 Hello in this lecture we're going to be creating the equity section of the balance sheet. In prior lectures we have taken a look at the current asset section, the property, plant, and equipment section, and then the liability section. This will be rounding out the balance sheet where we will finally get to total assets being equal to total liabilities and equity representing the double entry accounting system in terms of the balance sheet, in terms of the accounting equation. We of course are pulling these numbers from the adjusted trial balance. The adjusted trial balance also represents the double entry accounting system however it represents that double entry accounting system in the format of the building blocks of debits and credits. All we're doing is taking those building blocks in terms of debits and credits rearranging them to the accounting equation so that readers who don't understand debits and credits can then read them. Now when we look at the equity section this is a bit confusing when we convert from the trial balance to the equity section because when we think the equity section you might say hmm those are the light blue accounts here the owner's capital and the draws but remember that the equity section also accounts for the entire blue area here. Why? Because the trial balance represents both a period of time and the time frame. It represents both the income statement and the balance sheet. How could we do that on one statement? How can the trial balance represent basically balance sheet accounts and income statement accounts? The answer is that this owner's capital account basically represents the capital as of the beginning of the time period in this case the beginning of the month. Now we are looking at the end of the month 1231 and the reason that only represents the beginning of the month plus investments which there are none for this example is because the activity for the month is shown below so this is what happened during the month. People drew up money these are temporary accounts revenue happened during the month that's temporary then we have wages utilities and what not all happened during the month therefore in terms of the balance sheet account this is all one number in terms of equity it's the equity section but in terms of the financial statements as a whole this portion down here is the income statement so that's going to be the most tricky piece when we try to piece together the financial statements in terms of the balance sheet we can represent all this blue account as basically one part of the balance sheet being the equity section therefore under the equity section we only have one account we have the owner's capital account now again you might be saying well owner's capital account is this uh 663-820 where did we come up with this 742-800 and the thing about that is that remember this capital account represents the beginning capital as the beginning of time period we don't have a date here to tell us that but that's basically going to be the case we don't have a date up here telling us that this is the end of the time period why because it's on the balance sheet it says it's as of 1231 that means all the accounts as of the point in time on the balance sheet are as of 1231 what is this what does this number really represent how do we get that number all we're doing is taking all these accounts you can think of that in a few different ways you could think of it as the credits minus the debits meaning the capital accounts of credit credits are going to win for the entire capital accounts meaning we have the credit minus the debit plus the credit of income minus the debit of all the expenses that will give us this 742-800 you can also think of it as the capital account section the light bluest section meaning the 63-820 minus the draws and then simply add net income to it which is basically what we will do when we create the financial statements or we can list it out in terms of the equity section being the owner's capital account just being a positive number in terms of total equity and then we're going to subtract out draws draws decreases the equity we're going to add to it revenue and then we're going to subtract out the wages the utilities the insurance expense the supplies the depreciation so all we're doing is summing these up in terms of credits minus debits or the things that increase the total equity minus the things that decrease it and that's what we're getting with this 742-800 the point we want to get to here is that the balance sheet represents everything in terms of it has total assets it has the liabilities and it has the total equity section however the equity section has crammed in all this information meaning it's included all the timing accounts into this one number so we can look at the double entry accounting system without basically the income statement or the statement of owner's equity the timing statements because we're basically looking at the accounting equation as of a point in time but we're going to want to know more about this number we're going to want to know how we got to that point in time so if we look at the balance sheet now what we've done is we've seen current assets we've seen property planning equipment we've done the liabilities we now can see that all the other blue accounts on the trial balance we've put together into this one number and therefore we've accounted for all the accounts on the trial balance that's why total assets then equals total liabilities plus owner's equity we've converted the trial balance from a debit and credit format of the double entry accounting system to a plus and minus format of the double entry accounting system created a format that people can now read without knowing debits and credits however we want to know more about this number right here that number tells us uh where we are at at a point in time meaning assets minus liabilities gives us this 742 it's kind of the book value of the company but we want the story we want to know how we got there how did we do last year in terms of how much of that was contributed to this book value of the company that of course will include the timing statements the income statement and the statement of the equity so we're going to reconstruct the blue accounts and reconstruct this number with the income statement and the statement of owner's equity