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 happened 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 the company received

means that the company
received cash, okay?

So we're going to go
through each exercise--

I mean, each transaction,

and then
we're going to 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."

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 a 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 l,

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

d-r-a-w, without the w-i-t-h.

You're going to find that in,
in accounting,

some of their account names,

some company will call it
a slightly different, okay,

and that's acceptable,

as long as you
have categorized it correctly.

So again, under owner's equity,
the contributed 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.