 Hello! In this presentation, we will record transactions related to the accounts receivable or sale cycle. We will be focusing in on the accounts receivable account recording transactions for work done on account, meaning we do work and have not yet received the cash, and then we will then receive the cash. Therefore, we're working mainly with accounts receivable, revenue, and cash. It's helpful to work by cycle here rather than just by date because it will let us see what is happening in terms of a particular process, a particular process within the accounting department. So it's good to work a few problems by cycle and then a few problems that's just going to be by date, not necessarily by cycle, working on the entire accounting transaction, whatever happens to happen at any particular date, bouncing around from department to department. We're going to record these journal entries in the general journal on the left hand side. We will then post them not to the general ledger, but to this worksheet. Later on, we will post to the general ledger, but for now we will be working with a worksheet because it will provide quick information for a relatively few amount of journal entries in order for us to see the impact on each account and on net income very quickly. We will then go to the accounting equation and see the effect of each transaction on the accounting equation as well. Note that we do have the accounts in order of the accounting equation of assets, then liabilities, then equity, then revenue and expenses. We're going to start with zero balances at this point in time. We're then going to record our transactions here and result in an ending balance after every transaction, that ending balance hopefully always remaining in balance. Let's take a look at the first transaction we have perform work on account and invoice the client. So we're going to do work and invoice the client. Therefore, first question is cash affected? We're going to say no, not in this case because we invoiced and we have not done work. Key word for many book problems will be on account. In real life, of course, we would know that we basically invoiced the client and have not received cash at this time. And recording this transaction would be probably routine. We probably might not even know the journal entry or whoever is processing this may just send an invoice out, not really know the journal entry. But in the book problem and in real life, we want to know what's going on so that if there is an issue, we can go in and kind of see what the system is doing. And a book problem is going to have to tell us in words that we didn't get money, we got something on account. Typically using the word on account, they may use the term on credit. The problem with the term on credit is that it mixes up what a debit and credit is and having credit terms. So a lot of times books will avoid that by saying on account. So let's record this trend that we're first going to say cash is not affected. Then I would focus in on what we received. What did we get? And in this case, we got something intangible. We got an IOU. We've got a client Owing us money. That's going to be accounts receivable. It's not as good as cash, but it is still an asset. It's our second favorite asset. We expect that to be converted into cash within 30 to 60 days. Therefore, it's still a pretty good thing. So we're going to say it's an asset and as an asset, assets have normal debit balances. We need to make it go up, people Owing us more money. Therefore, we're going to do the same thing to it, which in this case is another debit. So I'm going to put my cursor here on E6, going to copy this, going to put that on transaction a, I'm going to put it right on top in B5, right click and paste it, not normal. I don't want to change the format of the text, but 123, just the values only. So there's that half of the transaction and you could just type it in there, but I would recommend copying and pasting. That helps me from avoiding errors and spelling errors and whatnot, at least reduces those greatly. Then we're going to say that we have a 13,000 is the amount. So we're going to just type that in C5 13,000. I'm not going to put any commas or any kind of other referencing. And when we select enter, then the Excel will put those commas and references in there in accordance with the format of the cell. Now we've worked last time with these transactions, I'm going to represent negative numbers with the credits. And I'm going to try to use a formula here, I could just type in negative 13,000. But I'm going to go ahead and use a formula and try to connect as much as possible. So I'm going to say, if this is a debit, this needs to be a credit. And instead of saying equals negative, if I just start this, I'm going to delete that, if I just start with a negative, that's going to tell Excel if I point to anything else, it's like an equal sign, it's going to try to take that cell. So I'm going to point to this 13. And it's going to say, okay, you want that C5 13,000, and it's going to flip the sign basically in essence, multiplying it times negative one. So that's one way that we can kind of have a formula. So I'm just including one more formula, you don't need to do that, you can type in a negative 13,000. But the more formulas we have, the better off, we usually are the less work we typically have in the long run, especially if we have to make adjustments for errors. Now we just need to know what the other side of the transaction is. And when people owe us 13,000, they owe us it because we did work. And when we do work, we earn revenue according to the revenue recognition, which is an accrual principle, we recognize regular revenue, when work is completed, when it is done. And that's typically the point in time close enough to when we send out the invoice. So we know that we're going to credit revenue. Now we already knew that I'm sorry, I'm going to copy that I'm going to put that in B five B six, right click, paste 123, there's our journal entry. If I want to indent this a little, I might double click on it and spacebar three times and indent it like that. So there we have it. Now we might want to double check why we are crediting revenue. We know we credited it because we debited the accounts receivable. However, we might actually want to ask ourselves if I hadn't, you know, debited receivable, would I know that I could credit revenue to answer that, we would say, well, revenue, if we look at our cheat sheet would be a normal balance of a credit revenue never goes down, meaning the clients or customers never pay us. We pay the clients or customers. And therefore we're going to increase revenue. How do we increase something? We do the same thing to it as its normal balance. So revenue has an credit normal balance, we will then increase it by doing the same thing to it by crediting revenue. So let's post this, this is the beginning balance. This is going to be the column we will post to. So I'm going to say revenue or accounts receivables here, I'm going to go to sell G six and say equals and then point to that 13,000. That's just going to pull that number over. It'll go from zero up by 13,000 to 13,000, put us out of balance by 13,000. And there we have that no, no effect on net income from that part of the transaction. Then we're going to post the revenue side. So here's revenue there, here's revenue starts at zero, we're going to be recording in cell G 12. So in cell G 12, I'm going to say equals and then point to that 13,000. We will then go from zero up in the credit direction by 13,000 to 13,000, put us back in balance here, meaning that we'll go to zero and net income will go up in the credit direction. There we have that. Now note that I'm recording debits and credits over here, not with two columns, just with one column. But the debits equal the credits in that the debits are positive and the credits are negative. Therefore, the debits minus the credits are zero. Over here, I'm recording them in a kind of more traditional fashion in that debits are on the left, credits are on the right. And I'm recording the credit as a negative number or bracketed number. Therefore, if I highlight both of these, I can say debits minus the credits equals zero. This function, this format of putting credits as negatives is very useful in practice. So that's why I'm going to introduce that I think a lot of textbooks don't give the benefit of telling people that because they think it might confuse plus and minus and debit and credit. But the idea, the reality of the world is that if you're learning debits and credits, you're going to get mixed up and have to differentiate, no matter what, between what a plus and minus is because we're going to be adding and subtracting debits and credits. So we're just, no matter what you do, you're going to have to figure out what the difference is between those two things. And it's very functional and reasonable and what worth doing to start using, if you're using software, which I highly recommend doing like Excel, to recognize that a credit can be used in this format and you'll see it oftentimes. So what that does for us here is it allows us to condense a worksheet like this from six columns that we would need if we had a separate debit and credit column for each to three columns. And so hopefully you can see kind of the functionality. It'll also allow us to shorten up some of these formulas and just do a quick calculation so that Excel will do all the work for us. Although we can see all the work being done by Excel as it's being done because we can see what the formulas are doing. So hopefully I convinced you on that. But in any case, net income, that means net income is increasing because that's a credit. So the credit is increasing that income. That's not a loss. That means the credits of revenue are greater than the debits of expenses. What's going to happen to the accounting equation? Well, we know that the assets went up, the green accounts went up with receivables. So that's going to increase. Nothing happened to the liabilities here. So liabilities will then remain the same. And then we see that equity is increasing. That's not a decrease. That's a credit direction and equity accounts have credits. Therefore it is increasing. We also know that it must be increasing because assets went up. Therefore the other side must as well go up. Next transaction, we're going to see what we have be receive cash on account for work performed in the past. So first question I would ask is, is cash affected? And in this case, we're going to say, yes, it is affected because it says received cash. Now, this is one question that people often get mixed up because it also says on account. And people often think, well, if it says on account, that typically means that cash is not affected, that something happened on account, meaning accounts receivable. And when we purchase something or when we make a sale on account, then that is the case because we're not getting cash and we're recording receivable as we did in the first journal entry. But when we, the second journal entry in the cycle of accounts receivable is affecting both cash and receivable because we got cash and we're paying off the receivable owed to us. So anytime you see the term received cash, however, we can really just start there without even knowing anything else that's going on. We're going, okay, we received cash, that's pretty clear language. Let's just record that first. There's 13,000 and we received cash for cash is an asset has a debit balance. We need to make it go up. We therefore will do the same thing to it, which in this case will be another debit. So I'm going to copy cash, we're going to right click on cash on E5, so E5 copy, we're going to put that in cell B8. So in cell B8, right click, paste 123. And yes, you can type in cash there. It's not a very long word. So I'm not too worried about misspelling that one. But I'm just going to copy and paste as much as possible. So it's going to be 13,000 in cell C8, no formatting, we're just going to type that in. And then I'm going to have a negative or credit 13,000 over here in D9. Now again, I could put a negative 13,000 or use a formula, which would be negative of this cell. So I'm going to take whatever's in that cell, I'm going to flip the sign on it. And that'll be it. So we got a debit and then our credit. Then we just need to know what the credit will be. If we got cash from a client or customer, you would think that we would then credit revenue. However, we have not yet received the, I mean, we already recorded the revenue up here. So the credit's not going to go to revenue. Instead, it's going to go to accounts receivable, because we have this money here, people owing us money that then needs to go down. This is really just tracking. You can think of this receivable later on. We'll talk about a subsidiary ledger, which will break this receivable down by customer. So you can think about this as kind of like the lump sum total of the list of accounts reporting who owes us money. And so people owe us 13,000. If we think of that as just one person, then we're going to say now they paid us 13,000. That then needs to go down. It's an asset. Assets have normal debit balances. We're going to make it go down by doing the opposite thing to it, which in this case is a credit. So I'm going to copy that right click, copy, going to paste that in cell B nine, there's B nine, right click, paste one, two, three. I'm then going to double click before the A I'm in the cell space three times. And there we have it. Now we'll go ahead and post this out. So we got cash first. Here's the debit to cash. I'm going to post that in the cash account. I'm going to in cell G five. So within cell G five equals and then pointing it to that 13,000. Then once I hit enter that zero will go up by 13,000 to 13,000. Then we have the accounts receivable here. Here's the accounts receivable on the trial balance. We're going to post it to G eight or G six. And I'm going to double click on it because there's something in it. So C five and the formula bars in it. So if I double click on it, I'll see that there it is. And then I'm going to go to the end of it and say plus and then point to this 13,000 credit. This is a debit balance account. That is a credit. Those are opposites. And therefore this balance will go down once we hit enter, put us back in balance. No effect on net income. So it's important to kind of see what's happening all across the board here. Assets went both up and down. So we think about our accounting equation. We could say, well, assets went up because cash went up. But assets also went down because receivables went down. And there's actually no net increase there. No net increase on liabilities, no net increase or decrease on the capital. So this is one of those kind of funny accounts where two assets happened from a debit and credit standpoint. It actually kind of makes more sense because we have a debit and a credit from an accounting equation standpoint. The net of these is zero, meaning assets liabilities or equity are not affected at all. Although we got cash as well, we didn't get any revenue in this second journal entry. We recorded revenue in the first journal entry because this is when we earned the revenue. This is when we received the cash. We didn't do any work on this date. We did the work on this date. So that's when we recorded under the revenue recognition principle. C says, performed work on account and invoiced the client. So we're going to say, is cash affected? We're going to say, no, we did work on account. So we invoice the client and typically that's going to be the driving document later on when we start talking about accounting software. It's an invoice that's going to drive this transaction. And we're going to say that cash isn't affected. Therefore, what did we receive? We got an IOU. We got an accounts receivable accounts receivable is an asset assets have debit balances. We need to make it go up. Therefore, we will do the same thing and debit accounts receivable. So I'm going to copy accounts receivable. I'm going to put that in cell B 11 right click and paste 123 put the dollar amount in C 11 that dollar amount being 650. We then know that we will credit something I could put in just a negative 650, but I'm going to start using that formula. So I'm going to say negative and then point to this 650 there. And that will pull over the number and flip the sign. Now we just need to know what this account will be. Why are people going to pay a $650 because we did work earned revenue and invoice the client expecting to be paid in the future. Therefore, the credit is going to go to revenue. So here's the revenue account. We're going to copy that. I'm going to paste that in B 12 right click, paste 123. Again, you could just type it in there, but I'm going to copy and paste is a bit faster, bit easier, bit easier to learn Excel double click on that cell. I'm going to indent three times on the space bar. And there we have that. Now if this form, if this worksheet weren't locked, you can go over here and you can indent using the home tab, alignment group and increase indentation. Now we knew we were going to credit revenue because we debited the receivable and we had to credit something. But if we think about it, right once again, double check revenue has a credit balance account. We need to make it go up because revenue always goes up and we got more revenue. And therefore we will do the same thing to it as its normal balance, its normal balance being a credit resulting in us crediting it in order to increase it. Now we'll post this, we're going to say receivables here is an asset. Here's the receivables account on the trial balance. We are going to record it in the blue section in column G. So we are on G five, double click on G five, we see the activity, I'm going to go to the end of this and say plus and then point to the 650. Now I know this formula is getting a bit complex. So you could just type in the formula as long as you have these in the exact same cells on the worksheet we are working with. Or you could if something gets messed up and you and this gets deleted, it's going to delete it. Then you're really just going to go back and point say equals and point to everything with the receivables including this has a receivable plus and then I'm going to point to this has a receivable plus and then this has a receivable and enter that brings the receivable back up to this 650 and it puts us out of balance by the 650 until we record the other side down here in the revenue or income again something is in it therefore we will double click on it. I'm going to go to the end of it and say plus and then point to the 650 over here that's going to increase our revenue put us back in balance and increase the net income. Remember that net income is calculated as revenue minus expenses revenue is increasing here nothing's happening to expenses that is not a loss for us it's representing the fact that revenue has a credit balance and went up in the credit direction credits being represented with brackets what happened to our accounting equation we know that assets went up because the accounts receivable went up so I'm going to say assets are increasing we know that nothing happened to liabilities nothing's happened to liabilities in our entire process so far so none and then we know that the equity two is increasing for a couple reasons one is that the revenue went up increasing equity anytime revenue goes up or net income goes up that will increase the total equity we also know that if assets went up on the left hand side of the equal sign then the equity two must be going up on the right hand side if equity is the account affected on that side going to transaction D perform work on account and invoice the client so same accounts again we're working on the same account that's receivable account so is cash affected we're going to say no we did work on account key term on account therefore we're going to say what did we receive and in this case we received an iou that iou being represented by the receivable account it's going to go up receivable account is a debit balance normal balance account the way to make any account go up is to do the same thing as its normal balance which in this case is another debit so i'm going to copy the receivable we're going to put that in b14 right click and paste 123 we'll then enter the dollar amount that dollar amount of 780 so it's going to be 780 i'm going to credit 780 as well so we have an equal number of debits and credits i'm going to do that with a formula by saying negative and point to that 780 and enter now we just need to know what that account will be and if we did work then we earn revenue under the revenue recognition principle and a cruel principle therefore we will recognize revenue revenue is here i'm going to copy that i'm going to paste that in cell b15 by right clicking and pasting 123 values only i'm then going to double click on the revenue and indent or space three times to have the indentation now we already know that we were going to credit revenue because we debited the receivable but let's think through it revenue has a normal credit balance revenue only goes up net income goes up and down however revenue only goes up and therefore we will increase revenue by doing the same thing to it that same thing is a credit okay so now we're going to post this we got a debit to the receivable so i'm going to scroll up to the receivable that's in cell g6 is where we need to post this something is in that cell therefore we will double click on that cell go to the end of it and say plus and then point to that 780 so these are the accounts of course now that are included in the accounts receivable and enter so now we are up to 1430 1430 which includes this 650 and this 780 then we'll record the second side which is the revenue side that is here so it's in g12 so i'm going to double click on g12 go to the end of it plus and then point to that 780 that will increase revenue put us back in balance increase net income so revenue goes up and net income goes up and we are back in balance here we will then take a look at the accounting equation it's going to be the same transaction here where accounts receivable went up accounts receivable is an asset therefore assets are increasing nothing happened to the liabilities so none and then we're going to say that equity is increasing so that's going to be an increase in equity and that's what we have so far next we have e says received cash on account for work performed in the past so first question is cash affected and we're going to say yes key term is received cash so cash is going to go up because we received it don't let this on account terminology throw you off we know that cash went up because we received it cash has a debit balance we're going to make it go up by doing the same thing to it which in this case would be another debit so i'm going to go ahead and copy cash we're going to put that on top it's on be 17 right click and paste 123 within the debit side we're going to put 650 and then we're going to credit something for 650 we could type in negative 650 or negative and then point to the 650 and that will bring the balance down now we just need to know what account will go with that and if we normally if we get paid we would say it should be possibly revenue but of course we had already recorded the revenue in the past up here in this account we recorded the 650 revenue and here we know that we are reducing the asset reducing the receivable reducing the amount that people owe us that account reflecting what people owe us is accounts receivable how do we know that with the term of the text because of that on account so we know that received cash means cash is affected we know on account means either accounts receivable or accounts payable is affected in this case receivable therefore the receivable here needs to go down so we're going to decrease the receivable i'm going to copy the accounts receivable i'm going to paste that here and be 18 right click paste 123 i'm going to double click before the a space bar three times and there we have that now we know we're going to credit the receivable because we debited cash we also want to think about it and say hmm accounts receivable is a debit balance account it needs to go down because it represents what money is owed to us by customers and after payment from customers then the amount owed to us will go down therefore we need to decrease the receivable receivables are assets assets have debit balance normal balances and we need to decrease it therefore we will do the opposite thing to it which is accredited so let's post this out now we got the cash first i'm going to go up to the cash account in cell g5 something's in it going to double click on it then go to the end plus scroll back down we're going to get to this 650 i know it's kind of in two different cells here but then enter and there we have it now if you want to just type it in there you can just type in equals c8 plus c18 but i highly recommend using formulas in this because it'll really help you go back and try to say hmm what's in the cell and you can just see by by looking at the highlighted cells here right and see what's in there that's really helpful we are now out of bounds by 650 we're going to go to the accounts receivable so here's accounts receivable in cell g6 something's in it therefore we will double click on it go to the end of it plus scroll down just a tab going to point to that 650 once we hit enter it's going to go back down the receivable put us back in balance and there we have it now there's still 780 in the receivable because we haven't received this amount that was recorded in d yet note that there's no impact on net income from this transaction because we had recorded the increase in revenue up here in transaction c transaction c the date of the time when the work was actually done well then go over here and we will record the increase or decrease cash is going up but accounts receivable is going down both assets therefore no effect on assets no effect on the um the liabilities and no effect on the equity so that's going to be like one of these weird transactions again where there's no effect on any of it is revenue recognize when we receive cash we're going to say uh no not necessarily it's recognized when we earn the revenue when we do the work is recognized as revenue recognize when we have earned it whether cash is and we're going to say yes so that's the revenue recognition principle that's one of the major points that we want to get from working and an account with accounts receivable or the receivable cycle note that if you were working with a company that was on a cash basis they wouldn't even have a receivable account and uh this receivable account it depends on the industry as to how important it is if you're in an industry that always gets cash at the same time work is done it may not be as important but many industries such as the legal industry or if you're a bookkeeper or in the industry that does work before they get paid and then they build the client to be paid at a later time we'll need this accrual account of receivable because this is the account that helps us track who owes us money we're going to back this account up later with a subsidiary ledger a list of clients who owe us money and so that's going to be very important depending on the type of industry that we are in