Transcripts
1. Introduction to Mastering Double-Entry Accounting: Hi, everyone. Welcome to Mastering double
entry accounting, where we unlock the secret to understanding
debits and credits, the foundation stone
of accounting. If you don't get
debits and credits, accounting will always
feel confusing. But once you do, everything
falls into place. In this class, I'll teach you a powerful secret hack
that I prepared myself, which will help you master debits and credits
once and for all. Join hundreds of students
worldwide who are transforming their accounting
skills with my courses. Cover the fundamental logic of debits and credits
the secret trick, four crucial steps for
perfecting double entries, attempting on entries, and
a very interesting project. That's the icing on the cake. Let's cover the project. You have to visualize
a business, understand the crucial entries or transactions a business has, and then you have to prepare double entries on
those transactions. I know all this seems gibberish, but at the end of this class, I guarantee everything will
be piece of cake for you. So are you ready to finally
master debits and credits? Let's get started.
Thank you very much.
2. Understanding the Double Entry System: Part 1: Hi, everybody. Welcome
to our next video in which we would be talking
about the double entry system. Or, if I be more specific, the world of debit and credit. Debit and credit is the building block of the
entire realm of accounting. So it's very, very important to have understanding
about this concept. So let's dig right in. Before I teach you the
concept of debit and credit, you have to understand about the concept of gain and
loss, increase or decrease. So let's have a look at this. I'll be giving you an example. This person is Emily. By the way, her name would
come again and again. And he's John. All right? Emily and John. Emily sold a car worth
$10,000 to John. Okay? Emily sold a car
worth $10,000 to John. Now, I want you all to understand a very
important concept. Emily gave the car
to John, right? So what decreased over
year Emily's car, right? On the other hand, John gave
$10,000 to Emily, right? So what did John lose? John lost the cash
and gained the car. Emily gained the cash
and lost the car. Okay? So in every transaction, we would find increase
or decreases. Okay? Moving on. Debit and credit. Very, very important. Now, remember the concept I taught you of gain
or loss, okay? Every transaction has
multiple accounts. Now remember, every transaction
has multiple accounts. If I take you back to
Emily and John's example, here, there are
multiple accounts. There's Emily, there's
John, there's Car, okay? So in every transaction, in all these financial events, you would have
multiple accounts. And these are recorded on the debit or credit side
of the account respectively. Okay? Every increase or
decrease is shown in the debit or credit side of
the account respectively. Now, what's debit or
credit? Very simple. Debit is the left side of the account and credit is the
right side of the account. Okay? Now, every accounting
class, whatever I taught you, I taught you the
important definitions of all these assets, liabilities, incomes,
expenses, capital and drains. They are either
debited or credited. Now, I'm sure you're
wondering something. What to debit and what
to credit, right? Now, to help you understand, I made a rule which
will make it very easy for you to remember what will be debited and
what would be credited. That's called the
Dead click Rule. Let's dig right in to
the dead click rule now. D stands for debit. Now, what to debit? These three things
would always be debited expenses,
assets and drawings. These items would always
go on the debit side. On the other hand,
what items to credit? Liabilities, incomes
and capital. These items would always
go on the credit side. However, there is an
important catch or her. This rule only
applies on increases. If expenses, assets,
and drawings increase, that would go on the debit side. If liabilities, incomes
and capital increase, that will go on the credit side. If any of these items decrease, then this entire rule
would be reversed. Like if an asset decreases, that would go on
the credit side. If income decreases, that
would go on the debit side. So the deadly cruel always
applies on increases. Now you guys might be
wondering another question. I'm always talking about
increase or decrease. How will we identify whether an item is increasing
or decreasing? So I'll try to help you
understand this confusion. If anything is coming
in the business, that signifies an increase. Now, always remember
in accounting, we have to always
focus on the business. We are not supposed to
focus on the owner. We are not supposed to focus on any other party or any other thing happening
in the world. We will only prioritize
the business, and whatever is coming in the business,
that's an increase. Whatever is going out of the
business, that's a decrease. Oh, if the balance of
an account increases, that signifies an increase
as well. All right? If something is going
out of the business, that's a decrease like in
Emily and John's example. The cash went out, right? So that's a decrease. Or, if the balance of
an account decreases, that signifies a
decrease as well. Now, let's look at some examples to help you
understand this concept. Example number one, very simple. Bought a car for $10,000
cash. Very simple. Now, the car is coming
in the business. So this asset, your
car is increasing. The cash, however, that's
going out of the business. So your asset cash
is decreasing. Okay? So number one, you have to look at the flow. If it's an inflow,
that's an increase. If it's an outflow,
that's a decrease. Then I spoke about balance increasing or
decreasing, right? Let's look at the
second example. A credit customer,
you receivable. Johnny of ABC Limited paid
them their entire balance. Now, your receivable, your
customer who owed you money, finally settled his balance. He paid the entire
amount owed to you. So that's a decrease, right? You're going to wipe off
Johnny's name from your book. Johnny doesn't owe me money now. So Johnny's balance
has decreased. Why? Because he paid the account. So I hope you understood how to identify
an increase or decrease. I'll see you in the next video. Have a good time. Bye bye.
3. Double Entry System Part 2: Applying Debits and Credits: Hi, everyone. Welcome back to our next video in which we would be talking about double entries. Okay? A little more
about double entries. This is the second part
of the previous video. In this video, I will share
some steps that I created, which would help you mastering the double entry concept
because in accounting, double entries are everywhere
in journal entries, in ledges, and in
many more concepts. So how to master the
double entry system, I prepared a four
step model for you. Let's look at the first step. The first step, you have to ascertain the accounts
involved. All right? In every transaction,
like I told you, there are multiple accounts, so you have to first identify
what are those accounts. The second step is put those accounts in their
relevant natures. For example, if I found that a transaction
involves a car, so I ascertain the
account that it's a car. Step two is transfer
that to its nature. CA is an asset. All right. Step three, determine
the effects. I taught you how to identify
increase and decreases, so we have to determine that. And the final step is
apply the dead click rule. So I have separate
videos on each steps. So I'll see you in
the next video in which we would be
discussing the first step, which is ascertaining
the accounts involved. So see you in the next video.
4. Step 1) Ascertaining the Accounts Involved: Hi, everyone. Welcome
back to our next video. In this video, we
would be talking about the first step in mastering
the art of double entries. And what's the first step? The first step is very simple. Ascertaining the
accounts involved, and this is the first step. Now, remember, every
business transaction involves two or more accounts, like we saw in the
previous lesson in the gain or loss example, the first step is to
identify these accounts. Now, how to do that, I made
some examples for you. The first example started
business with cash of $10,000. The owner invested
$10,000 in the business. So in this transaction, the two items we can identify
is start your business. And cash. It has a name. We'll do
that in the next step. For now, just identify
the two items. Example number two, paid
rent with cash of $5,000. So in this transaction, there are two items as well. There's rent and cash. Next example, bought goods on credit from John for $5,000. So even in this transaction,
there are two items. There's boat goods. And John because they were bought
on credit from John. Next example, sole goods
on credit to Jamie. So Jamie is our credit customer. So the two items we see
in this transaction are sole goods and Jamie. Alright. So right now we are just
identifying the two accounts. There can be more than two as well. We'll see that later on. Right, withdrew $5,000
cash for personal use. So the owner took out cash
for his personal use. So in this transaction, there's cash and personal use. Alright. Moving on
to the next example. Now, withdrew cash from
the bank for office use. Now, this is not drawings. I told you that drawings are all those item withdrawn
for personal use. Over here, the owner did not withdraw for
his personal use. He withdrew for the business
for the office use, right? So in this, there are two items. There's cash and bank. These are the two items
in this transaction. Next example, John,
our receivable, paid us $3,000 by cash related
to the balance he owed us. We sold goods on credit
to our customer John. Now he finally
paid us the money. So in this transaction, there's John and cash. All right, John and cash. Moving on to our final example. Paid Alex our payable $5,000 by check relating to
the balance we owed him. Now, our credit supplier to whom we as a
business owed money, we finally settled the account. We finally paid him the amount. So in this transaction, there's Alex, our
supplier, and check. These are the two items, right? So this was the first step. If you want to master
double entries, follow my four step model. This was the first step, how to identify now we are
moving on to the next step, and we would cover that
in the next video. So see you guys in the next
video. Thank you so much.
5. Step 2) Ascertaining the Nature of Accounts Involved: Hi, everyone. Welcome
back to our next video. In this video, we would commence the second step involved in mastering the art
of double entries. And the second step is ascertaining the nature
of accounts involved. So in the first
step, if you recall, we identified the two
items in each transaction. That was the first step.
Now what we have to do is ascertain the nature,
categorize these items. What are they? All right? So started business
is your capital. And then cash is your asset. All right? So these are the two accounts,
capital and cash. Now let's move on
to the next one. Over here, we identified
rent and cash. So I will write the name
of the accounts over here. Rent is an expense, right? And cash is your
asset, isn't it? Moving on to the next example. Here we identified
boat goods and John. So boat goods is your purchases. Why? Because we are buying
these goods for reselling. The intention is to resell the items so you
could earn revenue. And John is someone
to whom we owe money. As a business, we
have to pay John. So John is our payable. All right. John is our payable, but the name of the
count would stay John. All right. Next, so goods on
credit to Jamie. So sole goods is your sales. Jamie is someone to whom we
have to receive the money. All right? Jamie owes us money. He's our credit customer. So he's our receivable. But the name of the count
would be Jamie. All right? Next, cash and personal use. So the name of the account would be cash, which is your asset. And what is personal
use called drawings. So the two accounts involved in this transaction are
cash and drawings. Now, withdrew cash from
the bank for office use. So in this, the two
accounts are cash and bank, both are our assets, but the name of the account
would be cash and bank. All right. Next,
John, our receivable. So it's clearly mentioned
that John is our receivable. So John is the receivable, our asset, and the name of
the account would be John. Cash is our asset as well, but the name of the account
would remain as cash. Now, let's see the
final example, paid Alex our payable. So it's clearly
mentioned that Alex is someone to whom we as
a business owe money. Okay? So Alex is our payable. And the name of the count
would remain as Alex, right? And then there's check the
name of this account is bank. It's our asset. All right? So this was the second step. After we've identified
the multiple items involved in the transaction, we have to ascertain what are they, and we've just done that. So see you in the next
video in which we would begin the third step.
Thank you very much.
6. Step 3) Determining the Effects (Increase or Decrease): My genius accountants,
welcome to the next video. In this video, we would commence the third step involved in the art of mastering
double entries. In the first step, we saw how to identify the multiple items
involved in the transaction. In the second step, we
ascertain the nature. What are these items? Are the assets, liabilities, incomes, expenses, et
cetera, et cetera. So in this video, we
are going to determine the effects whether these items are increasing or decreasing, this is very, very
important because this is how we would determine what
to debit and what to credit. Alright? So let's move on. The first example was
started business with cash. Now we determined what
these items were. Now it's time to find
out whether they're increasing or decreasing
before we even move on. I want you to recall
what I taught you. I taught you how to identify whether these items are
increasing or decreasing. So in order to do that, we have to understand
the flow of the items. If something is flowing within the business,
that's an increase. Something is flowing
out, that's a decrease. That's the first
thing. Second thing is to determine the balances. If the balances of those items are increasing,
that's an increase. If the balances are decreasing, that's a decrease. So let's see. Started business with
cash of $10,000. So over here, the cash. Now, there's one misconception. Students think that the owner is investing his money, so
the money is going out. No, we have to always
focus on the business. Don't focus on the owner. I told this many times. Don't look at the owner. If something is coming in the business,
that's an increase. Where is the cash
going? The cash is coming in the business. So that's an increase, all right? Cash is increasing. Our asset is increasing, and capital is also increasing. Why? Because the owner
is investing his money. Now he has a stake or
interest in the business. He has a share to the profits
and losses of the business, because he's
investing his money. He's got something
to lose or gain. So the capital is increasing. All right. Next example, paid rent with cash. All right? Now, I'm
paying something, so it's pretty evident
that my cash is going out. You're right. So the cash is decreasing. What about the rent? Well, my rent is increasing. Why? Because as a business, I just incurred a bill. I got a bill. The bill
came in the business. When I calculate my expenses
at the end of the day. Oh, no, now I have to pay
another expense of rent. So rent is increasing. All right. Next, bought goods. So the purchases is increasing because you
have just bought goods. The goods are coming
in the business. You have incurred a cost,
which is increasing. But what about John? What about John? My liability is increasing
because my debt is increasing. Now I have to owe money to John. It's an obligation. Next, sold
goods on credit to Jamie. My sales is increasing
because, Wow, I just did a sale. My earnings are rising. What about my receivable? Now, Mr. Jamie owes
us money, right? We have to receive
money from him. So my asset is increasing. All right? Next, withdrew
cash for personal use. Don't get confused. The
owner is getting cash, so you might think his
cash is increasing. I said, focus on the business. The cash is going out of the
business. That's a decrease. And the business just
incurred a drawing. So the drawings are increasing. All right? Next example. Yeah, this is important. This is normally called a
contra entry in cash books. Why? Because it's having multiple effects on
the cash and bank. It's very simple.
Let's go step by step. Okay? Don't overthink it.
Widrew cash from the bank. All right? The cash came in the
business, right? Why? Because the cash was
for the office use. So something coming
in the business, that's an increase because this cash would go
in the cash still. When the owner counts
his cash till, Oh, I got $15,000 more. You know? So the cash is increasing. What about the bank balance? The bank balance is
decreasing, right? When you go to the bank,
you take out money, so the amount would be deducted from your
account, isn't it? So bank is decreasing. Next example, John Our
receivable paid us. This is a very important
yet easy transaction. Now, John is our receivable. Once upon a time, we sold
goods on credit to him. He owed us money. So he finally paid us. He settled his account, right? So I have to wipe off John's
name from my register that, Oh, you know, he doesn't
owe me money now. He paid me. So John
is decreasing. My receivable is decreasing because it's no
more my receivable. What does receivable mean? Someone who owes you money,
you have to receive. So I got it, isn't it? So, John is decreasing. What about the cash? The cash is flowing
in the business. So that's an increase. Alright? Next and final
example, paid Alex. Now, Alex, once upon a time, we bought goods on
credit from him, so we owed him money. He signifies a debt obligation. Now we paid him. Do I
still owe him money? No. So my liability is decreasing. Alright? What about
my bank balance? I'm paying Alex
money from my bank. That's an outflow. So the bank is also decreasing. I hope you will understood. In the next video, we are going
to finish the final step, which is dead click. So see you all in the next
video. Thank you very much.
7. Step 4) Applying the DEAD CLIC Rule: Hi, my genius accountants. Welcome to our next video. In this video, we are on the final step on mastering
the double entries. So this step is applying
the dead click rule. I told you guys the dead Click
rule if you have problems, then review that video
before watching this lesson. This is very, very important. Now, just to give you
guys a quick recall, what was the dead click Rule? The D stands for debit. Now what to debit? Expenses
would always be debit. Assets would always be debited. Drawings would always
be debited, all right? Now, come to the click side. C for credit. Now
what to credit? Liabilities. Incomes
and finally capital. All right. So this was
the dead click rule, and there was a catch.
What was the catch? That this only
applies on increases, not on decreases at all. All right. So now let's move on. Apply the deadlu rule, and then we are done
with double entries. Right. So this was
the first example. We've completed all
the three steps. Now we have to just journalize, or in other words, do the double entries of the
transactions. All right? So now as per the deadlik rule. When capital increases,
that's on the click side. Cash is your asset. When that increases,
that's on the debit side. So let's assume it's
the first of the month. So cash is an asset, so that will go on
the debit side. And capital, it will go on the credit side because that's increasing as per
the dead click rule. All right, the
amount is $10,000. Right. Next, paid
rent with cash. So over here, we noticed that rent and
expense is increasing. Cash, your asset,
that's increasing. So let's follow
sorry, decreasing. Let's follow the deedlk rule. When expenses increase,
they go on the debit side. So I would write rent. And $5,000. On the debit side,
cash is your asset, which is decreasing, so we'll
reverse the deadly grow. Instead of debit, we are
going to credit the cash. Next, bought goods
on credit from John. I told you about purchases. Some schools of thought
treats that as inventory. Some schools of thought treat
that as an expense nature. Either way, that would be debited as per
dead click, right? So purchases would be debited John is your liability. John is your debt, someone to whom you
have to repay money. So that will go on
the credit side. Next, sold goods on
credit to Jamie. Sales is your income. That's increasing. Receivable
Jamie is your asset. He's also increasing. So I would write Jamie
on the debit side. We always write the debit
entry first, right? So Jamie on the debit side, $4,000 and sales on
the credit side. Next example, withdrew 5,000
cash for personal use, we noticed cash is decreasing
and drawings is increasing. So as per the dead click rule, drawings would increase,
so that would be debited. So drawings on the
debit side, 5,000. Your cash is going
out of the business. Remember, we don't
care about the owner, we care about the business
only. So cash is going out. Credit. Next, withdrew cash from
the bank for office use. So cash is increasing
and bank is decreasing. So let's follow the deedle rule. Cash is your asset. As per debt click,
it would be debited. And bank is also your asset,
but that's decreasing. So that will go on
the credit side. The dead click rule
would reverse. Next, John, receivable. Now this is important. Understand in the beginning
of this playlist, I told you that if something is flowing in the
business, that's an increase. And if something's flowing
out, that's a decrease. And the second point
was very important. If the balance of an account is increasing,
that's an increase. And vice versa. In this case, receivable is decreasing because
he's paying his account. So we would reverse
the dead clique rule. Our asset john,
instead of debit, would go on the credit side. Cash is coming in the business. That's increasing, right? So we would debit cash. 3,000. And, John, our receivable
is decreasing. So we are reversing
the dead lek rule by putting this on
the credit side. Final, paid, Alex, our
payable. We are settling. We are closing our
liability. It's over. We are paying our creditor. We are thing we are throwing
the money on his face. Here you go. So our
liability is decreasing, and our asset bank,
we are paying it. So that's also decreasing. So Alex is a liability. He was supposed to be
on the credit side. But now that I'm paying Alex, my liability is finishing. So we are going to
reverse the deadly group, and I'm going to debit
Alex instead of credit. 5,000 And bank, my asset
is also decreasing. So we would reverse the Jet
Click rule and credit Bank. All right. I hope you
understood this video. In the next videos, we would be discussing
journal entries, and we would do more practice
on the double entries. So see you all in
the next video. Have a good day. Bye bye.
8. Journal Entries: Recording Transactions with Debits & Credits: Hi, my genius accountants. Welcome back to the next video. In this video, we would be starting a new topic
called journal entries. Now that you've understood my four step model
on double entries. We are now beginning a chapter
called journal entries. Now, journal entries is a very, very important concept
in accounting, and you have to have
understanding about this. Otherwise, you'll have problems later on in the next chapters. So let's try to understand
what are journal entries. It's just double entry, right? It's based on dead click. It's a system made in order
to record transactions, and it's the building
blocks of accounting, the basic foundation
of accounting. Now how do jill
entries look like? Let's have a look
at that. So they are the first step in
the accounting cycle. I told you after a transaction, we post the transactions into the books of
original entry. Now, before we move on to
the books of original entry, you have to have
understanding on journal entries
because the books of original entries
are old journals. So let's have a look at the journal. How
does it look like? So these are journal
entries, okay? You can see there's
a date column. There's a details column. In this, we write the
name of the account, and then there's
debit and credit. So it's totally
based on DedCliq. We apply the four step
model of double entries, what I toad you, and we
solve the journal entries. Now, let's do an activity. In the next video, we are going to do an activity
on journal entries, which will help you
understand it very well. So see you in the
next video. Thanks.
9. Journal Entries Activity: Practice Your Debits & Credits: Hi, my genius accountants. Welcome back to the next video. In this video, we are doing a class activity on
journal entries. Now, if you still don't
understand my four step model, kindly review those videos
before this lesson. All right? It's a very, very important
concept which will help you in solving such
double entry questions. Okay? Now, let's have a
look at the question. It says, prepare journal entries for the following transactions. So there are nine transactions
in this question, and we have to prepare
journal entries. All right? So follow my four
step model in each question. What was the four step model? The first step was identifying the items in the
transaction. Okay? The second step was ascertaining the nature of those items. Are those assets, liabilities? What are the accounts that
we're supposed to write? The third step was identifying whether are these items
increasing or decreasing? That's very important
because when you understand the
increase or decrease, we are going to apply
the fourth step, which is the dead click rule. All right? Now,
let's start this. Before I even move on, let's write dead click so
we don't forget anything. Debit expenses,
assets, drawings, credit, liabilities,
income, capital, and they only apply
on increases. I'm sure you remember that. If there's a decrease, then we will reverse this rule. All right? Right. Now, let's
start the first question. Started business with
cash for $10,000. Okay? Now, in this question,
there are two items. They started business
and cash. All right? So the owner invested his cash. So the capital is increasing and the cash is also increasing. I explained this before how to identify
increase and decrease? Watch that video. The
cash is not going out. It's coming in the business. So let's assume it's first
of January, all right? So our cash is increasing. And also remember
one more thing, we'll always write
the debit item first. Whenever we write
journal entries, the debit item has
to be on top, right? So cash is being debited because it's increasing
as per deed click, it will go on the debit side, and capital is also increasing. So I'll write capital
on the credit side. Because as per dead click, capital goes on the credit side. Now let's move on to
the second question. Bought goods on credit from Fox. Okay. Bought goods on
credit from Fox for $2,000. Now, in this transaction, there are two items
bought goods, which is purchases, Fox. Is Fox my payable
or my receivable? Think. Tell me quickly,
post the video and think. Fox is my payable. As a business, we owe him money. It's an obligation to pay. He's a liability, right? So my purchases is
increasing, all right? And my liability is
also increasing. So purchases would
go on the debit side because it could either be
an expense or an asset. Both schools of thoughts, it would go on the debit side. So two, let's assume
it's 2 January, purchases on the
debit side, $2,000. And Fox is my liability
is increasing. So as per dead click, Fox would be credited. Okay, this is how we
do journal entries. The debit item first and the credit item would
come after that. The third transaction. Sole
goods on credit to Roy. Now, in this question,
there are two items, so goods and Roy, right? Now, who is Roy? Is Roy my receivable
or payable? Think. Pause the video and think. Roy is my payable. I'm just joking. Roy
is my receivable. Why? Because I sold
goods on credit to him, he owes me money. All right. And in the asset definition,
the second point, what was the second point, resources owed to the business. So he owes us money.
He's my receivable. It's increasing, right? There's a new person
who owes me money, Roy. So I'll write Roy on the debit side because
as per DedCliq, assets would always
go on the debit side. And the next item is sales. It's my income. That's
also increasing. I sold something, so my
earnings are increasing. My income is increasing. Second, there's one more
question students ask me. You might be confused that, why is this my sale, even though I didn't
get the money, and I recorded that as a sale. Accounting is accrual basis. It's not cash basis, okay? We record incomes
when we earn them, not when we receive the
cash. That's the reason. Okay, second, for January, paid rent by cash for $1,500. Okay? My expense is increasing. I just incurred a
cost, a bill, rent. My cash is going out
of the business. So cash is my asset. It's normally supposed
to be debited, but because my
cash is going out, I'm going to credit cash, and I'm going to debit
rent with $1,500. Okay. Next, question number five, paid Fox $0.20 every
dollar owed in cash. Post the video and solve this. I want to see what
you guys can do. Now, remember, once upon a time, once upon a time, we bought goods on credit from
Fox for $2,000. Okay. Once upon a time, we bought goods on credit
from Fox for $2,000. I didn't pay him
the entire amount. I just made one payment. Okay, one payment. And
what's that payment? We paid $0.20 for every
dollar owed in cash. Okay? Now, how to do this? Now, let me show you this
involves a little bit of maths. So $0.20 for every
dollar owed means 0.20 multiplied by the amount we owed him, which was $2,000. So it's like 20% of
$2,000, which is $400. So we just made one payment. We owed him 2000, we paid him 400 so far. So we have to record this. We paid in cash. So the
cash is going out, right? And my liability is decreasing.
Why is it decreasing? Because first my debt was 2000 now we made
a small payment. So my debt has decreased
from 2002 1,600. Okay? So my liability
is decreasing. Alex, sorry, Fox, my
payable is decreasing. So we would reverse
the debt leak rule. I'm going to debit
Fox instead of credit with $400 because
that's the payment I made. My cash is going out, so I'm going to credit
my cash. All right? Next transaction, withdrew cash from the
bank for office use. This is drawings,
right? It's drawings. No, it's not drawings. It's not for personal use. If you go to the bank, you take out cash, put that cash in your cash
still in the business. That's not a personal use. You're doing that for
the business, okay? So in this transaction,
there are two items, there's cash and bank, okay? There's cash and bank. So the cash is increasing. Obviously, you got cash, you put some cash
in the cash still, you flow increased, but
the bank is decreasing. Okay? So as per dead click, as per dead click, my asset cash is increasing, so
I'll debit that. My bank is decreasing,
so I'll credit that. There's no drawings involved here because it's not drawings. Okay? Question number
seven, is this drawings? No, it's not. Yes, it is. I'm just kidding.
So the inventory is going out from
the business, right? And I just incurred a drawing. So my drawings balance is
increasing. All right? So as per dead click drawings is on the debit side
when it increases. How much? 1,000. And my inventory asset is
going out, it's decreasing. So would reverse
the deadliu rule, this asset would go
on the credit side. Okay. Next, paid Roy half
the amount he owed. No, sorry, Roy paid us half
the amount he owed by cash. This is not the full payment. So far, he paid me
half the amount. I probably made an agreement
with him that first gave me half the amount this
month and half later. It's not the full
settlement, okay? This is why I'm not
writing any discount in the Fox transaction or
in the Roy transaction. Now, Roy paid me cash. So first of all, straightly
away my cash is increasing. Asset is increasing.
Roy, my receivable is decreasing, okay? Because receivable means you are yet to receive
money from someone. So initially, Roy
owed me how much. How much did Roy owe me $3,000 this
transaction over here. Roy initially owed us $3,000, and he paid us half the payment. So what's half of 31,500, right? So now he owes me 1,500, which is lesser than 3,000. So notice how my receivable
balance has gone down. So my asset receivable is going down because
he's paying me, okay? So what I'll do now is I would debit my cash because
that's increasing with 1,500, and I'm going to
credit my receivable who is also decreasing by 1,500. All right? Next, one
more transaction. Come on, guys, tell
me how to do this. We borrowed a loan
from the bank, okay? We borrowed a loan
from the bank. So my liability loan, my debt is increasing, and my bank balance, my asset is also increasing. So as per DetClikRu as per DetClRu my asset bank on the debit side
because it's increasing. My liability, which is
called loan payable, a liability, my debt is
also increasing. All right? So this was how to
solve journal entries. Note one thing
that the amount on the debit side would always be the same as the
amount on the credit side. If there's 10,000 on debit, it should be 10,000 on credit. Otherwise, there's
either a problem in you or a problem in the
question or an error. So make sure that the debit and credit amounts
are always the same. All right. So this was how
to solve general entries. Now let's move on to
books of original entry. In the next video, we
are going to start the first step in
the counting cycle, which is called books
of original entry. Thank you so much.
10. Introduction to Discounts: Hello, my genius accountants. Welcome back to our next video. In this video, we
would be covering some important transactions such as discounts and returns. So in this video, we would have a
look at discounts. All right? So there are
two types of discounts. Number one is your
trade discount. Your second discount is
called a cash discount. Both these discounts have different treatments
in accounting. Both are treated separately. Both are different concepts. So in the next videos, we would be covering
each discount. So see you in the next
video. Thank you.
11. Trade Discounts: What They Are & How They Work: Hello, my genius accountants. In this video, we are going to discuss a very
important concept, which is called discounts. And in particular, we are discussing trade
discount in this video. But before we commence
this chapter, there are some important terms you have to have
understanding on. And what are those
terms there too? Number one, list price. Okay? And number two, net price. So list price is the
price before discount, before the deduction
of any discount. So it's a pre discounted price. The net price is the
post discounted price, meaning after deduction
of all the discounts, the selling price that's left
is called the net price. So post discount. A very simple example, if I'm selling a product for $100 and after
applying 10% discount, 10% of 100 is ten, subtract ten from 100, you'll be left with 90. So this $90 is the net price, and this hundred dollar
is the list price. All right. Right. Now let's move on to the chapter and
understand all this. Right. These are some
products from Amazon. You can see some beads. You can see a patrey. You can see drone products, a computer LED and
an Air purifier. Note, it says 20% of
limited time deal, 38% of 22% of 41%
of 42% of 22% off. These are all the discounts. All right. This is called
the trade discount. Discounts offered
by businesses to customers when you
make upfront payments. All right? These
discounts reduce the selling price. All right? So now, what is trade discount? Reduction in the list
price of the product. All right? Why is it given When customers
do bulk purchases, when they buy immense
orders, okay? Or to encourage sales. If a business is
trying to increase the number of orders or to
increase their customers, they can offer trade discounts. Let's look at an example that
I prepared for you guys. Suppose a manufacturer sells a pair of earphones
for $10 each. Okay. They're selling a pair
of earphones for $10 each. If a retailer
purchase 100 pairs, the manufacturer may offer
a 10% trade discount. So we have to calculate the purchase price
for the customer. Pause the video for
a moment and tell me what you
understand from this. Try to solve it yourself. It's a very simple
question. First, we would calculate the
list price, okay? So the manufacturer
sells one pair for $10. They sold 100 pays, so very simple 100 pays multiplied by $10,
you'll get $1,000. This is the list price,
okay? The revenue. Now, let's subtract
the discount. Okay? Since 100 pair of
earphones are bought, 10% discount would be applied. So 1,000 times 10% is 100. You can subtract 100 from 1,000, so you'll get $900. This is the price
paid by the customer. This is the purchase price for
all these earphones. Okay. Now, let me teach
you a quick hack, as well, how to
solve this question. We multiplied by 10%, then subtracted the discount. You can just take $1,000
multiplied by 90%. So you'll get 900. This is a quicker version. All right. Moving on now. Let's look at the
accounting treatment for trade discounts. Remember, a very
important point. Trade discounts are not recorded anywhere in
the accounting records. There's no need to
record anything. They're simply subtracted
from the list price. The reason is very simple. Let me give you an example. Okay. If your mom gave
you money to buy a cake, let's say she gave you
$50 to buy a cake, and you thought that the
cake would be for $50. You went to the shop. They offered 20% discount. So the cake was for $50, but they offered 20% discount. So $50 multiplied by 80%. 40. This is the
price paid by you. When you take the
cake back home, if your mom asks you, how much was this cake,
what would you say? You would see the cake
was for $40, right? That's the price you paid. So when the inventory arrives at the warehouse
of the business, it arrives at the net price. So we assume this is the price, this is the selling
price we paid. There's no need for any
accounting treatment because I'll assume I
bought this for $40. So when I would record
purchases by cash, so I would debit purchases,
and credit cash. I would simply put $40. That's it. This
is the net price. So there's no need to record
the trade discount anyway. Thank you very much. See
you in the next video.
12. Discounts Allowed: Meaning, Journal Entries & Examples: Hello and welcome back
my genius accountants. In this video, we are moving a step forward in the
discounts chapter. So in the previous video, we studied trade discounts. In this video, we would be
talking about cash discounts. Now, cash discounts are also known as settlement discounts. Now, please understand what
does the word settle mean? So if someone owes me money, he finally pays the amount. It means he cleared his account. Oh, he settled his
account, done and dusted. If I owe someone money, I fulfill my obligation. I clear the account. That means I settled
the account. So there are two types
of cash discounts. There's discount allowed
and discount received. In this video, we would be
focusing on discount allowed. So let's dig right in and
see what the definition is. Discount allowed is given by the business to a customer for paying their account early
or by a specific deadline. Let's say I sold
goods on credit to someone amounting to $100, and the expectation is that
he would pay after 30 days. So I decide to give him a motivation that if you
pay me within 15 days, I would give you a
concession of 15%. Meaning pay 85% of the amount, I will accept that as the
full and final settlement. So the 15% discount that I gave, that's called discount allowed. It's a concession given
to your customer, okay? It incentivizes
timely payment and helps maintain
healthy cash flow for both the seller and the
buyer, both parties. Obviously the buyer
would be happy. You'd pay less amount. The seller would be
happy as well as he can get timely payment before
the expected payment. I prepared a small
example for you guys. This is XYZ Limited, and this is Emily, the credit customer
of XYZ Limited. So XYZ Limited sells
goods on credit to Emily worth $500.
So who's Emily? Guys, Emily is the receivable? XYZ Limited has to
receive money from Emily. Now, the company
makes an offer to Emily that if you
pay within a month, they will waive 10% off for you. In other words, they will
give you a concession of 10%. Remarkably, Emily
accepted the offer and paid in cash after 20 days, so ten days before
the expected time. Now, let's try and
see what's happening. First, let's look at the journal entry when
we sold the goods. So we'll follow the
Dead click rule, debit expenses, assets, drawings, credit,
liabilities, income capital, and this rule only
applies in increases. Okay? Pause the video and tell me what's going
to be the double entry. Pause the video. So
this is very simple. We did this many times. We'll debit Emily because
she's my receivables increasing and
would credit sales because that's my income,
which is increasing. Now, the second aspect
is more important. Understand what's happening. I booked a receivable,
Emily, worth $500. So in my books, there's $500 that I have to
receive from Emily. We have to give her a 10% discount because
she paid on time. So 10% of 50 is $50. And how much cash
did we receive? 450. Because we received
90% of the amount, and that's the full
and final settlement. So what you can simply
do is just take 90% of the original
price, the list price. So then you would arrive
at the discounted price. Now, there are three
things happening. I have to wipe off
my receivable, okay? I have to record the discount
and the cash we received. So this is what
happened. We debited cash for 450 and discount
allowed is my expense. So I debited that as well. And then I credited
Emily with $500. So this is what happened
in this transaction. All right? Because now Emily doesn't owe
me any more money. It's finished. I recorded
500 at the beginning. So when I finish her account, I have to credit 500 as well. Alright? So that's
discount allowed. I'll see you in the
next video in which we'd be talking about
discount received. Thank you very much. Oh
13. Discounts Received: Accounting Treatment & Examples: Welcome back, my
genius accountants. In this video, we would be covering the second
type of cash discount, which is called
discount received. So let's dig right in. Now, discount allowed
was a concession given by us as a business
to our customer. Discount receipt
is the opposite. It's a concession
we receive from our supplier in order to
pay earlier. All right? Now, let me give you
a small example. Let's say we bought
goods on credit worth $100 and we have to
pay within 30 days. If our supplier gives us an offer that if we
pay within 15 days, he would give us a 10%
concession of the liability. So if we pay 90% of
the entire amount, you would accept that as the
full and final settlement. No need to pay anything else. So this 10% concession
that we received, that's cold discount received. It incentivizes us
to pay earlier. Let's do an example that
I prepared for you all. Our business XYZ Limited buys goods on credit from
James worth $400. Okay? James gives us an offer that if we pay
him within a month, he's going to give
us a concession of 10% of the liability, which is $400, 10% of that. We accepted the offer. Remarkably, we
accepted the offer and paid within 20 days in cash. So that's ten days earlier
than our deadline. So we got the discount. Yay. Now, tell me the journal entry upon
buying off the goods, upon purchase of the goods. Follow the dead click rule that I taught you many, many times. We are buying good, so that's going to be debit. Our liability is
increasing as well, James. So we would debit purchases, and we would credit James. Now, tell me about
the settlement. This is more important. Think what's happening. We
booked a liability of $400. We got a 10% discount of 40. We ended up paying
only hundred $60. So we have to show these three
items in the transaction. We debited sorry, we credited
our liability with 400. We increased our liability. So now we have to
decrease it because we paid our amount in full
and final settlement. So the first thing we would
do is debit James 400. We paid cash of 360, and we receive discount of 40. This is our income. Always remember,
if you remember, in the important definition
videos, I told you, wherever the word received is mentioned,
that's your income. So discount received
is an income. It's a benefit we attained, which is why we credited
discount received. So this is discount received, CEO in the next video. Thanks.
14. Applying Discounts: Hands-On Accounting Exercise: Welcome back my
genius accountants. In this video, we would be
solving three questions which relate to the discounts
chapter that we carve it. So let's start with
the first question. It says, XYZ Limited, sold goods to John on
credit for $1,000. Okay? $1,000. A trade discount
of 10% was given. In addition, a cash discount of 15% was offered if John
paid within 20 days. What is the maximum
discount John attained? Now, I've seen many
multiple choice questions in your paper one, which are exactly like this. I want you to solve
the question, pose the video, and let's
see if we do it correctly. Right. My question is, would both the discounts apply
this question or only one? The answer is only one. We would only apply
the trade discount. And if I ask you why the
reason is very simple. The question does not mention did John pay within 20 days? That's a mystery.
So we can't apply the cash discount
because we didn't know if he paid within time
before the time or what. So we would only apply
the trade discount. So in this question, the maximum discount that
John attains would be $1,000 multiplied by
10%, which is $100. And if I ask you, what's the journal entry that we
would pass in this question, so we would follow
the dead click rule. Okay? We sold goods to John. John is our receivable
is increasing, so we would debit John. Our sales are increasing, so we would credit
sales with the amount of hundred dollar
-100, which is $900. If you remember, I
told you that we do not record any accounting
treatment for trade discounts. We just subtract that
from the list price. Question number two, Japan limited bought goods
on credit from Leyla for $1,500
on 1 January 2020. Now, this is a bit of a technical question as
we are advancing forward, I added slightly more
spices in the question. So remember the dates, $1,500 on first of January 2020. They received a 10%
trade discount. In addition, Leyla offered
20% cash discount. If Japan Limited managed to pay within 30 days,
this is important. The last line. They
ended up paying the amount on 21 January. So the goods were
bought on 1 January, and the offer of discount
was still the 31st of Jan. Because that's within 30 days. Remarkably, we paid
on 21 January. That's less than a month. That's within 30 days. So we attained the discount. If I ask you, what's
the maximum discount? So there's $1,500
multiplied by 10%. So that's 150. Okay, that's $50. So what's 1,500 minus 150? 13 50. They ended up paying
the amount on 21 January. So we would offer
20% discount, okay? So what is 20% of 13 50? I'll take my calculator. 270. And the remaining
amount is 1080. So 13 50 minus $270 was the cash that Japan
Limited paid Lela, what we paid Lela,
which is 1080. So if I ask you all, what's the journal entries
that we would pass? So first, we would record the purchasers entry number
one. That's the first step. So we would debit purchases
as per dead click, and we would credit
our liability Leyla because Japan
Limited owes Leyla. Okay? So 1,500 minus 150, which is 13 50. This is our purchases. We don't do any treatment
for trade discount. The second part is
the settlement. So I would wipe off
our liability, Leyla. So instead of credit, our liability will go on the debit side because
dead clcru is reversing, our liability is decreasing. How much cash did we pay? We paid 1080 on the credit side, and our discount received
also on the credit side. $270. So this is the journal entry for discount received. Now, let's
go to third question. ABC Enterprises sold
goods n creer to Miranda for $800
on 1 January 2021. Okay, so this is a
selling question. They gave a generous
straight discount of 10% and in addition, a 20% cash discount if
Miranda pays within 45 days. Miranda presented a check and cleared account on 28 February. So now we have to see is
this within 45 days or not? Let's do a small calculation. On 1 January, this
transaction began. So at the end of January, that would be 30 days. Okay. And she paid
on 28 February, so 28 days of February. Oops, this is not 45 days. This is 58 days. So this means that this cash discount would
not be applicable, right? We can't give her
this discount because she did not pay within
the time we agreed on. So first, we would
record our sales entry. We would debit our
receivable Miranda. Because she's an asset,
that's increasing. So Miranda debit, 800
times 10% trade discount. So basically 90% because we would wipe off
the trade discount. So 800 times 90% is 720. And sales is our income, so that would be 720 as well. Now, upon settlement, there's
no discount at all, okay? We would finish our
receivable Miranda with 720, and we would debit
cash with 720. So we debited cash 720, and we finished our receivable. We credited our receivable
Miranda with 720. Okay, there was no discount
applicable because she paid us later in 58 days, and the offer was 445 days. So this was a
discounts activity. See you in the next video.
Thank you very much.
15. Sales Returns (Returns Inwards): How to Record & Adjust: Hi, genius accountants. Welcome back to the next video. In this video, we are beginning
some small concepts and students find problems in preparing double entries
on these concepts. So in this video, we are
covering one concept of returns and in
particular, return Iwids. Now, what is return inwards? Return inwards is also
known as sale return. Okay? It's also known
as sale return. Now, why inwards? It's called inwards
because the inventory, the movement of inventory is flowing back in the business. The customer is returning
the product to the business. It could be due to
various reasons. Might we warranty claims, defects or simply
a change of mind. And every company
has a return policy, so they have to cater
to such accounting. I prepared a small example. This is XYZ limited Our company. And we sold goods on care
to Emily worth $500. Okay? Then Emily returned
goods worth $50. Emily did not return the
entire set of goods, probably a few units, which was accumulated to $50. Now, I want you all to
apply the dead click rule. And tell me something
very important. What's the double entry
of the sale of goods? Obviously, Emily
is my receivable. There's no doubt about that. She's our receivable.
She's an asset. So Emily debit and the sale, our income on the
click side, okay? So Emily debit and sales credit. Now, how would we
show the return? It's the reverse of a sale. Okay? Now, I want you
to note one thing. When your receivable is
returning a product to you, her outstanding balance
would decrease. Emily initially owed $500, but she returned
goods worth $50. So how much does she owe me now? She owes me 450. So her balance has
reduced, right? 500-450. So Emily would
be on the credit side, and sale return would
be on the debit side. Now, there are two reasons
why sale return is debited. The first reason
is pretty obvious. It's the reversal of a sale. Okay, we would reverse the sale. The second reason is the
movement of inventory. The inventory is flowing
inside the business. Inventory is an asset. So as per Dead click, it will go on the debit side. Okay? Now, we need to record
the final settlement. So initially we booked
a receivable of $500. Now that the transaction
is fish finished, she paid us the amount
we accepted 450. We have to remove
Emily from our books. So initially we debited 500. Now we'll credit 500 to indicate that our
receivable is gone. We got $450 cash, 500 -50, and the sale
return was debited to 50. So this is the double
entry for sale return. I hope you understand
this video. See you all in the next
video. Thank you very much.
16. Purchase Returns (Returns Outwards): How to Record & Adjust: Come back, my
genius accountants. In this video, we would be covering the second
type of return, which is known as
return outwards. Okay? It's the opposite
of a sale return. So this is called
a purchase return. Purchase return. All right? It's the opposite
of return outwards. So it refers to the
goods that the business returns to the supplier due to various reasons if there were
some defective products, but change of mind,
warranty claims, whatever. So as a business, when we return the goods we
bought to our supplier, that is purchase returns. So let's jump to an example
straightaway. XYZ limited. Bought goods on credit
from James worth $600. Okay? How much? $600. So, James is
our accounts payable? Our liability. Why? Because we owe him money. Then what happened, the business returned goods to
James worth $100. Okay? So we initially
bought goods worth 600. Now we return goods worth $100. Okay? So let's have a look at the double entry we will pass
on the purchase of goods. Purchases debit 600
and James credit 600. So we'll just follow the
deadlik rule I taught you all. Purchases would be debited, and James is a liability. So go on the click side. Now, how to show the return? So we would reverse the
aforementioned entry. We would debit James and
credit purchase returns. Now, why are we debiting James? Because our liability
is going down? We bought goods on
credit worth 600. Now we return goods worth $100. So do we still owe James 600? No, we returned $100 of goods. So we now owe him 500. The debt has gone down, which is why we debited James. The debt leak rule was reversed. Now, purchase
return is credited. There are two reasons
to this as well. The first reason is the
reversal of purchases. Purchases is always debited, so purchase return
would be credited. The second reason is the
movement of inventory. The inventory is going
out of the business, and asset is decreasing. Okay, it's going
to the supplier, which is why the dead flick
rule would be reversed. Now what happened? The business paid all the remaining
balance in cash. So how to show the settlement? Initially, we booked a liability of $600 in our books initially. Then we returned $100. So how much cash did we pay the entire balance,
which was $500. So I would first of all, wipe off my liability of
James because now it's over. I would credit my cash
because the cash flow, the asset is decreasing, so DedCliq would be reversed. Now it would go on
the credit side and purchase return 100
on the credit side. So note both entries
are balanced, 600 on the debit and
600 on the credit. So that's with returns. See you in the next video.
17. Common Misconceptions About Journal Entries - 1: Hi everyone. My
genius accountants. Welcome back to the next video. Before we move on to
Books of original entry, there's some misconceptions
that I want to clear. There are some very
common mistakes students make when they
make journal entries. So there are two misconceptions that I want to clear
before we move on. The first misconception we're
covering in this video, and what's that misconception? Buying non current
assets is purchases. Is that the case, really?
What was purchases? I told you in the important
definition video. There items bought
for resale, right? Whatever we buy for
resale, that's purchases. Why does a business buy
non current assets? Why? To resell them? No, to
hold them in the business, earn value from them, use them, use them in production, use them in every aspect
of your business. Hold them for a very
long time. All right? So an example, if XYZ Limited deals in the
buying and selling of goods, then purchases would only refer to the buying and
selling of those goods. Remember something in accounting in this O and A level
course of accounting, we always assume that the standard principal
line of business, the standard activity of every business is buying
and selling of goods. Unless you're a
nonprofit organization, unless you're a
manufacturing business. The standard item,
the standard activity is always buying and
selling of goods, okay? So that's always going
to be your purchases. If they buy a non current
assets such as a motor vehicle, these are not for resale. Alright? Now, let's look at a scenario I
prepared for you. An example This is XYZ Limited, a company. They
approached Emily. Why? Because they
want a car on credit. They're buying a car on credit. So Emily says, Okay, fine. You can take my car. It's worth $10,000. Now, what journal
entry would we pass? We are getting a car, right? The car is coming in
the business, isn't it? So the car is increasing. All right? The car
is increasing. And we are buying on credit. So, Emily, my pay
bill is increasing. Now let's look at
the answer of this. Purchasers debit 10,000
Emily Credit 10,000. The student who wrote
this journal entry, who answered this question
is probably high on weed. Because that's not the case. This is not purchases. So why am I debiting purchases? We are not buying the
car for reselling. This is the correct answer. We would debit car for $10,000 because my
asset is increasing, and we would credit Emily
because my liability, Emily is also increasing. So this is the right answer. Don't confuse yourself and avoid this misconception that buying a non carN asset is purchases. All right? Now, see you in
the next video in which we would cover the
second misconception. Thank you very much.
18. Common Misconceptions About Journal Entries - 2: Hello, my genius accountants. Welcome back to the next video. In this video, we are
going to be covering the second misconception, right? Regarding journal entries. So this misconception is very, very similar to the
first misconception, which was buying goods
on credit is purchases. This is very similar to that. Now, what's this
misconception that selling non current assets is your
sales. That's not the case. When I explained what
sales were, I told you, all those items which you are selling in your
principal activity, the core activity
of your business, the reason of existence of
your business, that's sales. If you sell something
else apart from that, that's not your sales, okay? If I'm selling fast food, then my fast food is my sales. In my fast food business, if I had an extra machine, I sold that, that's
not my sales, right? So as I told you about the core business
activity, example, if XYZ Limited deals in the
buying and selling of goods, sales would only involve the buying and selling
of those goods. I told you in the previous video that in our O and lable
accounting course, the standard business
activity is always buying and selling of goods unless you're a nonprofit business or a manufacturing
business, all right? If they sell a non car asset, that's not the core
business activity, so that's not your sales. Now, let's have a look at some transactions,
a small example. It's very similar to
the previous example. Now, in this case, Emily
is approaching my company. She wants my car.
She's my customer, and she noticed our car is stuck and getting
rotten in the garage. So she wants my car, but she wants on credit. We said, fine. You can
take it on credit. No problem. Now, what's
happening in this transaction? Emily is my receivable
now, right? She owes me money.
So she's my asset. As per dead click,
Emily is increasing. The car is also my asset
that's going out of the business, so
that's decreasing. Now let's look at the
solution of this example. Again, Someone high on weed solve this
question. This is wrong. Fine. I debited
Emily. That's okay. Fine. She's my receivable. But why am I crediting sales? This is not a sale, right? It's not my co activity. So this is wrong.
This is what's right. Debiting Emily and
your car is going out, so you would credit
the car, right? So avoid this misconception that selling of non current
assets is your sale. That's not your sale. See you in the next video.
Thank you very much.
19. Advanced Journal Entries: Complex Transactions: Hey, everyone. Welcome
back to our next video. In this video, we would be talking about
discounts, returns. These are advanced
journal entries that I've prepared for you all. After this activity, your understanding would
become a lot better. So let's begin. Prepare
journal entries for the following transactions. Now I'm sure you all have a good understanding
on journal entries. Recall the dead click
rule I taught you. So debit expenses, assets, and drawings, credit,
liabilities, income, and capital. Okay? Right, let's begin
question number one. Sold goods on credit
to Roy for $1,500. A trade discount of
10% was offered. So in this question, we are
selling items on credit. So the two items
are Roy and sales. Roy is my receivable, an asset that's increasing
because now he owes me money. Sales is my income which
is also increasing. So I would debit Roy and
I would credit sales. But let's calculate the amount. The amount was $1,500 and
a trade discount of 10%. It means we paid
90% of the amount. So 1,500 times 90%, we paid 13 50. Okay? This was the
amount we paid. And there's no other treatment. We don't show trade
discount anyway. Next question, Roy returned
a third of the goods bought a third of the
goods Roy bought. That means from 13 50 if
I divide it by three, so $450 is the amount
of the return. So let's write 450 on both
sides, debit and credit. Now, it's a sale return. So we would reverse the entry. My receivable is going down because now he owes me 450 less. So reverse the dead click rule, put Roy on the credit side, and we would debit sales return. Okay. Coming to the third question, bought goods on credit
from Nishum for $1,000. Trade discount of
5% was offered. So in this question,
the two items are purchases and Nishum. Nishum is a liability, a debt. We owe him $1,000. Okay? And purchases, my
inventory is coming in, so that's going to be debit. So purchases debit
and Niem credit. However, let's
calculate the amount. The amount was $1,000, but we attained a
5% trade discount. So we paid 95% of
the total amount. So 1,000 times 95%, 950 was the amount paid by us. So we would write
950 on both sides. Okay? Fourth question, we returned a quarter of
the goods to Nishum. So a quarter means divided
by four, isn't it? So divided by four is $237.50. So let's write this
amount on both sides. And we would reverse
the above entry. My liability, Nishum
is going down by $237 because I'm
returning items to him. So we would reverse
the dead click rule, put the liability
on the debit side, and purchase return on the credit side
because the inventory is flowing out of the business. Right, Roy paid the
remaining amount by cash, and a discount of
$300 was given. Now, this is a technical entry. Let's first see
the entire story. What's the entire story of Roy? We created a receivable by
selling goods on credit. So initially, Roy
owed us how much? Initially, Roy owed us 13 50. Then Roy returned a
third of the goods. So Roy returned 450. So if we subtract
450 from 13 50, Roy owes us $900. So we gave Roy a discount
of $300 in this question. See, question number five, Roy paid the remaining
amount by cash and a discount of 300 was given. So we'll subtract $300 This is the amount we received. Now, let's break
everything down. This is the cash
amount we received. This is the discount
we allowed Okay. And 900 was the value
of my receivable. So this 900 is going
down now, right? Because we are
settling the count. We got the entire amount. Roy paid us the
remaining amount. So let's go step by step. How much cash did I get? I got $600. So I'll debit $600. There was a discount
that we allowed I'll debit that with $300 because discount
allowed is an expense. The remaining amount,
this 900 Roy owed us 900. Now it's old finished. We settle the account. He paid us 600. We said, fine. Okay. It's over. So now I'll finish my receivable Roy by putting
it on the credit side, reversing the debt lick rule, and I would write 900. So now this is how we do the fifth question,
right, sixth question, paid Nishum the
remaining amount by cash after attaining
a discount of 100. So now let's see the
story of Nishum. What's the story of Nishum? Right, so this is how
we created our payable. We bought goods on
credit from Nishum for $1,000 then a 5% rate discount, so the amount was 950. Then we returned a
quota of goods to Nishum and then we attained a discount of 100 and paid the entire remaining amount
and settled the balance. Now let's see what
happened. What's the story? So first, were we
owed Nishum 950. After that, we returned a quota, which was 37.50 what
we calculated before. So let's subtract
$237.50 from 950. So how much do we have left? Let's see. $712.50. This is the balance that we owe Nishum. This is our liability.
Now, what happened? We got a discount of 100. So if we subtract 100 from here, the amount that we
paid was $612.50. Okay? So this is
our cash outflow. This is our discount that we received and this is the entire amount of the liability that
has been finished. The debt has been finished. So these are three items
we have to record now. First of all, let's
finish our liability of $712.50 because now
the debt is finished. The account has been settled. So I will reverse
the debt click rule, put Nishum on the debit side. With $712.50. This was my pending liability. Why? My initial
liability was 950. I returned a quota of the goods, so I was left with $712.50. Now, this is a liability. I'm finishing, okay? So we paid cash of $612.50, and we received
discount of $100. So this is the
entire transaction. And you can see the
transaction is balanced. The same amount is on
the debit and credit. Right. Now, let's go to question number seven. That's easy. Bought a motor vehicle on credit from Johnny worth $10,000. Remember, if you remember the important
misconception I told you, this is not purchases. Why did we buy this motor
vehicle not to resell? So this is not purchases. So I'll debit purchases
with $10,000, and I would credit Johnny
with $10,000, as well. No, this is not what we'll do. It's not purchases. It's not purchases. I will debit motor vehicle. This is not purchases
because we're not buying it for reselling next. We returned the motor
vehicle to Johnny. So the motor vehicle
is going out, so that will go on
the credit side. Isn't it my asset is reducing? And my payable is also reducing. Now I don't owe Johnny 10,000.
I gave him the car back. So now we reverse
the dead accrue, put the liability
on the debit side. There we go. Right, sold a machine to CJ.
Is this my sale? Is this my sales?
No. Only selling of inventory is your sales. This machine is my non
current asset, not inventory. So the machine is going out, and we sold it on credit. Okay? We sold it on credit. So I will debit CJ. He's my receivable. He owes me isn't money
for the machine. And I would credit my machine. I won't credit sales because
this is not my sale. Only the services you provide that's part of your
core business activity, that is your sales. So I hope you understand
journal entries. Keep on doing more practice. Practice makes a man perfect. I'll see you in the next
video. Thank you very much.
Daanish Omarshah, Accounting & Finance expert
