BA 111 Chapter 1 Accounting Equation (1) to 5m 34s

Hi everybody, how are you doing? This is Irene.

In this video,

I'm going to demonstrate

to you a series of transactions,

how that would impact the accounting equation,

and then after this transaction,

which happens within a month,

we will put together a simple financial statement.

Hopefully, after this exercise,

the fundamental accounting equation assets

equals to liability plus equity,

and in this case, in our class,

we are-- the company that we're dealing with

are sole proprietorship, so they're called owner's equity.

If it's a cooperation,

for those of you who are moving on

to, say, BA 211 financial accounting class,

it will be called stockholder's equity, okay?

So hopefully, after this exercise,

you will have this equation imprinted in your brain,

and it shouldn't--

I hope it's youth-- useful.

Excuse me, I need my coffee. [laughs]

I'm trying to quit coffee, and it's not working really well.

So anyhow, for the month of December,

Carmen Timmins started a company

called Timmins Gymnastic.

So these are the list of transactions

that happen in that month, okay?

So, some little hint,

anytime you see the word "P-A-I-D,"

that mean that-- even in the problems

that you do in your homework,

it means that it was paid,

and the company spent cash paying it.

Anytime that company received

means that the company received cash, okay?

So we're gonna go through each exercise--

I mean, each transaction,

and then we're gonna demonstrate

how-- what that looks like in the accounting equation.

So on December 1, Carmen invested $20,000 cash

into the company.

So the-- so when you have a transaction,

it's called "transaction analysis."

What you want to do is you want to think about

what are the accounts

that were involved in that transaction.

So in this case, on December 1,

Carmen invested $20,000 cash,

so the company received it $20,000 cash.

So you want to put that,

so, the company received $20,000 cash,

and at the same time,

the $20,000 has been invested

as capital into the company.

So $20,000 was also increased on the capital side.

So remember, assets equals to liability

plus owner's equity.

So in this case, on the left side,

assets went up by $20,000

and on the right side, liability plus equity side,

on the capital

within the owner's equity accounts

also went up by $20,000.

So-- excuse me--

just so you, um, if you have done your reading

in your textbook for Chapter Two,

you know that under owner's equity,

capital and revenue,

capital is also known as contributed capital,

it's the money or assets

that were invested into the company by the owner,

and revenue, those two accounts

will increase owner's equity,

whereas withdraw and expenses

will decrease owner's equity, okay?

So withdraws are when there's--

owner took out money from the company

and use it and spend it on himself,

or he just took out the money.

Okay, so that's something.

It's an unique account to sole proprietorship,

to owner's equity accounts.

I had to pause for a second

to make sure that this is corrected in spelling,

it's "withdrawal," not-- I was missing the arrow,

and actually, some company will just call it "owner's draw,"

D, R, A, W, without the W, I, T, H.

You're gonna find that in in accounting,

some of their account names, some company

will call it slightly differen, okay,

and that's acceptable, as long

as you have categorized it correctly.

So again, under owner's equity, the contribution to capital

and revenue will increase owner's equity.

Withdrawal and expenses

will decrease owner's equity, okay?

So we did our first transaction on December 1.

So now, on December 2,

we received $2,200 cash

from customer for service provided,

so the company received $2,200 cash.

So we know cash is one account

that is involved in this transaction.

We also know that we provided service.

Why would we provide a service?

Because we want to earn revenue, okay?

In regards to revenue,

you will record revenue

when you have earned it, the revenue.

So in later chapters, when somebody pre-pay you,

pay you money but you haven't done the work,

you do not get to record that as revenue,

and we'll talk about that in later chapter.

But in this case, on December 2,

what you want to record is, ah,

the company's got $2,200 cash.

And why did they get $2,200 cash?

Because the company provided service.

So when you provided service,

you can record revenue.

So under "Asset,"

asset cash ran up by $2,200

and at the same time, revenue also increased

by $2,200, okay?

So if you look at my accounting equation,

asset went up by $2,200,

owner's equity also went up by $2,200,

and if we scroll down a little bit, um--

oh, actually, I haven't--

I thought I have, I must not have.