this company is now less because I've given some of that, I've spent some of that money off. So if you see this, we talked about the three different components of owners equity before in their investment drawing and income. So revenues minus expenses is equal to income. Right here can written backwards revenues minus expenses. This component regular is your income. You see income part of the owner's equity. You have investment drawing an income, all three of them right there in the owner's equity. Now, another way to visualize this example. It's just like this. It's all written out in warm, long line. You have assets equals liabilities, plus the owner's equity on the owner's equity. We have investment minus drawing, so that's the money that you pull out and then you have. Over here, you have your revenues minus your expenses. So this over here is your income side of the owner's equity as well. So now we're gonna go through a conceptual overview of how revenue and expenses effect owner's equity. All right, so in this example, our owner's equity account at the beginning of the year actually be very beginning of the business. We have no investment. Remember investment in our own owner's equity is positive. We have no drawings, obviously, because we have no money in the business and we have no income. It's very first day of the business. So this business Justin example. We're not gonna invest any money into the business. We're just going to straight up earn revenue right off the bat. So let's say this business. The guy opens his front door. He walks to the house next door and he does consulting there, and that's all he does. He has no expenses associated with it, so his revenue is $10,000 because he has no expenses. He obviously you can't record anything as an expense. $10,000. My zero is equal to a $10,000 income for the year, so at the end of the year, the income account goes up by 10,000. The drawing account doesn't do anything, and the investment say does nothing. He still has $10,000 a positive equity now in this company, and it will be recorded in the income side of things. So now let's go ahead and say the next year rolls around. He goes ahead and he earns $10,000 of revenue again, but he ends up spending $15,000 and expenses. So for the year he has a negative $5000 of income. So his equity went down $5000 total in the entire company so quickly review is, he starts the company. He has absolutely no investment, obviously has no income because you just started it. He earns $10,000 in year one, and then in year two he loses $5000. So he still has a positive equity of $5000 because he originally had an income the first year of $5000. All right, I hope this clears up how revenue expenses affect the owner's equity account. Example. Six. Um, we're building off of examples one through five. So if you haven't seen examples one through five, go to the previous video and you will see that. All right. For example, six. The company earns $750 from a construction job. So we're assuming when it says earned $750 that is just talking about revenue was paid $750 to complete a construction job. So we're gonna go over here to our revenue accounts and we're gonna Tyler Construction because he could have been revenue from other things and woman will want to keep track of that. But right now, he's just turning out of the construction. We were in $750 and in return, he's paid cash of 700 and $50. All right, so now we have to go ahead and talk about her. Four things to always think about when recording a transaction. What two accounts were affected? Well, we have the construction account was affected in the cash account are the assets liabilities, their owner's equity but revenue, which is the construction revenue account that is part of the owner's equity. And then the cash account is on acid. The next thing is, which accounts did they go up where they go down? Well, both accounts went up, and then we can go ahead and say, Well, does it? Does it balance? So 1500 for 600 is equal to $2100. 50 plus 1300 is equal to 13 50 at 13 50 plus 7 50 is equal to 2100 6. Revenue, Expenses and Owner's Equity - Part 2: example. Number seven. The company pays $250 in wages. So right off the bat we know that they just spent $250 expenses where those expenses or they're obviously wages. That says wages. We have $250 over here. No, they went ahead and they spent two under $50 in wages. Which means the D treats the cash account by $250 leaving them with $1250 in cash. No, let's go ahead and see it for accounting. Equation balances. So 1250 plus $600 is equal to 1000 $850 of assets. They have $50 of liabilities, and now we go over to the owner's equity side of things. So we have $1300 in investment, what, $750 in revenue. So that leaves us with 2000 and $50 and then we have an expense of $250 so we end up having a total owner's equity of 1000 $800. Now, since you add liabilities and owner's and Owner's Equity. This leaves you liability splits owners at rates equal to 1000 $850 which is equal to the amount of assets that we have. So this equation this Yeah, the accounting equation in this example is still in balance. It is still true now, to answer the four questions. What accounts were involved? Well, we have the wages account because we spent $250 in wages because we spent $250 in wages, we decrease their cash accounts by $250. No. How are these? How are these accounts classified? Well, the wages his classified as an expense, which is actually part of owners equity. And then we had cash, which is course on asset on the accounts. Interest or decreased. Well, you can actually say wages was increased by $250 and then you can go ahead and say cash was decreased by $250. Now you're sitting there saying, Well, how did how do you keep this equation in balance if expenses interest by $250 but assets decreased by $250 Now we have to remember on the owner's equity side of things. Expenses are this attraction. So that's why we have 750. Minus $250 of expensive would actually ends up bringing down owner's equity by $250. And that is equal to the $250 decrease on the asset side of things. Example. Number eight. The company has earned $250 of construction or evidence. That's what that little thing and they have not been paid yet. So let's break this down into different parts. Let's first take part of they've earned $250.200 dollars of construction. So we're going over to our revenue side and increase it by $200. Leave us a total of $950 of construction revenue for the year. And now we're gonna take part of this side spat. The money has not been paid. It means they haven't received the money yet, so this is kind of like accounts payable. But in our situation, the opposite. So in accounts payable originally, we accept it and acid, which was equipment. But now this return we haven't been able to accept our asset that we wanted, which was cash really kind of accept, like an IOU, But we're gonna pay you in the future. I mean, I'm gonna receive money in the future sometime, and that money is going to be $200. So our account receivable is $200. So if you're confused, that's accounts receivable. We're gonna receive cash in the future, which is an asset. That's why it's that's why it's on the asset side of things. In a p is accounts payable? We have to pay $50 in the future, so it's a liability. So now let's go ahead and at all. It's up. See if the balances our liabilities $50 and this whole charge is equal to $50. Waas 2000 is equal to 2050 which is equal do 2000 and 50 dollars of assets. So are four questions that we always must ask what two accounts were affected. Our construction revenue account was affected and our accounts receivable account was affected. Uh, what are they? Obviously, construction revenue is a revenue account which ends up being part of owners equity. Our accounts receivable is an asset. Why? Because we're gonna be receiving an acid in the future. So this is just like a placeholder of saying a future asset is to come. Uh, what went out? What went down? Well, obviously, the revenue without accounts receivable went out. And there's the accounting equation Balance. Yes, it does balance. We've already done the math. All right. Example number nine magnets withdraws $500 from the company for personal use. Now, let's not forget that Magnus is the owner of this company, so you can pretty much do whatever he wants with the money, though he pulls out $500. So what accounts is that effect? Well, he's drawing withdrawing $500 in the company. We're gonna put it over here in the drawing account for 500 and there's coming out minus 500. And then he's withdrawing obviously $500 in cash, which leaves him with $750 in cash. In total, the assets equal $1550 love $50 of liabilities. And then we're gonna add up the entire owner's equity side of things now. 0 1300 miles 508 107 115 100 leaves us $1550 of liabilities and under exactly which equal $1550 of assets. All right, so let's see the four things that we always ask yourselves. One, we're recording a transaction. What? Two accounts are being affected. We have the drawing your town and we have the catch account. Uh, are the assets liabilities or owners equity? Well, the drawing account. It is part of owners equity. And because you're pulling money out of the company or withdrawing money out of the company , your stake in that company is actually now lower. So it's an owner's equity account, but it makes it makes it makes a stake in the company lower. So obviously, Owner's Equity is now being decreased assets because you pulled out $500 of company. You're cash in town is gonna be d choosed by $500. So that kind of that kind of put questions number two and three, where the accounts and then are the anchors to decrease? We just went through that. And do they balance? Yes, they do balance. Oh, we're all good to go 7. T Accounts, Debits and Credits - Part 1: all right. Here's a quick overview of what you can expect in this video. So I go over tea accounts, how they were counting, how they operate with the debits and credits how those are applied to assets, liabilities and on exactly, really get into detail how owner's equity all really starts to work out with all these debits and credits and all that, Um, and then I go into the previous nine examples that I showed you in videos, numbers two and three. I break those out into the accounting equation, and then from there they'll get applied to their teeth. The property account accounts balance it, and we see how about sex Play out. Then I give you an analogy at the end of how the accounting equation applied with debits and credits is like a game of tug of war. And I know those videos kind of one. But a lot of information that gets packed into it, and it's really important for you going forward and accounting a lot of people that come out of college with four year degrees, bachelor's degrees and counting. This is still kind of soggy in the head. I know that sounds crazy, but it's really just how it is. If you can understand this now, conceptually moving forward, you're gonna be a huge advantage. So we're gonna talk about tea accounts. So what is the T account? Well, Egypt Town, each account and counting has two different sides to it as a normal balance. And then obviously that side, that's I guess, Would you call? Not the normal balance would actually end up D tree Sing your normal balance. So what we end up having you have the account name and we have a debit side and a credit side, and all debit means it's to the left. All credit means is to the right so that it is obviously abbreviated by a D. R. And credit is a CR. And the reason why key Counselor Advantageous is because we could see the entries and D trees for that account. So before when we went ahead and we worked in the Johnny equation, we go ahead and we'd identify account, so we'd say, Okay, well, this account is we're going to use the cash account. Cash is going to increase, and it's an asset, and then we go ahead and we'd record that transaction account in a column account. You go something like cash. We typically say, like plus 100. So now is what we end up doing. Instead of doing that, his cash will have a debit balance. So it has a normal balance. Have a debit. So what was it? We'll cash any time you see an account that has a positive, that means the normal side. So if you have a positive cash balance save $100 you're gonna have a debit balance. So let's say we have $100 in cash. Cash increased by $100. Now let's say we go ahead and we spend $50 a cash instead of writing minus 50. Like how we just before, uh, we just go ahead and we go to the not normal balance side. So the decrease inside in this case that's occurred it we read. So then is what we end up doing at the end of the period. We ended up going ahead and some totaling all of these things. So I'm down here in the footing, the 50 and 100. So then we go ahead and say, Okay, well, we have a positive of $100. We have normal balance of $100 and then we d trace that by $50 total, which leaves us a total of $50 of cash on their books. All right, I would like to clarify my closing remark that I just spoke about. So I went ahead and I said that cash has a positive balance. The $50 not only is a positive balance, but is a positive debit balance of $50 it will always be like that in accounting. So if you have a positive amount of Spanish, you know, instantly they have a debit balance. Um, $50 in our case. So we're looking at assets in the T account. Some things are always going to stay the same because in accounting, things like to stay the same all ways. All right, so assets always have a normal debit balance, right? So that it means to left. So just like we just talked about cash, where we went ahead and we have a positive cash balance of $50 which meant we had a debit balance of $50. Now we went ahead and We wanted the interest that balance or say we did a transaction and we increased our total cash balance. We're gonna entries the debit side. And if we went ahead and we d treats that we go ahead and we would apply that to the credit side So that end of D choosing now this applies with all assets. It doesn't matter if you have cash if you have on buildings. If you own computer equipment. If your automobiles, whatever you haven't asset, you have a debit balance. Always liabilities in the T account. So liabilities, air always gonna have a normal balance on the credit side. So let's go ahead. And let's think if I were to go ahead and our borrowing money from someone, that means I owe the money in the future. Now, go ahead. And have you recorded as an accounts payable, which is a liability. So all the money that I brought from and I'm liable to them, it's always gonna show up on the credit side of things. Now, I were to go ahead and pay that money back that what you got paid back would be recorded over here on the debit side. and ultimately that would reduce the sum total on the credit side of things. So now we have to sit here, and we have to think, why are, like, Why do liabilities have a credit balance and assets into having a double balance? And it all really ends up tying back to the county creation We have assets equals liabilities, plus owner's equity. And before we introduced the T account, we were adding everything up in the columns are Collins had to be equal. Three had to have an equal amount over here, saying we had $100 of assets. Well, on the other side of the equal sign other side of the equation. We have $100 total of liabilities and owner's equity. Well, now we know that all assets are recorded as a definite have a debit balance. And then that means over here that all these things but all your liabilities and your owner's equity have to have a sum total equal to this debit balance of a credit balance. So over here you're gonna end up with liabilities with credit balance and then you honestly , owner's equity bring out of room with a credit balance over here. So next we're going to talk about the owner's equity things, and then I'm gonna go ahead on time all together into one big example Owners Equity and the teeth account. So the positive or the normal side of the owner's equity account is it credit? Which means it gets recorded to the right side of things. So typically, if someone stake in the company goes up, they have a greater increased anger that greater your monetary stake in the company the credit side of their owners. Equity is gonna be larger than it was before. Now, if they were to go ahead and pull money out of the company or they lose money, the debit side is gonna increase, which ultimately means we're gonna lower credit side the owner's equity. So now we're gonna go ahead, and we're gonna take a closer look at the owner's equity and the and the compartments with Bennett. So let's remember that owner's equity as a normal or a positive balance on the credit side of things, so you have greater owner's equity. If you have greater ownership or you have a greater stake in that company, you're gonna have a larger treaded side of the balance, and you would obviously if you did it. So remember the three components that we have our investment we have drawing. And then we have the income accounts and income accounts are represented by the revenue in the expenses. Now, if we go ahead and we look at this and we see well the investment account within Owner's equity as in normal spat balance or a positive balance on the credit side things that goes ahead and that makes sense if you look at it within the context of the owner's equity that doesn't account means I've gone ahead and I put money into this company in my in. My stake in that company is obviously going up by the amount of money that you put into it that is over here on the traded side, and that is exactly the same side that we want the owner's equity to be going up right. We're more more stake in that company. Same thing goes with revenue, so that company goes ahead and errands money on my behalf, which is now mine. So obviously that means the revenue side. So that credit over here revenue is gonna go up. Now if we went ahead and we decreased our steak and earners equities. So we made. So we made our part. Our share that company, now smaller through the drawing account. Which means we pull money out of the we're gonna go ahead and we're gonna want a decrease owner's equity. So that's gonna be on the debit side. It is over here, which is also when we have her drawing account, which is encompassed by owner. Exactly. It also has a debit side, too. Same thing with expenses. Obviously expenses. They're gonna offset revenues. Right. So revenues were bringing in money expenses. We're spending one, so it has to go ahead and has to be in the opposite side of the T account. The revenues are revenue has a credit balance. Expenses naturally have a dead it bounce 8. T Accounts, Debits and Credits - Part 2: All right, so right now we have examples. Numbers one through nine. These are all the examples that I have gone over in videos or episodes. Numbers two and three. And they really explained how they went into the accounting equation, how they affected it. Especially how they affected owners equity I want. It's a really good detail about that. So if you're not quite sure exactly how double entry accounting works, all these examples go back toe videos, numbers two and three, and they'll be explained to you. And these were all the same examples from there. So now I'm gonna take those examples, and I'm gonna go ahead and I'm gonna play them, too. The tea accounts, obviously within the accounting equation. Um, sorry. The counter kind of small. I really have no other way to show this to you. I don't have a big blackboard, anything like that. So we're gonna start here with maggots, invests $1000 into his new company, right? So that's obviously can affect the two accounts. That's gonna be his investment account in his cash account. So over the area that investing in account investment is part of owners equity and the entries Owner's Equity or we can increase investment. We're gonna interests it on the credit side. $700 credit. And they're obviously it's $1000 and it is obviously being increased on the cash inside by $1000. Is there attending the equation balance. We have $1000 of assets with a total of $1000 of liabilities and owner's equity. Not only that, but we also have just as many debits as we do credits. That's another big thing you have to look out for now. All right, The next question example, Number two magnets invests $300 of equipment into the company. He didn't buy $300 of equipment while he was running the company. It's his equipment, which he paid for outside of the company, and he invested it into the company. So this invests $300. Basically, he gives it to the company that goes over here, increased investment account and then equipment. Obviously, it's an asset, so it's gonna have a debit balance with interest equipment that it bounced 5 $300. Example. Over three $200 of equipment is now purchased now, when we say that was what we're talking about, ISS, that the company purchased $200 of equipment, so obviously $200 of equipment is purchased. So let's introduced equipment by $200 now. He paid cash for that. So now we're gonna go ahead and we're gonna de trees cash, right? We're gonna decrease it by adding $200 to the credit side of things because the debit side is normal balance. Now we're decreasing from that balance, we're gonna add it to the credits that $200. All right. Example number four $100 of equipment is purchased on account. I know you're probably new to accounting, but any time they say purchased on account means that they didn't pay for it up front, they're gonna pay for it later in the future. So that is a liability. But lets first take care of the Christian side of things you know, has a new $100 of equipment is purchased and since has been picking on account, that means it's a liability. So we're gonna put it into our eight ph out, which is abbreviated for accounts payable right. He's gonna paid in the future. Equipment was a debit. It's probably means you don't have to have a credit somewhere, so accounts payable. There you go. Normal balance of credit. So I put there over here, $100. Example. Number five $50 is paid to the creditor. So we're gonna soon. Sometime is young by. For some reason. Now, he's gonna pay $50 back to the treasury. So he's got to go ahead and you got a D treats his cash account. There's yet spend $50 of cash, decreases the cash account. We went over that. It is the credit accounts payable. He had $100 in it. He paid $50 that off. So that ends up being a debit balance. The company earns $750 from a construction job. Right. So we're gonna go ahead and we know that any earns money that is revenue. And he turned $750. So that's he got paid $750 in cash, So revenue increases but $750. And so does catch. As we've talked about before. For every for every debit, there must be a credit revenue has a credit balance of $750 in this transactions, and cash has a debit balance of $750 in this transaction. All right, the company pays $250 in wages, right? So wages. We haven't account for that, which is on expense account. That's important. Remember, expense accounts, heavy debit balance. So let's take care of that. Hes $250 in wages and then when we recorded on the cash side, we d trees cash by 250 something's recorded on the credit side of things. He earns $200 of revenue that have not been paid yet on the boy. That means the company has earned $200 of revenue he hasn't paid yet. So what we do well, we recorded as revenue today, and then in the future, we know he's going to be paid back later, so obviously it's it's since he's gonna be paid back in the future. We're gonna record that as a placeholder here and our accounts receivable without of $200 and the revenue is gonna entries by $200 now. Lastly, after all, that hard work, Magnus decides it's time to withdraw $500 on the company for personal use. So we're gonna go ahead and we're gonna record this in the drawing account, because the drawing account is whenever the owners withdraw money someday. Something $500 here in $500 Brown. Yeah, all right. Now, when we go ahead and we look at the owners equity accounts, we go ahead and we start to see some some stuff. Right? Owners equity has a normal or a positive balance on the credit side of things for the right side, which whenever we see that investment in the company, those air always credit balances on those on that account. So the credit side increases its anything with revenue revenue, saying like their stake in the company is now interest because they ran money. Revenue happens to be a credit balance. Now, over here and the other side of owners equity. Imagine this is a T. Cannot credit that it's a wages or expenses accounts that's withdrawing, that's making there that's making their part of the pie o. R. There's taking a company smaller because then you now have less money that's theirs. And that happens to be on the opposite side of the trade. It right, cause owner's equity increased on the credit side, decreased on the debt of site wages of the expensive child happens to be and debit and the same thing with the drawing drawing happens to be a dentist. So that's obviously gonna pull down the total and the owner's equity. Alright, So I've returned. I guess I'm gonna complete this equation for you to see it. I know I didn't quite finish the whole thing out, So we're gonna go ahead and we're gonna add up all these accounts and see how it all works up. All right, So the cash side of things, we have a debit balance $1750 and then obviously we d treats that by, but it looks like about 1000 which leaves us with a total of $750 in cash, which is a debit balance Equipment. Looks like we've got $600 of equipment, so that is a debit account. Debit balance accounts receivable. It was pretty simple. $200 of a debit balance. Now we're gonna switch over the liabilities. Well, im reliability. Here we have $100. Then we subtract the $50 from it, which means we have a credit balance of $50. Now let's jump over here to our owner's equity. Say drawing account. We've taken out $500. City of the Dead. It bounce of $500. Our wages PE $250 in wages. Hey, in the dead of balance of $250 investment a job. We have $1300 and refugee silence. We have $950. All right, Now, if we go ahead and we add all this up, we have, Ah, $2250 over here. Subtract out $750. Which leaves us with $1500. Uh huh. Exactly. Actually, the credit balance. What should put that over here? Accounts payable. Remember, it's a credit credit balance of accounts payable of $50 plus a credit balance of owners. Equity of $1500 equals $1550. Uh, credit. I did not write that credit like that. Jump over here to the other side of the equation. We have $750.600 dollars equals $1350 plus $200 equals 1000 $550 of debits. So does our accounting equation balance? Yes, it's balances. We have $1550 of assets and we have the sum total of $1550 of both liabilities. Owner's equity. Now we have to remember we have to have the same amount of credits as we do debits, which we've already gone ahead when we've proven, which is to be true. 9. T Accounts, Debits and Credits - Part 3: now, lastly, a good way for you. Think about the county equation with debits and credits. I know it's gonna get kind of messy at first, but it's the think of it as a game of tug of war. So if you remember when you were a kid, did line up half the class of one side of the class. Have to class on the other side, give you guys like a big long rope and in the middle of that rope could have a flag, and that flag couldn't move right. So let's think of that flag as the equal side on 1/2 of that class as your assets. And the other half of that class represents your liabilities and your owner's equity. The flag in the town in game you can never move, all right. It can never move. It always likes to ST stay the same. So you have to have just as many people are just as much. Let's call it like power strength on one side of that flag in the game of tug of war, as you do on the other side, or not to move in our in our game. So our assets. It doesn't matter how much power or strength you have over here doesn't matter how much Evans habits it always has to equal amount of liabilities and owner's now in her game of tug of war. We can take two players on the asset side, so you could take players, get a line. I was two and three, and you could switch them and then have the same amount of right power. Um, we showed that here. When what question is it? $200 of equipment is purchased, so example to increased equipment by $200. But the D trees cashed by $200. So you like, switched to you guys, and then the same thing goes over here. True for liabilities and owner's equity. 10. Trial Balance : in this episode, we'll be talking about the trial balance. All right, What is the travel balance? Well, it gives you a general overview of all the accounts, So typically it's at the very end of a period which is normally like the last day of the year. So December 31st 2016 will be the last day of this year. So I'd be going ahead and looking at what is the sum total of revenue at the very end of the year or at the very end of the accounting period? Right? So we could go ahead and we could break up a year into Monster. You could break it up into quarters or halves or whatever you want to look at. It was, Just keep it years for this example. So December 31st what is my revenue for the year? I can look exactly at the revenue account, and I could say, OK, revenue is this how much the next pay in wages? I can look at this. How much do I have in equipment? On December 31st of this year, I can look exactly at that. So with that being said, it accounts go ahead, and it's basically a list. It's just the list, right? Just the list. It says All right, this list we have all the accounts here and all. All the ending balance is with over, all right. And they talents appear in the same order as the chart of accounts. Accuser list the chart of a chance. This is normally how you gonna be looking at it? Gonna look at assets, liabilities, owner's equity revenue cost a goetzel and expenses. Now, you're probably sitting there saying, Hey, days, uh, in episodes number three and number four, you went ahead. And your group owners equity here with the revenue and the cost of get sold in the expenses . Why is that? Why are they not separate? Well, it's gonna be kind of a little bit hard right now for me to explain that because we haven't gotten to see balance sheet accounts versus income statement accounts. There's gonna be right after this rifle them explain the trial balance will get into that. But for the most part, owners equity we're talking about in this instance, what I'm talking about is the capital investment account. The money that I've put into a company. The drawing accounts. That's the money that I've taken out of the company typically from the beginning of the beginning, from the beginning, very beginning of the company, exactly the last day of the year. In this instance, that could be 2345 years of basically just just adding up. Or you could say, subtracting communicative right here in the owner's equity. That's also going to include previous years, not 2016 not this year. Previous years, income where he could say losses are gonna be summarized into the owners equity accounts. Now, when we break it down This part, this revenue part Previously his revenue part was, is there at county equated? Don't forget was this And that is for currently just this year in this example. So revenue houses get sold and expenses We haven't talked about trust to get sold yet because I haven't had any constitutes sold. But what's it cost to get sold? Let's see your walmart and yet inventory and your store people go to the shelf and they buy it so your inventory is gonna be appearing Assets. Uh, wh you Tony, you ask. That's gonna be credited. Why? Because it currently holds a debit. It's currently a debit balance. You traded it, produce that violence. It's the cost of goods sold. They're gonna be debited now on the revenue side. Revenues gonna be credited. Why? Because it's always credited because cash is then debited. So that's kind of how we get to think about it. I'm not really gonna include these. And for right now and then we just have our normal expense. That's so normal. Expenses are anything that we've already talked about. It could be se interest, expense, rent, expense, uh, wages, experience. Um, utilities. Let's lighting most water. Whatever else you have advertising and stuff like that. Okay. Nonetheless, at the end of this year, these will be summarized into the owner's equity. We don't have to learn that exactly right now, cause I'm gonna get into that when we when I talk about the income statement balance sheet accounts, but your chart of accounts, you're sitting there. Oh, man. After memorizes list pretty much exactly the accounting equation, but just the critical. So as long as you can remember, assets equals liabilities plus owner's equity, which the owner's equity of capital investment your minus trying last current year. Revenue minus curing your expenses. You'll be OK. All right, So now you're gonna go ahead and you're gonna look at the trial balance. The trial balance is basically it's a place where you go ahead and you put all your accounts and you wind only accounts up like the chart of accounts. Remember, they'll start off with the assets that goes the liabilities and from liabilities goes the owner's equity and then from owners. Equity goes to revenue in the blue revenue. You go to expenses. So it's just basically presentation of all of it. And an accountant can go ahead and you can look at it and you can just see just summaries of an account. So how much cash do I have in my account? As of right now, it's like cash. How much money did I earn over the course of the year? Up to this point in the year? Um, you say $950. All right, so now we're gonna go ahead and we're gonna talk about how we put this all together. The child bones is not a financial statement, but it is presented pretty much in the same matter that you do present financial statements . Those gonna be in following episodes. Well, basically, start out for the company's name. What? What you're talking about here, what you're looking at This is a trial balance. Direct. Try balance below it. Remember, trial balance is at a point in time. Okay? It's really important when talking about that in future videos. But this point in time happens to be on December 31st 2016. You're saying, Hey, why is it a point time? Well, it's exactly because you have balance sheet accounts on this. We're gonna talk about that and future videos. So you go ahead and you give it the name of the company. The name of the statement in front. This isn't branches statement, but we're talking looking at. And then they and then from there, the child melons. You can also go ahead and you can see if your debits magic credits. Remember, we're doing the double entry accounting for each day. But that's to be a credit. You're right. Debit through and then right over here, give it your list of your chart of accounts in that order. So you start with their assets which you're right here. So we had cash. Remember, Cash had a debit balance where we're emphasizing that from the sea account video on. And then look, what happens if you have here happens to be on the debit side of things, and it's just the sum total of it. What is it at that point? Time. And then you got equipment, equipment? Remember, Equipment had a debit balance as well. Womb that debit balance. And these were all All these numbers are pulled off from the previous T account video on different accounts receivable. Remember, those have debit balances. This happens to be the belt accounts, payables liability. So it has a credit balance over here in the current side. Um, the capital, which means our investment account outside of your book. And there's talk about capital talking about investment with company, uh, $1300. How much we put into the company? Sears. $1500. We pulled out $500. The company, uh, break you in the in the drawing a town, and then you go to your revenue. Can't remember. Remember when we showed you Ah, the double entry County revenue was a credit. Why because the debit is, uh, cash is the debit, so you start to see that now really play out when you're looking at it in the trial balance , and then we have wages over here. $250. Now, one of the things that the trial balances your first number on your debit calling and your credit column has to be denominated in the currency that you're using. Wreck. You were using dollars. So that's where the dollar sign. And then at the bottom of each cone, you go ahead and give one underlying and then below that you sum up the total of that column sum. Total of this column is $2300. Sum total of your credit column is also $2300. You go ahead and nominate those on the currency you're using so with dollar signs in each of them, and then you give it the double underline to mean no more. That's it. It's over. You have a double underline on your both of them that it's equal credit and you know you're traveling is in balance. But that does not mean they all. Your counting has been done correctly. You could have done something incorrectly. Um, in previous steps that were not really catch just yet. And then, uh, from here, we're gonna go ahead and we're gonna basically built off on Teoh your financial statements So you can say all the information that you need from your income statement owners, equity statement and the balance sheet. We can pull that from right here from the trial balance. So being in a town, probably gonna spend the majority of your time looking at a trial balance when you're doing things. Um, Why? Because all the information is presented right here. All right, so here's another way that you're going to see the trial balance. Uh, this weighs a little more common. It's actually a lot easier to look at like this because you can compare the previous year to it. Uh, you're not gonna be looking at four columns, right? Debits and credits, and then for 16 the deficit cuts of 15 years to be looking at one column for 16 15. That's why it's a lot easier. So everything is going to stay the same. You're gonna have the name of your company. That is the trial balance ending date of the period. You'll have your turn of accounts listed out like this exactly like I was done before. But the big difference is instead of having a debit and a credit column was having one column, your credits are represented by parentheses. So, for instance, accounts payable is hasn't any balance of 50. That 50 happens to be a credit, and that credit is represented by parentheses. So when you see the parentheses in the trial balance, it does not mean a negative. It just means credit. That's all you have to think of. No parentheses means debit. So when we go ahead and we some these all up remember before we had $2300 of debits, $2300 accredits. If you actually go ahead and subtract, those would be down to zero. That's exactly what we have here. We have zero give anything but zero have a problem. Your equation is not balance, just like we spoke about before, and you have to find the problem and fix it 11. Income Statement : All right, so we're gonna talk about the income statement. I in particular really like looking at income statements because it gives you, gives you basically this history or gives you an idea of how the company is doing over a period of time. And you can go ahead and you can look back throughout these income statements so I could look back at the 2016 income statement I compared compared to the 2015 income statement, we can really start to see what's going on on the company. So besides that, uh, we're gonna talk about what it is and what it does. So it records the income and over a period of time, and that's really important. Over a period of time, it could either be monthly, quarterly or yearly. Most likely, you're gonna be dealing with income statements over a year. I really big companies like publicly traded companies. They're gonna be looking at stuff and quarters. I also look at it yearly, but it's really important for quarterly first oxen. Such all the income statement is all right. That's total revenue. So all the revenues that you've earned in the year, all the money they've brought in subtracting all the money that you get. Spence, they're out there. All the money that you paid out, I should say expensed. But in this case, it's paid up. Um, it generates either a net income. So you have a positive positive amount of money that he brought into the company or a net loss. You spent more money than he brought in for that for that year. Uh, and really easy, simple way to put it layman's way cos performance over a period of time, which lead to be good or bad. All right, so we've been talking about how the income statement is basically conceived of current year talents or revenue accounts or expense accounts for the year. So we're gonna go ahead and we're finding out how much money that we've made just for this year. So we can tell That's pretty easy. Just by looking at the trial balance Now, an episode over five who went ahead and we looked at how we put together child balance through the chart of accounts. But the very top of it, you're gonna find your assets which are right here, cash equipment accounts receivable. Then, after that, you go toe liabilities. The only liability we have is our accounts payable. Then from there we go toe owner's equity and our owners Equity, in this case happens to be capital or investment accounts. Can are joining accounts. Then after that, homes are income statement accounts. In those income statement accounts are revenue and wages Another way. Easier way to think of income statement accounts is how much income have we earned throughout the year? So how much money have we brought in? How much money have we spent? Really Easy. Just think of it in your personal finances and we basically end up with our revenue in our wages. This will always be the case in accounting. Why? Accounting is very black and white. So we split your child balance like that. Anything below this line is an income statement of town. Anything above it is a balance sheet accounts. So now we're gonna go ahead. We're going to take the information from the trial balance that happens to do with income and we're gonna apply it to the income statement. So the income statement is a financial statement and there are specific ways, but there's a specific way to present the information. Um, so just like the trial balance, you go ahead and start off with the name of the company below that you say what the financial statement is or what the statement is that you preparing information This it happens to be income statement and then below that you want to say for the period. So this is for the year ended 12. 31 16. That means from January 1st 2016 all the way to December 31st 2016. This happens to be representation of our revenues and our expenses. Now, the income statement that we're putting together here is called a simple simple. It's called a single step income statement and what that is, it's just your revenues minus your expenses. You have things called multi step income statements, but we're not really there yet. I'm not gonna explain that until later on. You go ahead and you right out of your revenue Well, that you write literally, just ready to block that says revenue. It's typically bold id and then underneath that indented, say what your revenues are. List out all your evidence and then you go ahead and you read expenses just like this revenue typically bold ID and then blow. It invented right all your wages. And then you go ahead and you find out that some soul of that and that's either cold. If you have a profit, it's called net income. If you have a loss that's called a net loss, no important thing to remember is put a dollar sign at the very top. Um, the income statement. So you go ahead and says, OK, we're dealing of dollars. Everybody knows you're dealing dollars that this happens being pounds you put pounds, Do you put the pound side? Uh, I think you are. And then at the very bottom of the income statement, you have your total your revenues minus expenses. So this is your net income of $700. In our example, put another dollar sign and you put a double underscore. You put a double line under its signifying. That is that that there's no more information to come, and that number is final. Now, this $700 we'll go ahead and be applied to the balance sheet. I'm gonna show you that in the next video and right after this, I'm gonna show you a little more detail, single step income statement. Just so you're more prepared for your class, all right. Here happens to be a single step income statement with more accounts than I had in the previous example. The previous example has to do with the entire example. Starting from episode number one. This has nothing to do with that. Just happens to be a more counts just to show you what it's looking like. All right, So you go ahead and you take your revenue. You wish that you just write revenue. And underneath that revenue in debt, the different types of revenue that you have this example has construction revenue, repair revenue, insulting revenue. You list those all out here. Remember your very first number in a single step income statement you write the you give the symbol of the currents using or happened abusing dollars. Listen out. You underline that so we know we're no longer counting additional revenue. We have 400 plus 200 miles. 300 is equal to 900. What it needs different revenue accounts we had and they were indented again. You write total revenue. I told revenue happens to be $900. Any time you see a revenue like this, where you see a number like this, I wanted top on the bottom. You know, it happens to be a total, uh, and then you do the same thing with your expenses, just like you do with your revenue. Here we go. We have rented stand supplies, expensive wages. Experience happens to be $600. Uh, you underlined in 600 and then you go ahead and take total revenue minus your total expenses, which comes out to be and then in comes with a positive income of $300. So your $300 is denominated again and what kind of parents are using and then also has a double underlining. So that's how you do more complicated single step income statement 12. Statement of Owner's Equity : after you completed the income statement, you'll be expected to in class, probably to do a statement of owners Equity. The statement of Owners Equity is what you're looking for is how much money, how much money the owners of the company have put into the company, how much money that it's earned, how much money they've taken out of the company just trying to find a sum total of all that . So it is a financial statement. As with all financial statements, you're at the name of the company at the top. But from there you say what it is a statement of owners equity below that you write for the year ended December 31st 2016. Um, this is the owner's equity, and it's coming right after the income statement. So you're going to use the exact same time period that used for the income statement to do this. So we use January 1st through December 31st of 2016. I'm for both of them, so you start things off with direct the capital. So Magnus is capital on one wanted on 16 January 1st, 2016 this was a brand new company in 2016. And that means we started up with no capital zero. So you go ahead and you ready zero over here? Because it's a financial statement. First number They always Ray is nominated in the type of currency. These are dollars. And then right below that, you're right. Add literally right. Add with a cooler and you put investment in 2016. So how much money did they invest in 2016? You're gonna pull these numbers directly off the trial balance? That really prepared. So that was $1300 and then below that, you're gonna read that in time in 2016? The net income. We prepared that in the income statement. You just take that exact same number. We just put it over here and that waas $700. You've done that? You want to find the sub total of these two numbers? So your sub total is $2000. And now we've done how much money we've put into the company. Their investment. How much money? The company how much money the company has earned this past year? Now we have to go ahead and record. It is how much money was taken out of the company instead of adding your subtracting. So you just say, left with a colon withdraws in 2016 and that was $500. Now you will see some owners equity accounts where they just say less. I didn't have a 500. And then from there you have to know that has to be subtracted. Other times we'll see them with the preface is around it, indicating that it is, I mean, money that's being taken out of the money. So it is a decrease. You go ahead and you're right. Blow it. It's either increase or a decrease in capital in the year this year because I knew it was being increased. Irby wrote it. So since increase of capital 2016 1500 and then you go ahead and you want a total this again. So instead of totally this is the total of all of this. And then now hear this sort we were looking for is this and this. So Magnus is capital. Oh, December 31st 2016 is $1500. Give it the double underline underneath. And now remember When you start this next year, this $1500 is gonna be execs in place. The $0 is so. Of course, any capital this year is gonna be a being getting capital for next year. 13. Balance Sheet - Part 1: All right, so now we're gonna talk about the balance sheet. Um, bounce sheet is typically prepared after the income statement, and the owners actually statement. I put the owner's equity statement of parentheses because it was the time we don't prepare the owner's equity statement for most companies. I'm gonna talk about that later on. It shows a company's financial position at a moment in time if you remember the income statement and the owner's equity statement that we prepared those over over a period of time. But the balance sheet is exactly at a moment in time. The very defined boat. A lot of times that moment in time, is after the income statement and the owner's equity account have been made once they counsel been closed at the end of the year, so you can go ahead and you can look back upon the year with your income statement. Maybe your owners actually statement? Probably not. And your balance sheet you can look at them all together in one place. You're going to defend documents, looking at it. Um, a lot of times in the balance sheet, it's really easy to go ahead and find out you just look at the business's assets, offset by the queen's against them or the liabilities against them. So you're gonna look at a business, say business has $100,000 in assets. That stuff remember that stuff that they owned? But they owe $250,000 in liabilities. We have a problem there. I mean, you're not solvent. You can't pay back your liabilities. So, like that, let's say $100,000 of assets, we have $20,000 of liabilities. You do it, you're probably gonna be in pretty good financial shape. Um, and it's presented in the order of the accounting equation. So if remember, the accounting equation is assets plus liabilities, plus owner's equity. All right, here's our trial balance from Episode number five. In an episode over six, we talked about the income statement accounts that we find from the trial balance. Well, pretty much anything that's not an income statement. Accounts 100% bet that it is a balance sheet accounts. So income statement accounts obviously are anything for that current period. So the time horizon this case December 31st 2016. A revenue or expenses during that year, that goes automatically. You know, those income statement? Anything else from the trial balance left over is gonna be a fear bounce. You all right? So now we're gonna go ahead and we're gonna put together the balance sheet. Well, the balance sheet is a financial statement, just like the income statement and the owner's equity account. And there are There is a way that you have to go ahead and you have to present it. Were to be correct. So, no, I start off with the name of the company. What kind of financial statement is it? Well, it's a balance you in the exact date that the balance sheet was traded. Pawn. Remember the owner's equity account for the owner's equity statements and the income statement those air over a period of time, we'll balance sheet. Is that exactly at a point time? We have 12. 31 2016. This is assuming that the bounce sheet is treated after the income statement under section statement implicated. And this is done afterwards. So you start off a balance sheet. It's just it looks just like your accounting equation, your assets, liabilities and your owner's equity. You start off your assets. You typically going to write assets from assets. You intense it, and then you start the list. You know, the types of the assets that you have our company. From our example and previous examples, we ended with $750 a cash, just like in the owner's equity account. And the, um, income statement. The first number. You always go ahead and you right, a dollar sign. We have $750 cash ended with $600 of equipment, and we had accounts receivable of $200. You go ahead and you underlie Matic. You underline this practicality. Know this you want? That's OK. We're done counting. You know, this section of numbers some 50 plus 600 plus 200. Think that's 15. 50 and our total assets go over here. We don't right them under here. We're gonna put them over here. 1500 and this. All right. Now, if you remember I said it ends up looking just like your accounting equation. Assets equals y beliefs was honor Zachary, But that means we're gonna add up the liabilities and the owners equity and those air gonna equal to the sum total of the assets. So nonsense is done hiding the assets we're gonna compared to the other double underlining double underline. And you also go ahead and you put the the symbol for the currency that you're gonna be using in this case for US dollars, our account are liabilities Are accounts payable past $50 of liabilities. If I had a list of liabilities, they had three or four different liabilities. I'll go ahead and I do something just like David. The assets. I put them on here, and then I put that line, and then I put the sum total over here. Um, in this case, I don't have that. So I'm not going to do that. I'm just gonna rate the liabilities over here to this total column, which we had 50. You know, it is where, uh and that we're gonna go over here to the owner's equity section. So earlier I was talking about how he's gonna jump to. I was gonna really talk about the owner's equity, so I'm gonna go ahead. We're gonna positivity up, and I'm gonna have it go back to the owner's equity statement. I'm gonna talk about something. All right, so we've been talking about the balance sheet. We've gone over how to classify assets, then liabilities. Now we're down to the owner's equity section. A lot of times, your textbooks, they're gonna want to go ahead. And they're just gonna want you to say, like, owner's equity of one number, which I mean, it's correct. But most people don't like to look at that. I personally don't like to look at it, and I feel like it doesn't really give you a good interpretation of you know exactly what's going on in the company throughout the past year when just looking at it, very simple. The balance you just says Capital $1500. I much rapidly break the capital into three different components. I feel like most people like that on your investment account. How much money throughout the years? Not just this year, but just the communicative total has been put into the company. How much have we invested in the company? How much, Uh, how much money has been withdrawn from the company? It's always good to look at that. You know exactly how much has gone in how much has gone out. And lastly, how much income has a company retained throughout years? Um, the incumbent retained. That goes into account called a retained earnings. The count. I know we're counts. It really fancy on none. The names we choose, but it's really just an easy way every time to see retained earnings. This is the amount of money that the company has managed to earn over the years. If you're retained, earnings is negative for limits. How much money has the company managed to lose throughout the years? But it's just a place holder, and it gives you an idea, not an idea. Gives the exact number. Um, exactly how much has been earlier. Last and then once you go ahead and use total those three things together, uh, you end up with your total owner's equity, which will always be just like this, right here. Magazines. Capital in 2016 Uh, which, Which brings to mind. I'm sure many of you thinking, but this owner's equity statement it's not really used the whole lot. A lot of times, people just go ahead and they just skipped this whole thing, and they just put the either the they just put the income straight to the balance sheet or the child balance, which bouncy it is just a subsection of the child. But it's just numbers taken from job Al And a lot of times that stuff is used for really big companies. You're looking at publicly owned companies that have tohave certain requirements on the stock exchange where they have to show this in there, um, que ones to basically so investors can read it to know what decisions to make. But this really isn't used. All right, So I'm back after explaining to you why the owner's equity account really isn't used that much in accounting. I'm the first way in that I'm gonna show you is how the textbook probably wants you to do it. So that is just with a single owners actually account Oh, the owner's equity account. If we pulled it over from the owner exactly statement from the previous previous episode it was $1500. Actually, this liabilities should have a dollar science first liability, just like your first as it. Then you go ahead underscore, because this is your total liabilities. Over here, your total owner's equity over here and those equal to $1500. All right, $1550. Excuse me? My my mistake. You underscore, and you give it the dollar sign, just like you did appear. The assets, So are we know our accounting equation is still in balance. Assets equal of liabilities. Glass, their owners equity. Now I'm gonna go ahead and on the show. You typically how I like to look at the balance sheet and how many people like to look at the balance sheet. 14. Balance Sheet - Part 2: Alright, guys. So we went ahead in the last video. We had finished it all up. We just had the owners equity and basically just lumped in the one account. I prefer to look at Owner's Equity broken up into investment account, retained earnings and, uh, withdrawals account. Why? So we can go ahead, and you can see how much money has put into the company throughout the years. How much money has been earned by the company throughout the years. How much money has been taken out, either, which way? One isn't correct over the other. It's just this way. You don't have to refer back to another document once on the balance sheet. So Owner's equity, uh, capital count, which means the investment a lot of times of straighten out his investment. We had $1300 of investments, retained earnings, which means all the money that the company has earned over the years. So right now, this is the first year of business it's company has been in. So they retained. Earnings has only been, I believe, those okay, $700. That's all the income they made this year in 2016 and the withdrawals Well, they withdrew $500 I believe. Yep. $500 on the company You go, then. You're right. $500. Remember, it's being taken out of the company. So we're gonna go ahead and we're going Teoh within the parentheses. Er now, go ahead and give it one underline, and then you total all that up. And that is going to be, um, $1500 like I was over here. 1500. Now you have to go ahead and total this again. You're totalling the 50 in the 1500. That equals $1550. Give it the double underline, and then you also give it the just like a But so our assets equal are liabilities and owner's equity. You know, it's imbalance, and that's not gonna show you for about 15. Project 1 - Walkthrough: All right, so here we are. You've made it through the course, and you're about to start Project number one. This is to give you an idea how to approach these projects either in the real world or in the classroom. The first thing I'd start with the instructions. So instructions are preparing income statement, a statement of owners equity and the balance sheet. So you have Teoh do Ah, you pretty much have to record it. 30 accounts put into trial balance and take that information for the trial balance. And put into these financial statements, I have to take into consideration these assumptions. One of the assumptions is when an asset is purchased, record the asset as equipment. So the guy buys a computer. You just put into equipment. If you buy the copy machine, which would be an asset, just apply to the equipment account. If you put those in a separate accounts, Um, that's that's perfectly fine as assets, but we're just keeping it simple. Putting everything into the equipment count, um, letters in the projects. That would be these letters right here, like 10. Invest $3000 in the business instead of saying okay, on February 1st. We're just keeping the letters. Keeps. Ah. Keeps recording the stuff, especially writing it down on pen and paper. Keeps it a lot more simple. All right, so now we're gonna go to the steps for success. It's a little bit of reiteration. About what? I just said it, but Okay. You want to read the instructions and assumptions? You want to know this stuff? Um, when you do a project, especially for clients giving it to you. Uh, I've done stuff. I didn't read that and projects and I did it all wrong. And my boss wasn't too happy. So make sure, you know you know, you know what's being asked of you. Um, read everything you can about the project before you begin. Um, so I mean, it's kind of just look at that information that you've been given. Get yourself acclimated with it, keep it, and keep in mind what the purpose of you doing with it? So right now, we're gonna put this stuff into financial statements. When I worked in public accounting, I'd be given a lot of emails. Have to redo those emails, pull information after out from it, and apply it. So what's the video for? Project one walked through. You're watching it right now. It's a good job trying to cookbook, um, with the answer sheet. So it means putting up the answers. I give the answers for all five projects, pointing that out and just kind of following it step by step. I don't want you to do that so much. I want you to go ahead and look back at the either one the videos or the study guys I give you to study guys. It's the information right from the video. I recommend you actually print that out and take notes on it as you go throughout the videos. A little too late now, if you have done that, but the best way to do it how that information that you will be used to complete the project. Um, I'm about to show you that right now. We're gonna I'm gonna one highlight what we're gonna use transactions. Fiscal year in the name of the company so important for preparing financial statements, recorded transactions with tea accounts, prepared trial balance from the tea accounts, preparing income statement, prepare statement of owners equity. And then lastly, you prepare the balance sheet. It seems like a tall order, but once you get the hang of it, it's actually not that bad. And if you get into accounting as a career where you're doing this on QuickBooks, um, that stuff done automatically the point of this being, you understand what what's being asked of you and exactly what is going on in County. So we'll start with. We'll start with. The project will start by highlighting information that's important. So I first actually asked that you read this entire project all the information you've been given through it all at once. Just read it through, and then we started working on it. So Ted starts a consulting business called Ted's Consultant. So what's important here is the name of the company being Ted's consulting, so I would go through. Not underlying that. The company's fiscal year is January 1st through December 31st 2029. So this is happening in the year 2029 were a highlight. This, um so we go ahead and well, we we when we go ahead and we prepare the financial statements, we know the dates that are being used so that accurate, wonderful one for you to use in real life are in this case would be a client. Ted invests $3000 into the business, so he invests $3000 into the business. So we know what accounts would be used. They would be maybe the cash account and the investment account in the investment count, of course, is part of Owners Equity. Ted purchases a new computer for $2000 on account. That's important part right there. $2000 on account, the count being accounts payable. And then he purchased a new computer. So that's an asset. So is what you would have here as it being. We're gonna play that to the equipment account. If you put that into a computer counting. I was just saying, um, that's perfectly fine, but I was keeping it simple of everything into an equipment account equipment count and accounts payable. Ted is hired and consults for a client for $5000. He's paid in full, so the first thing that he does is he consults. So it's gonna be revenue and that revenues $5000 he's paid in full. So we're assuming that even paid in cash that we're not assuming we know he's paid in cash . So the council use our cash and the consultant revenue if you put it into a revenue account . Um, that's perfectly fine. The reason I say it's consulting revenue. I like to break out these accounts in the specific and specifically with her for her from especially on the revenue side. And the reason for that is I think there's another example I give for a woman's an interpreter and she gets, um I think interpreting revenue and translation revenue. And when you look at that, when you look at the financial statements, you might want to go out and say, OK, well, how much money did we learn from here? And how much money did we learn from there? If you put onto the revenue account, you're still gonna be fine. You're still gonna get it. Uh, the financial statements still be accurate, but it just gives us that extra level of information. Ted spends $1000 on travel expenses for the consulting project, so he spends that money. Um, I spent $2000 on travel expenses so he spends the money That means you spent cash. And it's for the travel expense account. He's hired for another consultant project. So that being said, we know it's gonna be consulting revenue. He completes the project but cannot be paid for sometime in the future. He is owed Hunt $18,000. So this right here hey, cannot be paid for sometime in the future. That is, it's pretty much being summarised right here. Is he's owed $18,000. We're gonna have consulting revenue again and the accounts receivable. But this project is hired an employee and he paid the employees $2000. He paid his employees $2000 in cash. So he's using the cash account and, uh, you say wages, expense? No rough onto your liturgies letters. He says 10 needs money for his personal life. You draws all the money from his business. Um, this right here this question is really an exercise for you. Go ahead and do the tea accounts of you as you're going through these, and then you look at the total of the T account and you'll say, Okay, he has so much money, we're gonna withdraw that normally you'll be told that amount. But through this exercise kind of doing this, but draws all the money from his business, so we know it's cash and withdraws. Um, let her age. He's paid $18,000 a zone. So is what this is referring to this $18,000. Then it's referring to that accounts receivable from up here and later. How's receivable accounts receivable would decrease casual entries in this equation. Fairness problem. So now we have to go ahead and we have to create the do you have. So we do t accounts. He's doing it longhand, I recommend you kind of set the page up like this. Cash all the way over here in the far left, on the far right. We have withdrawals. And then instead, from Charles, your investment and then below investment would put all our revenues are revenue accounts and blow do withdraws Will total expense against you See, right here. The natural balance for these accounts is, um, for withdrawals and the expenses. That's money leaving the company right. Leading a company. The natural balance is a debit investment side. It's money going into the company. The natural balance is credit. So what's the other's words, Uh, letter A That's $3000 into his business. We've already established that cash is cash and investment accounts have been used and is always best that you know, the natural balance of these accounts. That's why we put the plus the natural balance investment. The natural balance is $3000. Um, $3000 here. So for every dead, it it must be a credit in this case, working backwards. So for every trade, that must be debit. So that's the cash is gonna be debited by $3000 which is, and you kind of do this throughout all there. All these transactions here now, the one I want explain here is letter G. Ted needs money for his personal life. You with Charles, all the money from his business to establish that cash withdraws. We don't know how much cash it is. So this is what our T account looks like before you do anything. $3000 was 5000. That's $1000. And then from that $8000 he's done total of 3000. That's 1000 plus 2000. So 8000 minus 3000 leases with $5000 that he spared. So we go ahead and we d trees cash by $5000. That's money leaving a company. And what do you know? That's it. That's it. That's the credit over, Colonel. It's also the natural balance is a debit, Um, and that's deputed by $5000 Now, lastly, this doesn't pretend to this example here, but all the revenue accounts, Um, this is more like and just just in life, you can dump all the money to just account just plain vanilla can call driven here. Reason. I don't do that because if you take this course and I'll say you're doing good keeping or you're doing the books for your see your own company. If you have subtle defense streams of revenue, it's probably a really good idea. You know how much money is coming in from that Those dreams revenue. So it's if you have consulted here and then let's see you have another one. That's commissions said for whatever it was if you were selling product or whatever, and you got a cut of that you may be having on the Campuses commission and then you're getting a better idea of what's going on within the company. Same thing applies for the expenses on. We kind of want to know where the money is being spent, right? We go through all this trouble of recording everything like this, break it up. Travel expenses, wages, expenses, whatever other kind of expenses you have. We went through where we want to put. Give those there on account now for this, Uh, but his course of these projects I've gone ahead, and I've said, Just don't all the assets that we purchased into equipment, if you break those assets out, say, instead of what did he invest a computer? If he said this is a computer account, and then you had another one that said OK, but, you know, printer, whatever. And you listen those out perfectly, you're perfectly right. But for right here, right now, we're OK with the equipment. Um, we'll talk about that. Why? That is later in a different course. But did you think simple us over there? All right, so we have a tea accounts. The natural thing to do after a T account here, once you've done all the tea accounts, is actually to make sure Still imbalance. So we have debits over here of 18,000 plus 2012 0 That's 20,000 credits over here, 2000 plus 3000 plus 23,000. That's equal to 20,000 and withdrew this money year. So 20,000 minus five 23 minus one minus two. It is equal to twice the other $20,000 of assets equal to alright liabilities plus Owner's equity of 20,000. $20,000 debits on $20,000 of credits over here. But we're in balance at least. So now we go ahead and create the trial balance. Kind of everything works off the trial balance with the other financial statements. This isn't a financial statement, but you're gonna get pretty used to it. Working out for you to be in a counter name the company. What this is is the trial balance and it's at a final date of the financial period. Does the 12. 31 29 How do we know that? Because right here, cos fiscal year is December 31st 2029 and that appears with this. All right, so here we are in the shop balance, we just pull all these balances directly over from the T account. So whatever account we have here in the T account established, we put that over here in the trial balance. In the instructional videos, I showed you how this just goes in the order of the chart of accounts. Um, that trade accounts is pretty much laid out, just like how you lay out there. The tea accounts with assets who started assets that would go over the liabilities. Goto owner's equity. He's the balance sheet accounts in here. And then finally, we put the income statement accounts over here, which is the revenue and expenses. So that's what we have here. We have our assets here, Um, are liabilities right here that are balance sheet account of the owner's equity right here . And they were down here. We have our revenue and expenses, which goto income statement, and then any any count that has a credit balance. We put those in parentheses. So originally we had $20,000 of debits. She's express right here minus $20,000 of credits, so that gives us final balance of zero. So then we go ahead on. We want to create an income station. So the income statement is explicitly this portion for the trial balance. So would you know. Here we go. We have are heading income statement in the name of company income. Statement for the year ended told 31 29 singing that fiscal year over a span of time. So we have a revenue. What do you know? That's getting pulled over directly from the trial balance. And we were expensive here. They listed out the name travel expenses, Wage expenses total at the 3000. So 23,000 minus $3000 of total expenses gives us a net income of $20,000 race. Then after that, you go ahead and say, Hey, we want to create statement of owners. So instead of owners equity in name the company, um, in a misstatement, a man. But you ended 12 31 29 says over a period of time, just like that, the income statement. So we start with our beginning capital at the very first day of the year zero because his company is burning there, so invested what money was invested. Um, so we pull that investment, pull that straight off the child Alice. So but here's $3000 start. The trace is that we have income. How much income was earned over that time? That's not on the trial balance. We get that directly from the income statement, which we just created $20,000 there that chases right over to the Stevie Wonder's Able. And we have a total of $23,000 that the company has brought in in worth and value. Um, there would go ahead and start subtracting out the withdrawals. So the company withdrew $5000 withdrawn from the company again. We pull that directly from the trial balancer here. So we haven't entries in capital for that year of 2000 and can be treated capital for that year. 2029 of $18,000. So there you go. Now, the one thing to remember is that this $18,000 let's say the years 2030 now, So don't look at that. But that $18,000 will begin up here the next year. And it was okay. Was any money invested? Was there any income? What was it? And it was anybody pulled out and then we'll find out thinking gods. Now, the last thing that to create is a balance sheet. Give me the balance sheet here. All right. Name the company. Financial statement and the date. So this date of mine, she's probably be at the very end proper. I would be will be at the very end of that, um, experience of the the fiscal year of that company, which we pulled directly from project notes General Affairs, through December 31st since December 31st traces right over and it specifically at December 30. Persons not over a period of time because it is about she's. So you just go ahead and we list out all the assets, liabilities and the owner's equity. Now, this will include this. I'm out here, plus another account called retained earnings account. We'll talk about that again. So cash traces right over cash chases rattled from the trap pounds equipment traces right over accounts receivable. Traces right over here. Total assets of $20,000 liability. We traced that right over. Where is it? Accounts payable. $2000. Then we go over here to the owner's equity side. If you put just one number from the owner's equity side. If you put just this number is $18,000 on total, you would still be correct. Now, the reason why I like to break it out into the three different types of capital towns of investment withdrawals and, um, you take earnings is because in the real world, mostly small businesses statement of owners equity isn't really looked at it just kind of summarized over here on the balance shoot. But nonetheless, you can still see these numbers from the statement of Owners Equity. So we have investments of $3000 the net income for the years, $20,000. But, uh, that really gets pulled over into an account called Retained Earnings. And we want to kind of keep score going to keep track. Over the years, the income accounts go to zero. I'll show about the next course, but the retainer and exist will live on to next year. So next year let's see if they made hypothetically, let's say they make $7000. You see $27,000 going on here because you're gonna keep building upon this account. But let's go back to this year, and then we have withdraws of $5000. So if you remember, all this is came right off the track. Balance to the statement of Owners Equity. You don't even really need Andrew World. But we can pull this all right off the grounds here. Total owner's equity, $18,000. We have $20,000 of assets. We have $2000 viability in $18,000 of owners equity. So her assets do equal our liabilities, plus honors degree.