 Hello, in this lecture, we're going to take a look at some transactions related to a merchandising company. The transactions are going to be over here. We're going to record the journal entries in this blue section on this side. We will then post them in kind of a quick posting section to the blue area here so that we can see a quick view of what happens to our accounts when we post them. So what we have here is we have a beginning trial balance, which just has two assets. The assets are debit balance represented by new brackets, and we only have one credit balance represented by brackets. And we can see that the debits minus the credits are zero, meaning that we are in balance. So once we have started with something in balance, we're going to post the journal entries to this column, which will remain in balance. And that will mean that the ending balance will be in balance. We can also see this balancing equation up here with the assets being the green numbers equal the liabilities, the orange numbers, plus the owner's equity, and that is the blue numbers. We also will be recording the subsidiary ledgers. This will be a account that backs up the accounts receivable and the accounts payable, but it does it by both customer in terms of accounts receivable and vendor in terms of accounts payable. We also have the balance sheet over here, which will show us just a quick little balance sheet that will show us the balance sheet format of the balancing equation. Accounting equation being assets equal liabilities plus equity. We can see that broken out in terms of balance sheet. We have the income statement and the statement of equity over here. All right. So the first thing I want to do is I want to hide some of these sales. We're going to need both of these columns of sales to record this entire problem, but I don't want to see these right now. So a little trick in excels. We can hide these at this point and I'll show you how to do that for right now. So put your cursor up here on the letters and I would put it right to you see that arrow dropping down. Not like that, but like that. So right there, left click, hold it down. We're going to highlight over to column K. Let go. That section is now highlighted. I'm going to right click on the highlighted or selected area and hide it. So now we can see that we have a B C D E L M and so there's some hidden cells there. We'll go back and unhide those when we need it. But for now we have this nice side by side format for look at this number first area. We have seven one, which I'm going to type into cell before when we do that note that it has a seven one two thousand fifteen. I'm not wearing about the year right now. We just have seven one. And this is because of the formatting of the cell that it shows seven one and it assumes it's the current year because it's in date format. So we purchased merchandise from company B terms to 15 net 30. So first we can we could talk about those terms. That means that we purchased it on account. And if we pay it within 15 days, we get a 2% discount if we pay it within 30 days. Or we have to pay it within 30 days. That's the normal term. And therefore generally the practices that we're going to report it as if we're not going to take the discount. And then if we pay it within 10 in the 15 day discount period, we will account for that discount at that time. So this is a pretty straightforward journal entry. We don't even need to know this terms yet. We just need to know that we birded we bought it on account. So if we think about it, we can think is cash affected. No, because we bought it on account. Therefore accounts payables affected instead are kind of like our credit card account. But I usually don't like to think about accounts payable first because sometimes it's harder for us to see which way that one should go. So what did we receive? Maybe might be the easier way to get go. We received inventory. We can see that has an asset. We can see that it has a debit balance. And we know it needs to go up. How do we make something go up? We do the same thing to it, which in this case would be another debit. So I'm going to right click on this. I'm going to copy it. I'm going to put it in cell C5 C5. It's right there. I'm going to right click and paste it 123 values only. If I paste it this way, it'll change the cell. I don't want to change the cell. So I'm going to paste it values only 123. They're going to click on D5 and we'll type in the 65. Now we know that we need an equal number of debits and credits. And if there's only two accounts, which there are in this case, then the credit must be a negative 6500 or a credit of 6500. I'm going to make the credits negative. So I'm going to put a negative and I'm just going to point to this cell. And that'll take that number and flip the sign. So we could just type in a negative 65 or do it that way. But we do want to have the brackets around it because when we post it over here, note that we only have one column to post it to. And that's because we're going to represent bracket credits with brackets or as negative numbers as Excel sees it. Why do we do that? Because it greatly reduces the number of columns that we would need over here to three instead of six in order to work with it. So this is a common thing to do worth learning to do because it can save you a lot of time when working problems. All right. So where's that going to go to? It's going to go to accounts payable as we mentioned earlier. So instead of reducing cash, we're going to increase the bad thing, the liability. We're going to copy that. We're going to paste that in cell C six. Once again, right click going to paste it one, two, three, just the values. You could type this in there. That's okay. That's fine. The one place where we do want to make sure that we have formulas is over here because this will really make it easier when you go back and look at things in terms of a longer problem. So I'm going to go to merchandise inventory and cells and cell in seven. I'm just going to say equals. And I'm going to point to this merchandise inventory 65 up here. That's a debit. This is a debit. When I hit enter, it will go up in the debit direction to 11 at five. And then we'll go to accounts payable, which is in cell in eight. We're going to say equals going to point to the credit of 65. And when I hit enter, it's going to go up in the credit direction, put its back in balance, put the account equation back in balance like so. So that we have that. Now we know that this 65 is what we owe to in this case, company B. So I'm also going to post that in our subsidiary ledger over down here and company B. I'm going to say as a seven one, I don't have the date there. No date. We're going to say we have a credit balance equal to and I'm going to point to this 65 up here. So now we have the credit balance. We know who we owe that money to. We know it to this B company. And I also made it orange to match the credit balance and the liabilities accounts over here. So if that just looked funny to you all of a sudden it turned orange. All right. So now we're going to take a look. I'm going to skip a line. We're going to go to the next geometry. It's going to be on seven to seven slash two. And this is the transaction. And it says that we sold merchandise to see company terms to 10 and 60. So now we have the same kind of terms thing down here. Remember that means that we have a 2% discount. If they pay us this time within 10 days, otherwise we give them 60 days because we're a generous company for some reason. And we're going to give them 60 days to pay otherwise. So that will be the term. Once again, we're going to record it as if they did not take the discount that we're going to assume they're not going to pay us within 10 days. If they do then we will then record the difference of transaction and the discount at the time of the payment. So there's two transactions or we like to think of it as two transactions every time we sell something. One, the sales transaction, which is the same as if you're a service company for the most part. And then we deal with the inventory. So if we sold something and we were a service company, what would be the transaction if we sold something on account and we didn't get cash? So is cash affected? No. What did we get? We got an IOU. We got an accounts receivable. So we did the work. Again, this case doing the work means we gave the inventory. They owe us money. Account symbols and assets. And we need to make it go up because people owe us more money. How do we make something go up? We do the same thing to it, which in this case would be a debit. So I'm going to copy this. I'm going to put it in C8, right click and paste it one, two, three, just the values. Again, you could type it in there if you want. I'm going to, I like to copy and paste it so I don't spell things wrong, which happens from time to time. And we could see that we have $1,000, which was the sales price, not the cost. And we're going to have to credit something $1,000. So once again, I'm just thinking about the sales price. Remember, this is what you see on the sticker at the store. So you see the sales price. We don't see the cost. There's going to be two journal entries related to each of those numbers, two journal entries related to sales price, two journal entries related, I mean, not two journal entries, two accounts, one journal entry related to the sales price, and two accounts, one journal entry related to the cost. So then what's going to be the other side? We're going to call that sales in this case. In a service company, we might have called it fees earned. We could have called it revenue, income, whatever. It's in the revenue section. So this is our income account. Income accounts have credit balances. They always go up. We're going to make it go up by doing the same thing to it, which in this case would be another credit. So I'm going to copy that. I'm going to paste it 123 right there. I'm going to post this one first and then work the second journal entry. So I'm going to go over here to N6 and say equals and then point to this 1000. Once I hit enter, the thousand will go up and the debit direction will be out of balance. Then we're going to go down here to sales and we're going to say equals in sell in 11 point to the sales. We have a zero. This is going to go up in the credit direction, put it back in balance, bring net income up. So note what happens to net income. Net income is calculated as revenue minus expenses. This is not a loss. This is a credit balance. Remember, we're showing these brackets, which excel sees as negatives. We're using them to recognize credit balances, meaning that the credits are beating the debits on the income statement, meaning the revenue is beating the expenses at this time by $1000, which is good. So now we're going to record the other side, the cost of the sale. Now, what happens? We know that inventory is what we gave up. So if we look at inventory, we're going to say, well, we had inventory of this. We know we sold some of it. Inventory must be going down. Inventory has a debit balance. How do we make something go down? We do the opposite thing to it, which in this case is a credit. I'm going to skip a line, start the new journal entry, then skip another line to put this on the bottom, to put the credit on the bottom. So I got it on line 12. I'm now in E12. I'm going to say this is a credit negative 542. That comes from this number. And once again, I'm going to put a debit of the same amount. So we know that inventory must be going down. Therefore, we must be debiting something. What are we going to debit? We are going to debit the expense related to us using the inventory in order to help us generate this revenue. The matching principal being cost of good sold. So we're going to debit cost of good sold. It's an expense account. Expense accounts only go up. Expense accounts have debit balances. We're going to make it go up by doing the same thing to it, which in this case is another debit. So I'm going to right click on that. I'm going to paste it 123. So let's post this out now. So I'm going to go to cost of good sold and sell in 13 equals point to this 542. This is going to go up in the debit direction and it will bring net income down. So notice the effect on net income. It went up by sales of 1000 minus the cost of what we sold. So we really only made 458 on the sale. This is what we see on the sticker when we go to the grocery store. We see the sales price. We don't see the cost, the true increase in values, the net of those two. Then the merchandise inventory. Something's in it. So I'm going to double click on it. I see what's in there right now, the 65, which is sell D5. I'm going to hit plus and go to the 542. That's going to bring the inventory down, put us back in balance. There we have it. All right. And then we're going to go to the next transaction. Before we do though, I just want to point out that these two things happen at one time. You notice I used the same date here. If you look at some accounting books, they will put this in one journal entry because it does happen at one time. They'll put the two debits on top, the two credits on the bottom. Just want to represent the fact or let you know the fact that I recommend putting the debits on top and the credits on bottom whenever it's easiest to do that. When, such as in this situation, it would help you to understand the journal entry or to go back and see what is going on, to group them in a different format. That's fine too. So when you're hand building the journal entries, look at it in a different way. That's fine. When you're looking at a journal entry created by the computer or something like that, then you have to be able to visualize it and take it out to a format that would make sense to you. So we're now going to go to 7-3. Next transaction. Pay cash for freight on the purchase of inventory. So we purchased inventory and we had to pay for the freight charges of it. So first we can go to the easy half of that. Once again, is cash effective? That's the first thing I would generally ask. Yeah, we pay cash for freight. Cash has a debit balance. We need to make it go down. How do we make something go down? We do the opposite thing to it, which in this case would be a credit. So I'm going to copy this account. Again, you could just type it. I'm going to go on the bottom from the date because once again, if it's easy for us to do it, I would always have the credits on the bottom. I'm going to right click, paste it 123. I'm going to then go to E15, put in the credit of, I'm going to represent it with a negative 110. So then we're going to have a debit. If there's only two accounts, the debit's got to be whatever the debit is, the same number I'm going to represent by a negative of this number. Just going to take the 110, flip the sign. You could just type it in there. That's fine too. And then the only question is what should that account be? First thing that pops into your mind is probably freight expense or delivery expense or mail expense, some kind of expense. You see the theme there. But in this case, the freight was for the inventory that we're purchasing. So because it's part of the cost of us retrieving the inventory, that should be in the inventory cost to us. So in this case, we're actually going to increase the inventory cost. Note that the inventory has a debit balance. We're going to increase the cost of the inventory by doing the same thing to it, which in this case would be another debit. So there we have that. Now let's post it. Something's in the inventory and sell in.