 Hello, in this lecture, we will take a look at a comprehensive problem. We'll be working the first part of the comprehensive problem It's broken out into these sections. We will be doing the journal entries for a month We're gonna then do the adjusting process then we'll do the financial statements and then we'll do the closing process The type of company is a service company So we will not be dealing with inventory at this time and we'll go through the accounting cycle for a service company in this Way we're going to have the data on the left-hand side of each tab We'll enter that data into the blue areas is where we want to indication of where the data should be implemented and then we have our trial balance over here and The trial balance will be formatted in order the green accounts are going to be assets and then we have liabilities Then we have equity and then we have income and expenses It's always going to be in that order with it is also reflected up here in the accounting equations So you can see the green aren't added up That's the assets and then the liabilities are at the liabilities and the owner's equity is added up in the blue That is the owner's equity and of course the assets equal the liabilities plus the owner's equity if it's green That means we're doing good if we have a green zero down here That means we're doing good good being that we are in balance. Why are we in balance? Well in this trial balance, we're representing debits with basically positive numbers or non-bracketed numbers and Credits with bracketed numbers. So we don't have the t-account in the trial balance But we still have the balancing concept in that we can see that the debits Minus the credits are zero therefore the debits equal the credits and by doing this We can kind of allow ourselves to have less columns in some of the worksheets So this is a common practice to do many times So it is good to take a look at and get used to seeing Debits and credits in a few different formats over here Of course, we will have the debits and credits on a debit column and a credit column But I will be representing the credits with brackets in the entire worksheet and see how that works We then have the general ledger over here and the general ledgers is long kind of intimidating looking Item of ledgers, but it's basically just a backup for The accounts on the trial balance. So we've got the same list of accounts same order the assets Be and then the liabilities then the equity So we've got cash then accounts stapled and supplies then prepaid rent then prepaid insurance office equipment Accumulated appreciation and then we're into the liability as accounts payable salaries payable under and fees And then we're going into the equity owners equity draws And then we're in the income statement revenue and then all the expenses list out listed out in this way so what we're going to do of course is post the journal entries here and We're going to record that the general entries here then we will post them to the general ledger That will automatically post to the trial balance. We're gonna do a lot of entries a lot of repetitions So this will become familiar as we go First thing I want to do is actually hide some cells We're gonna learn some excel as we go through this process as well And basically I want to put my information into these cells here And I would like to hide these cells just so they're out of the way And we don't have to see them and deal with them in order to do that I'm gonna put my cursor right on the F here so you can see the drop-down click So the whole column is highlighted and then I'm holding down the left click and I'm gonna drag Until I get to column J I'm letting go of the left click and then I'm gonna right click in the selected area and go down to hide So we'll hide that selected area so that now we can see the journal entries We're gonna work in the space. We're gonna put it and the trial balance all in one area All right, so the first date is five three So I'm gonna put that in the date area and it sees it says we received cash from clients for Advanced payment for services that will be prepared in the future Record as under and revenue. So first thing I'll always ask through these is cash affected So is cash affected because if it is it's the easiest account that we will get to know because cash is going to be Affected more often than most other accounts in this case. It says yeah cash is affected cash is right here Says we received a cash therefore cash must be going up. So the question is how do we make something go up? Well, the way I'm gonna go through this list of questions and I'm gonna go through this list of questions in order to avoid some common pitfalls So I do suggest going through this kind of list of questions so that you avoid some common mistakes that will happen And that will be well is this cash a debit or credit balance? It's a debit how do we know because it does not have brackets around it unlike the credits that have brackets around it How do we make something go up? We do the same thing to it as what it is So this is a debit We need to do the same thing to it which would be another debit in this case So I'm gonna copy this by right-clicking the cash and copy it. I'm gonna put the debit on top So here's my date. I'm gonna put the debit on top Why just tradition that goes on top debits go on top So I'm gonna right-click and I'm gonna paste it one two three just the values only if I paste it this way Then I change the format of the cell. I just want to paint the value values now You could just type it in there obviously as well So if you you know if you just typed in cash that works as well But copying and pasting might be easier as we go later on I'm in the debit column the debit side and we're gonna put the four thousand there And I'm just typing the four thousand and note that I'm not putting a comma or anything I was typing four thousand I'm in the cell instead of on the cell And then we got to hit enter or something in order to be off the cell So I'm gonna hit enter and now you can see that I'm not in the cell now I'm on the cell where if we debit something then we're also gonna have to credit something So I'm gonna represent credits on this worksheet with a negative. So I'm gonna put a negative 4,000 now credits don't mean negative They're not bad negative not is not a negative term in this case Negative is just how the credits are gonna be represented in the worksheets so that we can use Excel in Formulas to help us do some calculations note when we hit enter now. It's gonna change that negative sign to Brackets that's the formatting of the cell that is doing that the worksheet is formatted to do that If you want to know where that formatting is it's in this section here in the formatting section You can also right-click on the item go to format cells And if you go to the numbers section Then you can see the different types of formats and of course we are in this bracketed format rather than having the negative sign All right, so now we just need to know what that other account will be and You would think that if we did work that we would record the other side usually being revenue But in this case in this case it says that we have not yet done the work So therefore we haven't yet earned the revenue So the credit is actually gonna have to go to a liability account in this case being unearned revenue And unearned revenue we can see right here has a credit balance represented by the fact that it has brackets around it We already know that we're gonna credit it because we had to debit cash If we credit a credit balance account will be doing the same thing to it which will make it go up So if we credit this account it will make it go up that makes sense because Unearned revenue represents something that we owe in the future for something that happened in the past What happened in the past what happened right now? We got money. What do we own the future our service? So I'm gonna go ahead and copy that I'm gonna right-click now copy. I'm gonna go over to see Six right-click and paste it one two three All right, now we're gonna go ahead and post this then we're gonna have to post this to the general ledger over here So we got to find these two accounts on the general ledger So here's cash for example, and we see the debit and the credit side. We see that we debited cash I'm gonna go over here in cell. Oh, there's oh nine and I'm gonna say equals And I do highly recommend putting formulas instead of just typing the number in here because if you do then if you're there's a mistake It's a lot easier to go back and find that mistake. So I'm gonna say equals I'm gonna point to that four thousand when we hit enter the debit's gonna go up from twenty two one two Enter twenty six one and we'll see we're out of balance here now We're out of balance here now by four thousand that four thousand being the credit here So we're gonna have to find unearned revenue We could make this the whole sheet a little bit smaller here If we went down to the task bar if we want to see it smaller It's about as small as I want to go But if we go down to there we can see a few more these GM general ledger accounts in the same screen and so if I go down here to unearned revenue, I want to be in the credit side in this case and We're not gonna put any negative signs over here all we need is an equal sign and then point to this balance in e Six and then if I go back over here when I hit enter it's gonna go up in the credit direction So notice it went up Excel says it going up in a negative direction But we see it as going up in a credit direction because we're dealing with debits and credits in this case That of course puts us back in balance. We can see that six five here is also the six five there We can see that the zero is back in balance here and our Equation is back in balance up here as well. So let's go back over here and I'll make this a little bit larger once again and Go to the second item which is going to be on five five And it says receive cash from clients for work done in the past and recorded as accounts receivable So the first question I was gonna ask is cash affected and once again It says received cash therefore cash is affected then we need to have cash go up because we received it Therefore cash must be going up. We ask how do we make cash go up? Well, cash has a debit balance by the fact that it does not have brackets around it The way to make something go up is to do the same thing to it Which in this case happens to be another debit? So I'm gonna right-click on that gonna copy it gonna put my cursor over here in C8 It's C8 and I'm gonna right-click gonna paste it one two three That's just the values only when we paste it to values only like so then we'll put the three one on top in The debit column then in the credit column if there's only two accounts affected We have to have an equal number of debits and credits. So we're gonna put these same negative I'm gonna represent with a negative three one zero zero and once again when we hit enter then it'll put those brackets around So I'm gonna hit enter and because of the format of the cell put bracket around it Now if you wanted to change that cell then you'd have to go in there and double-click on it Or you can go in there and you can go up to the formula bar up here So this is actually what we typed in the formula bar. This is what has actually been formatted So if you're inside the cell just realize that you're inside the cell and it's gonna act differently Then if you're just on the cell, all right, so then what's gonna be the credit? Received cash from clients for work done in the past. So once again, we might think well, we did work We should credit revenue, but the revenue was done in the past and we already received We've already done the work and recorded the revenue Therefore when we did the work we recorded the revenue in a counts receivable up here So this is where the work should be coming out of this represents money that is owed to us at 3400 it has now been paid to us therefore this 3400 needs to go down in this case and how do we make something go down? We do the opposite thing to it as what it is. This is a debit making it go down would be necessary To have a credit. We already know that because we debit cash and there's the credit This is the account that we will credit which will reduce the receivable receivable will go down, which is an asset It's a good thing people owe us money But we would rather have the cash receivable is gonna go down and the better asset of cash will go up Gonna right-click gonna copy that gonna go to sell C9 Right-click and paste it one two three just the values only Then we're gonna go ahead and post that so I'm gonna scroll over to the general ledger I'm gonna go over enough so we see more of the general ledger I'm gonna make it a little bit smaller in the task bar down here and then we'll go to the cash here So we're gonna post this cash line to the general ledger to the cash section and it's on the debit side So I'm in cell 010 cell 010 and I'm gonna just say equals and then point to that 3 1 and I do recommend using the Formulates here and then saying enter cash goes from 26 1 up to 29 2 That puts us out of balance because that 29 2 also carries over to the trial balance now We need to record the other side. We're out of balance by the 3001 that's gonna go to accounts receivable on the general ledger. This is called posting. So here's the accounts receivable It's a credit. So we're gonna go on the credit side we're gonna say equals and point out to this 3001 and that 3 4 should go down by the 3 1 2 in this case 300 that then 300 is back on our trial balance. That's where this number is coming from notice. You got these handy little tabs up here You can see well that number is coming from there. That's one of the reasons formulas are handy if you want to know where these tabs are they're in the data group and No, they're in the formulas tab and then they're in the formatting auditing group and they're these two icons here So I like to put those in the quick task bar by right-clicking and putting them in to the quick add to the quick Toolbar, so there we have that and we're back in balance I'm gonna make it a little bit bigger again down here and take a look at the next transaction, which will be on 5 9 so we paid cash for miscellaneous expense Alright, so miscellaneous expense. So the question is once again is cash affected and it is we paid cash So in this case we paid cash cash must then be going down in this case So how do we make something go down and we do the opposite thing to it? Cash is a debit balance represented by the fact that it does not have brackets around it Therefore the opposite of a debit is a credit. So to make it go down. We're gonna credit cash I'm gonna right-click on cash copy it. I'm gonna put it on the bottom. So here's the date I'm gonna put it on the bottom. Why because credits just traditionally go on the bottom we could Have an exception to that rule. It doesn't really matter as long as it's in the right column But you know if it's an easy thing for us to have that convention of debits on top credits on the bottom We will adhere to it if on the other hand, there's a reason for us not to follow that convention Then I will break with that convention if it makes the journal easier to read So we're gonna put the credit represented by the negative 400 and then I'm gonna say enter So now we're off the cell and we see the brackets around it if we credit something We're also gonna have to have a debit of some kind because every journal entry has to have the same amount of debits and credits So we're gonna have a 400 on top as well in the debit section So we have the debit and the credit the only question being what will that debit be? So pay cash for miscellaneous expense and the credit the only question being what will that debit be? So pay cash for miscellaneous expense So we don't know what miscellaneous expense is and obviously in real life We would like to categorize things as much as possible, but to keep this problem simplified We're gonna limit the amount of expenses now Where are the expenses? We have assets then we have liabilities then we have equity and we have revenue and then we have expenses down here so expenses are at the bottom and We're gonna put miscellaneous expense at the bottom in this case So here we have miscellaneous expense expenses basically our debit balance accounts and they only go up They're basically only gonna be debited in stuff except for rare cases that we'll get into at a later time So we're always gonna debit an expense because they always are debit balance accounts and they go up We knew we're gonna debit it because we credit cash. So let's copy this I'm gonna copy this gonna put it in cell C 11 So there's C 11 you see that one and C 11 right-click and paste it one two three and there we have that So now we can go ahead and post this out. So we're gonna post this to the general ledger This is called posting the general journal to the general ledger and we're looking for miscellaneous expense That's gonna be way over here. So I'm gonna make this a little bit smaller like so and We're gonna go way over to the end miscellaneous expenses way on the end and it's down here It's gonna be in the debit. So it's in column a m 21 now why is it a m because once you get past column Z then it starts at a a a b a c ba ba Back to a m. So that's how the numbering system is gonna work. So we're on a m 21 I'm gonna say equals and I'm gonna hold down the left arrow I'm gonna hold it down till I just hit the wall over here and then I'm gonna go find that 400 debit we're recording this 400 for miscellaneous expense in the general ledger for miscellaneous expense when I hit enter and That puts me back over here and we went from zero up in the debit direction To 400 and we can see that 400 then on the trial balance should record automatically over here There's the 400 there put us out of balance. It made net income go down So this the first time net income is affected meaning that we have revenue minus expenses There is no revenue and we only have expenses therefore. We have basically a loss in this case of 400 all right, so then the cash is gonna be the other side of that so cash We know is right here's nice and handy. We can see that in cell P 11 so we're gonna say equals in P 11 and scroll over here to notice I'm using the arrows now and I'm pointing to the cash credit in Cell e12 when we hit enter because this is a credit and cash is a debit balance account They're the opposite therefore it goes down from 29 to 2 28 8 alright, so we're gonna go back see the next transaction and make this a little bit larger once again and We are now on I'm gonna skip a line on 5 13 So 5 13 then says Vendor a paid vendor for part of the debt incurred in the prior month Recorded as accounts payable. Okay, so we paid the vendor. So once again is cash affected That's gonna be the question and in this case it is it doesn't say cash this time But we paid something and I'm assuming we paid it with cash now cash does include checks and whatnot So checks are part of cash for this problem. So cash is a debit balance. We need to make it go down How do we make something go down? We do the opposite thing to it as what it is cash is a debit represented by the fact that it doesn't have brackets So we're going to credit it because that's the opposite thing to it in order to make it go down So I'm gonna right-click copy that. Here's the date line. I'm gonna put my cursor under that in cell C 15 Because the credits go on the bottom gonna right-click gonna paste it one two three values only I'm gonna go in the credit column on the general Journal worksheets and put a negative to represent the credit and the amount will be for 500 when we hit enter the format of the cell will change it to have brackets I'm gonna if we credit something we're also gonna have to debit something So I'm gonna be up here in cell C 14 and put the 500 in there as well So there's the debit side. There's the credit side The only thing we don't know at this time is what the credit account will be and we recorded services provided But for which cash had I'm sorry. We're up here paid vendor for Part of debt incurred. So we paid the vendor, but we didn't get anything today We got something sometime in the past. So we have an IOU basically out there to our vendor The account that represents an IOU is a liability. It's called accounts payable So accounts payable represents the money that we owe to somebody else in this case $800. We're paying 500 of it We see that it has a credit balance. We're paying it off. Therefore, it should go down because we don't owe it anymore We make something go down by doing the opposite thing to it ask what it is That's a credit represented by the brackets We already know that we're gonna debit it because we credit a cash That makes sense that will make it go down because it's the opposite of what it is I'm gonna go ahead and copy the accounts payable put that on the top of this journal entry Right-click and paste it one two three All right, so we're gonna post this out I'm gonna scroll over here a little bit so we can see more of our screen and make this a little bit smaller like so and Then let's post this out. So we're gonna look for accounts payable. So accounts payable is over here We're gonna be in the debit side in this case. So I'm in cell a a 9 so a a 9 gonna say equals gonna take my cursor and point to the 500 and then when we hit enter the 800 will go down by 500 to the 300 that 300 then will also be over here on the accounts payable for some reason it's the same as the receivable that's just a coincidence And but there's the 300 and we are out of balance by 500 now So now we're gonna post the cash side of it So if we go to the GL and cash and then we go down here to the cell O12 I'm sorry. We're gonna go down to P12 gonna post it as a credit because it's in the credit column We're gonna say equals and then I'm just gonna point to that cash number and it has e15 in it Then when we hit enter it will go from 28 8 down to 28 3 Because it's a debit balance and we did the opposite thing to it, which is a credit All right, let's make this a little bit larger once again and keep posting these out We're gonna go down to the next transaction which happens to be in this case on 515 so on 515 we have Recorded services provided but for which cash has not yet been received. Okay, so we've seen that before I believe so we did We've recorded services, but cat. Well, we haven't done that yet. Anyway, so we did work, but we didn't get the money yet So then the question again is is cash affected and in this case, we're gonna say no We recorded work we did work, but we have not yet received cash So we did work we're gonna send out the invoice basically saying hey, we did work pay us, but we haven't got the cash yet so What did we get instead? We got kind of an IOU when we do the work we say we earn the work people owe us money So the asset that we have is an asset in this case It's basically means that it's an IOU we did the work people owe us money as of the time the work is done and we can see that the IOU account the accounts receivable has a debit balance. We need to make it go up people owe us more money So I'm gonna go ahead and debit that do the same thing to it just like if we got paid with cash We're getting paid with an IOU in this case So I'm gonna right-click copy that gonna put that on the top right-click and paste it one two three So that's gonna be for the amount of in this case seven five if we debit something We will also have to credit something. So I'm gonna be over here in column in cell e 18 e 18, I'm gonna put a negative Seven five oh oh and once we hit enter that will put the brackets around it because of the formatting of the cell and now we just need to know what that credit account will be and The credit will be in this case finally Revenue we earned the revenue so Basically anytime we do work we earn revenue revenue only goes up So whether we get paid cash or not when we do work under an accrual basis We will record an increase in revenue revenue has a credit balance. So revenue has a credit balance We're gonna make it go up by doing the same thing to it, which is another credit Revenue will always go up for the most part if we do work revenue will go up Net income can go down, but revenue generally just goes up. So I'm gonna go ahead and right-click that I'm gonna copy it I'm gonna put our cursor on C18 right-click and paste it one two three just the values only so then we're gonna go back over here and we're gonna make this a little bit smaller again and See if we can post this out. So we're gonna go to the receivables account. So here we have receivables in cell S10 we're posting this receivable in cell S10 under the accounts receivable General ledger this is called posting to the general ledger gonna say equals gonna point to that at 7 5 and that 300 once we hit enter will go up to 7 8 by the 7 5 that we have now posted into the accounts receivable then we're gonna go to the revenue That's gonna be the blue accounts. So I'm gonna go over here a little bit further to the blue over here, here's the The revenue account. So I'm in cell AF 19 AF 19. So remember it goes to Z and then goes AA AB and whatnot. We're gonna say equals in the cell I'm gonna hold down the left arrow instead of using the mouse this time It's gonna hold down the left arrow till I hit the wall and then I'm gonna go to that last entry that I'm in And I'm looking for the revenue and I'm just gonna go to that cell Which is E 18 and then go ahead and hit enter and it will make the account go from zero up in the credit Direction to 7 5 Where else will we see that 7 5? We see it on the trial balance. So there it is on the trial balance right here and now that's revenue It revenue went up. So what happened to net income? We can see it right here on our trial balance the revenue of the 7 5 Minus the expense of the 400 means we have income of 7 1 now that 7 1 is income It's not a loss even though it has brackets around it and Excel sees that as a negative number We see it in terms of debits and credits as the credits are beating the debits. Therefore, we have income of 7,001 in this case as of this time. All right, so I'm gonna make this a little bit larger once again We're gonna go down to the next item which happens to be in this case 517 where it says that cash received from clients for revenue earned During this month. All right, so we did work and in this case what we're trying to say there We did work and we got money in the same time period or within the same month And so we want to record the revenue and the cash in this time period at this time So first question is cash affected. Yeah, in this case cash is affected Because it says we received cash cash is going up cash is the debit balance How do we make something go up? We do the same thing to it as what it is which in this case would be a debit So I'm gonna right-click gonna copy that gonna put that on the top. So I'm in cell C 20 Right-click paste it one two three Then we're gonna put that in the debit column. I'm in this cell here. So the amount will be 7,001 Then we need to credit something for 7,001 Because we have to have an equal number of debits and credits with every journal entry so I'm gonna put a negative to represent the credit of 7,001 and When we hit enter that'll put brackets around it You will need to put the the negative sign in this type of Excel worksheet in order for the formulas to work in the most Efficient way then the only question is what should this account be? So a cash receipt for revenue earned. So we earned revenue So why do people pay us cash because we earned revenue? We earned it in this time period in this case We can see the revenue accounts always going to be in order assets then liabilities then equity and then revenue Revenue has a credit balance. It only goes up. How do we make something go up? We do the same thing to it as what it is. Therefore, we're gonna make another credit. So I'm gonna copy this I'm gonna paste this in C 21 right-click paste it one two three note We already knew we were gonna credit it because we debited cash All right So then we're gonna post this out. I'm gonna make this a little bit smaller again So we can see some more of the general ledger This is the general journal which we will now post to the general ledger Which will then automatically update the trial balance. All right, so we're gonna go over here to cell O13 and we're gonna say equals I'm gonna point to the cash number there and once we hit enter the 28 3 will go up in the debit direction to 35 4 we are now of course out of bounds by the 7 1 till we record the credit We're out of bounds here. We're out of bounds here And then we will go over to the revenue so revenues wherever you remember it's in terms of assets Then liabilities then equity and then revenue is down here revenue is always gonna be a credit So I'm in the credit column. I'm in cell af 20 in this case I'm gonna hit equals and this time I'm gonna hold down that left arrow again I'm just gonna hold it down and note the number changes every time I go That's fine until I find the one that I want which is that credit of 7 1 Then I'm gonna hit enter and it takes the revenue account from 75 up to 14 6 because we did the same thing to it as what it is. We can see that 14 6 on the trial balance as well What's the effect on net income? Well net income went up So now net income is 14 2 which is that 14 6 revenue what we earned less the miscellaneous expense of 400 at this time All right next transaction and make this a little bit larger on the task bar down here and we're back to a hundred percent Gonna go down to five 20 Where we have purchase of supplies on account? No cash is paid so is cash affected and the and the answer is no we purchased it on account So many times if a book says it says we purchased it on account We got a kind of know the terminology obviously here We also said that the cash wasn't paid so you can kind of think of that as we purchased it Maybe similar to being on a credit card or something like that. We didn't pay cash We have an IOU in the future if you see the terminology of on account It's probably gonna mean I accounts receivable or accounts payable and like that. We didn't pay cash We have an IOU in the future if you see the terminology of on account It's probably gonna mean I Accounts receivable or accounts payable and obviously in real life. We would know these things but when we work a problem We got a kind of know the terminology and put ourself in the shoes of the problem and know what those accounts mean So the cash is not affected. We paid for something other than cash Now the account that we're going to use as the IOU that we owe somebody else is called accounts payable But in this case I often think it might be easier to think about what we got rather than the IOU because We've been working with assets more than liabilities And if we're trying to see if we should debit or credit a particular account It might be easier to think about the Asset side of it so in this case we bought supplies so supplies is up here We can see supplies right there and we can see that it's an asset just like all these other assets cash and receivable And we got more of it. Therefore, it's gonna go up. How do we make something go up? We do the same thing to it. That's a debit Therefore, we're gonna debit it in order to make it go up So even though we know that the other half is the payable We might want to think of the asset because we've worked with cash the most and we know Which way cash we're gonna go so I'm gonna right-click on a copy that gonna put my cursor in C23 right-click and paste it one two three and that's gonna go up then in cell D23 the amount being this seven five So we're gonna credit something by the same amount seven five, so I'm gonna put a negative of seven five We need to have an equal number of debits and credits in each transaction And now we already know that we're gonna credit the accounts payable and we can now think that through it Does it make sense that we're gonna credit the accounts payable well accounts payable is a liability Liabilities have credit balances represented by the brackets in order to make it go up We would do the same thing to it which would be another credit Which makes sense because we owe more money now after this purchase So it does make sense that we would credit the liability gonna right-click here gonna copy that Gonna go down here to sell C24 right-click and paste it one two three All right, so now let's post this out This is called the general the journal entry that we are gonna post to the general ledger so I'm gonna make this a little bit smaller like so and Then we're gonna look this over and we're gonna look for the supplies By the way, you might be thinking why is supplies an asset and not an expense? Many people might be expensing their supplies and there's nothing wrong with that but in this case if the supplies were large and Material to our decision-making then we should put the supplies on as an asset and then count them at the end of The time period and then expense them as we go if on the other hand supplies is in materials say we bought like a five-year Supply of paper clips for like $25, you know, we're not even though the paper clips are gonna last a long period of time We are not gonna go through the trouble of counting the paper clips and expensing them as we use the paper clips We're just gonna go ahead and expense them So the other reason we put supplies up here is because although we're not talking about inventory yet We can account for supplies in a similar fashion that we will account for inventory So we'll have an adjusting entry for supplies that will mirror the adjusting entry for inventory meaning We're gonna buy stuff. We're gonna compile it I think of it as like paper being an attack in the tax office We buy a lot of paper and ink we put that in the corner Then we use it and we're gonna go ahead and count it expense it as we use it All right, so here's the supplies accounts over here and it's in s20 so we're gonna go ahead and say equals and I'm going to point to that seven five in cell D 23 and Enter and that makes the supplies go up to eight eight five. We can see that eight eight five there as well We're out of bounds by the seven five and now we're gonna go to the accounts payable. So accounts payable We can just barely see it over here. It's not quite the whole thing. So we're over here in a B Ten and once again, it goes from V up to a B and we got a negative 300 in there So far a credit of 300. I'm gonna say equals I'm gonna hold down the left arrow So I hit the wall go down to the payable of seven five and enter So what happened the three thought the 300 it goes up by seven five two seven eight We can also see that seven eight over here on the trial balance, of course So there's the seven eight we can see that we are back in balance down here We can see that there's no effect on the income statement from that transaction because we have no income or expense accounts that were Affected from that transaction. All right, let's go down to the next one Let's make our screen a little bit larger back to a hundred percent up in the task bar over here Let's scroll back to the left and we are now on 521 521 says record services Provided but for which cash has not yet been received. All right So we did services, but we have not yet received cash so is cash affected and no we did service, but we didn't get cash So what did we get instead if we did work? We're gonna assume we got something We're assuming we got an IOU called accounts receivable. So if we did work, we're still gonna say yeah We received something we received a promise to be paid and therefore this is an asset It's not our favorite asset It's our second favorite asset because we're it's gonna be converted into cash Hopefully within like 30 days. So it's a debit We're gonna make it go up by doing the same thing to it because people owe us more money Therefore, we're gonna go ahead and debit accounts receivable. So I'm gonna scroll down here. I'm gonna put that on the top I'm in cell C 26 right-click paste it one two three again, you could type it in there, but I'm just think that the copying and pasting is faster in my opinion And then we're gonna go over here and that's gonna be eight hundred eight thousand Dollars and we're gonna decredit something every transaction has to have an equal number of debits credit So then over here in E 27 gonna put a negative 8,000 when we hit enter, we'll see those brackets up here Then the only question is what will that credit account be? Why are people gonna pay us 8,000 because we did work and in doing work we earned revenue So revenue is down here. Remember, it's always gonna be an order of meaning assets liabilities equity and then revenue and expenses Sometimes people get the assets and revenue a little bit mixed up in terms of they're both kind of like good things They're both things that we like notice. We like both sides of this transaction. We like the receivable like that people owe us more Money, we also like the revenue, which is the income half of it meaning that means we earned the revenue So we earned the revenue. We're getting paid in an IOU at this time That IOU will hopefully be converted to cash at a later time So notice that the revenue account has a credit balance and we need to make it go up So we're gonna do the same thing which is another credit note that revenue always gets credited. So I'm gonna copy that Gonna paste it one two three revenue just doesn't normally go down We don't do work and earn negative revenue Although we do have expenses that bring net income down. All right, so then let's post this out I'm gonna make this a little bit smaller. Let's go down to about 80 on the task bar down here so we could see our general ledger and Then we're gonna scroll up to accounts receivable and I'm in cell s 11 We're gonna say equals and then point to that 8,000 and we got the 7 8 going up by 8,002 15 8 we can see that here on the 15 8 on the trial balance Then I'm gonna go to the to the revenue account That's gonna be a little over to the right over here So we have the revenue account down here and notice it only has credit balances We don't ever debit revenue for the most part because it just goes up I'm in cell AF 20 in this case AF 20 I'm gonna say equals and I'm gonna hold down the left arrow again I could use my mouse, but I think it's a little bit easier to hold down the arrow till I hit the wall I'm going down to the last journal entry we did and I'm looking for that revenue account that 8,000 revenue and I'm gonna say enter and we can see that that goes up So notice they should all be credits here if you see a debit and the revenue account Probably went the wrong way it went up from 14 6 to 22 6 and what does that do to our trial balance? Put this back in balance down here and our net income goes up to 22 2 being the 22 6 minus that 400 miscellaneous expense And we are very short on expenses right now We're gonna have some expenses most likely coming up as of the end of the month because that's when we pay our bills All right, so then we're gonna go down here to five Squeeze one more in here 525 where we have cash received from clients for revenue earned during this month Okay, so now we received cash for work. We did in the same time period So therefore is cash affected. I'm gonna say yes. We received it. I'm gonna go ahead and make this a little bit larger We're gonna say yeah, we received cash and therefore cash has a debit balance We're gonna make it go up. How do we make something go up? We do the same thing to it as what it is which in this case would be another debit right-click copy the cash cow Scrolling down to C29 right-click pasted one two three the amount that we received was 4002 so 4002 on the debit side We're gonna have to credit something for that same amount being a credit represented by a negative 4002 when we hit enter we'll see those brackets up here. So there's the brackets now We're gonna have to say what will that Account be and we're gonna say we got paid cash because We earned it we earned revenue and we earned it in the same time period in this case in the same month And so we can see our revenue account once again is down here it has a credit balance it only goes up for the most part and it has a credit balance represented by the brackets Therefore, we're gonna make it go up by doing the same thing to it Which is another credit gonna copy that and we already knew that because we've debited cash So we can already we already have that credit over here gonna right-click. I'm gonna paste that one two three There's our journal entry Gonna make this a little bit smaller again back down to 80 on the taskbar. Let's post this out So here's our cash account. I'm gonna scroll down and we're gonna go to the next line It's gonna go up with a debit. So I'm in 014 sell 014 equals and point to that 4002 and enter and that makes the cash go from 35 4 to 39 6 Then we're looking for that revenue account over here. So revenue is over here somewhere Gonna go to revenue. It's a blue account notice It's an order the green accounts are assets orange accounts are liabilities then equity then revenue Here's revenue. It only has a credit balance. I'm gonna put equals in sell AF 22 and Hold down the left arrow Go down to the last transaction. There it is There's that 4002 gonna say enter and the revenue goes up once again from 22 6 to 26 8 And what happens to the net income? It goes up to 26 for so that's the 26 8 minus the 400 And we're running out of room on the journal entries What we're what we're gonna do at this time is unhide those cells that we hid earlier so that we can Work on those cells so we can see up here. We got a b c d e k In so there's some missing cells in there. So I'm gonna unhide the cells between e and k by clicking on the cell e when it has an arrow such as this and then holding down the left click and Dragging to the right. So I get to sell L Letting go and then I'm gonna right click on that selected area and unhide So there's that information now. We're gonna start. I'm gonna put the date here, which is gonna be the next transaction on 527 and then I'm gonna go ahead and hide these cells I don't need to see these cells at this time now if there's a problem I'm gonna have to go ahead and unhide it and find it and whatnot, but right now I just want to hide these cells. So I'm gonna put my cursor on. Let's go to column B And I'm gonna click on that and then highlight and hold down to column F Let go that I'm gonna right click on the selected area and hide that information So it's still there. It's still all posted. It's going from a to G. We didn't delete it But we are now able to see What we want to see only Alright, so now we're down here on 527 says cash received from clients for revenue earned in prior month and recorded in Accounts receivable. All right, so is cash affected and it says cash is received So yes cash is affected cash as a debit balance We're gonna make it go up by doing the same thing to it which in this case would be another debit So I'm gonna right-click on that copy I'm gonna put my cursor in h5 Right-click and paste it one two three like the amount that we received on the 27 is 12,000 We're gonna credit something for that same 12,000 So I'm in the credit column in J6 negative 12,000 and what are we gonna credit? Well, we received cash from clients for revenue earned in the prior month that was recorded in accounts receivable So why do people pay us money because we did work, but we didn't do work this time period We did it last time period Therefore we have already recorded the fact that we are owed the money in the Receivable account so that receivable account now needs to go down and it has a debit balance We need to make it go down by doing the opposite thing to it Which is the credit which we already knew because we debited cash So we're gonna credit accounts receivable reducing that asset because we got the better asset and we're gonna increase the cash in this case so and note that there's no effect on the Income statement on net income for this transaction Copy and paste it one two three and that's because even though we got cash We recorded the revenue when we earned it and that was last month. All right, so now we're gonna post this out So we're gonna go into the cash account over here in cell O15 and say equals point to that 12,000 up here And when we hit it turned the 39 six will go up to 51 six Then we're gonna look for the receivable. That's right over here right next to it And we're gonna I'm in cell T 12 and we're gonna say equals and point to that 12,000 this is a debit. That's a credit. That's gonna make the account go down Think I missed it and say equals and point to that 12,000 makes it go down. There it goes. All right down to 3008 we also see that 3008 over here and we can see that we are back in balance by the green zero meaning that the debits minus the credits Equal zero and we are good back in balance ready to go to next transaction being on by 28 all right, so that says we paid employee for salaries incurred All right, so we paid our employee for a salary that was incurred So the question is is cash affected here? So if we go up we're gonna say yeah cash is affected We pay the employee with cash a check but that's gonna be cash in this case So cash has a debit balance We're gonna make it go down by doing the opposite thing to it which in this case would be a credit So I'm gonna go ahead and copy cash gonna go down to H and 9 Right-click and paste it 1 2 3 also note that we're not talking about payroll taxes or anything right now We're just this would be the simplified journal entry for payroll if we didn't have Payroll taxes which we will talk about at a later time and cash is gonna go down by the amount paid being 800 sign up say negative 800 to represent a credit in this worksheet if we credit something We're also gonna have to debit something put the debit on top and sell i8 for 800 now the only question is what will that debit be and if we look at the trial balance We're looking for something related to payroll. So we see salaries payable here We see a salaries expense down here now Which one are we gonna put it into in this case? It's gonna be the expense when we record the expense for the the Books for the payroll department. It's generally gonna be recorded to an expense now You'll note that there's something in salaries payable right now and you might be asking why is there something there and The reason for that could be that we had an accrual entry Which we'll talk about later from the prior period and I'm gonna adjust that We're gonna take a look at that and make those adjustments at the end of the period and discuss that as we go at that time In terms of the payroll department oftentimes, they will just record the salary expense in the salary expense area and Be more actually on a cash basis in that in that way So expenses have debit balances such as this Missing expense represented by the fact it does not have brackets Expenses generally only go up and we're gonna make it go up by doing the same thing to it Which in this case would be another ex debit So I'm gonna right-click and paste it one two three. All right. There's our transaction debit the salaries expense credit cash We're gonna go ahead and post that out. So I'm gonna look for salaries expense first That's gonna be an expense area. It's gonna be a blue account over here So the assets are here first and they're green and the liabilities are orange and then the equity and then the revenue And then there's expense accounts and here's salaries expense way over here in AI AI Nine so it's an AI nine way over here and notice it again It goes to Z and it keeps on going out It can be a little confusing to to go through these screens There's a lot of different ways that you can manipulate Excel to work with screens that are larger than the screen We're looking at you can manipulate the size You can also freeze the pains and whatnot Whatever works for you But in this cell, I'm gonna say equals and I'm gonna hold down the left arrow and so I hit the wall I'm gonna go all the way till I hit the wall and then I'm looking for that 800 related to salaries Which is in cell I8 and Enter and notice you could go over here if you're following the video. You could just type in equals I8 but I find that it it's a lot nicer to go point to it because then you physically are pointing to it and seeing What is going in that so all right? so I'm gonna scroll back over here now, of course we were out of bounds by the 800 the other side being cash right about by the 800 here in here and cash is gonna be over here in P16 So P16 in the cash We're posting the general journal to the general ledger equals you're gonna point to that 800 now and the 51 6 is gonna Go down by 802 the 58 and we can see we're back in balance here Which is good green zero is good because that means the debits minus the credits equal zero So the debits equal the credits and what happened a net income? Well, it went down by the 800 so we have the 26 8 now Minus the 8 minus the 4 note also if you're using Excel and you highlight a certain set of numbers It will generally calculate that for you in the formula bar. So there's the 25 6 here's the 25 6 So that's a handy little thing to have as well can go down to the next transaction which is going to be on a 5 30 5 30 we pay cash for miscellaneous expense. So once again miscellaneous expense probably not a great Expense to have but we're gonna keep the expenses a little bit smaller here So that to keep this problem a little bit more simplified The expenses will probably have more expenses than any other type of account for most companies But note that they all act the same way It's just a matter of how do we want to group the expenses? If we have a lot of little things that we pay for that are not significant We may put them in accounts such as miscellaneous expense other types of accounts similar to misplacing expense are like office expense Office supplies those are types of things that sometimes people put a lot of stuff into Which may not be exactly? Office supplies, you know so but you want to you want to put your expenses in a category system That is one helping you to make decisions But two isn't so cumbersome that I have so many expense accounts that it's not helping you make decisions Just cluttering things up. So obviously I don't like the expense miscellaneous type of category too much, but there if there are some small things that are not Material to decision-making it may be appropriate to put them into miscellaneous And obviously if someone just went into a small company and drew cash out of the checking account and spent it and didn't keep the receipts And whatnot then we are gonna have to you know record it somewhere and Miscellaneous expense or office supplies and whatnot is usually where that type of thing will go and so then here is cash Affected for this transaction We're gonna say that yes cash is a debit balance We're gonna make it go down how we're gonna make it go down by doing the opposite thing to it Which in this case would be a credit so I'm gonna copy that gonna put our cursor under so here's the date I'm gonna put our cursor under that in h12 in this case right click and paste it one two three The amount that we're gonna put there All right, so the amount will be a negative 250 in this case for the credit balance if we're gonna credit something we're also gonna debit something for that 250 and what will that debit be and In this case we already said that the debit will be Miscellaneous expense so if we take a look at this We remember that the assets are gonna be up here on top then the liabilities then the equity then the income then the expenses down here We're down here and miscellaneous expense. We can see that the expenses all have debit balances They only go up in the debit direction. Therefore, we're gonna do the same thing to it Which in this case would be another debit So I'm gonna right click gonna copy this account here gonna put it on top in h11 right click and Haste one two three. So now we're gonna go and post this transaction to the general ledger So we're looking for the miscellaneous account. We're gonna post it to the general ledger Which is over here and we can see that this is in order assets are Where we start off with cash and asset receivable asset payables and assets are Prepaid insurance then it counts payables a liability then equity and then revenue and then expenses And of course miscellaneous is way on the bottom because we're kind of like ashamed of it So we put it way on the bottom over here. So we got it over in a m 22. We have this miscellaneous account So it goes from z and then we remember it goes all the way over to a m 22 down here in miscellaneous. We're gonna say equals. I'm gonna post it this way I'm gonna hit the left arrow hold it down till I get all the way down here And then scroll up to that 250 which is in i 11 and enter Again, you could just delete it and put in equals i 11 You could put the number in there, but I highly recommend Putting the formula in there because it can really help you if you are out of balance So for example in this case, we are of course out of balance by the 250 at this time And that's because we haven't recorded the cash side if we didn't know that and we're trying to figure it out We could try to do something like what if we just deleted the numbers? Would it be back in balance over here if we used formulas? Then it may well be so if I say delete then I could say oh well It's something that has to do with that Transaction and then if I say undo Then our numbers are back. We're back out of balance and then we could try to See well, which one of these aren't posted and if I put my cursor there and we use our tracer items here Not that one but this one then we could say oh that one's posted all over there And I can hit this one and say oh that one's not posted That's the problem. We didn't post that if we hard code the numbers We won't be able to do that and where are those located again? Those are in the formulas area in the formula auditing and they're up here in these trace items So it can be really helpful to figure things out if we use the formulas in this System when we post them so we're going to post the second half now to the cash so cash is over here We're in the credit side. We're in sell p 17 I'm going to say equals and then scroll over to that credit of 250 in j 12 Once we hit enter the 50,008 will go down to 50,005 50 puts us back in balance over here What happened net income it went down? So we're calculating revenue minus the 800 minus the six five is the 25 350 50 also showing down here 25 350 in the taskbar because we are highlighting those areas that is income That's not a loss credits are actually good on the income statement All right next transaction. We're down to the end of the month here. It's going to be 531 and once again we paid cash for miscellaneous expense So we're paying our bills here and we're not grouping them very well I don't think we're putting in miscellaneous expense But we're assuming that they're in material and therefore grouping them into one area here And therefore it's going to be a similar transaction. We paid cash Cash is a debit balance. We're going to make it go down by doing the same thing to it By doing the opposite thing to it which in this case would be a credit So I'm going to copy the cash going to put it under the date So here's the date going to put it under the date in h 15 right click paste it 123 Then we're going to go into the credit column the credit amount being in this case a negative to represent the credit 300 and enter that puts the brackets around it if we credit something We also need the debit and the debit generally goes on top. So that will be 300 in cell i 14 the only question is what will that debit be once again? We bought we bought something for the miscellaneous expense So we got assets and then we got liabilities equity income Missile and then expenses all expenses have debit balances They generally only go up and how do we make something go up? We do the same thing to it which in this case would be another debit So we're going to debit the miscellaneous expense which we already knew because we credited cash Right-clicking pasting 123 values only now we can post this out in a similar way Once again, this is a general journal. We're going to post that to the general ledger We're going to post miscellaneous expense the general ledger is in order by account We have assets and green liabilities in orange equity in the brighter red yellow or blue And then revenue and expenses in the less bright blue And we're down here way in the bottom in cell am 23 in miscellaneous expense equals i'm going to hold down the left arrow Till i hit the wall And then scroll up to the miscellaneous expense 300 in i14 and enter We should see that 300 point post up here We should see the 650 go up in the debit direction to 950 We'll also see that 950 over here on the trial balance because it pulls over We are now out of balance by the 300 until we post the cash side of the entry So we're going to go to cash General ledger over here in p18 Say equals and then scroll over to the cash which is the credit and we see the debit balance here It's going to go down because we're doing the opposite thing to it to 50,250 that puts us back in balance And we know that net income went down by that 300 too In this case 25 50 calculated as The revenue less the expenses revenue is winning which is good by 25 50 All right next transaction on 3 31 again We have Cash from clients for work done in this month. So we had we did work this month and we got the cash this month All right. So is cash affected? Yeah, we did work and we got cash. So 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 right click on that going to copy that going to put that on top on cell h17 right click and Paste it one two three So the amount that we got in this case is 3000 So we're going to credit 3000 as well and negative 3000 and enter what will that account be? Well, uh, we earned revenue That's why people are going to pay us cash because we earned it and we earned it in this time period So we did the work this time period. We can see that we have assets Liabilities equity and then revenue and so revenue has a credit balance. It only goes up We're going to do the same thing to it in this case, which would be another credit I'm going to right click and copy going to put that underneath in cell h18 Right click and paste it one two three Then we're going to go ahead and post this out. So we'll go over here to cell o 8 19 i'm in o 19 Equals and scroll over and point to that 3000 the 50,000 250 will go up by three thousand two 53 to 50 now we're out of balance, of course until we record the second half remember recording the journal entry to the general ledger and where's the revenue account over here It's an order assets and then liabilities and then equity and then revenue. So here's revenue Notice it only has credits because revenue only goes up in the credit direction and we're on af 23 af 23 I'm going to say equals in that cell and then hold down that left arrow till I hit the wall Looking for that 3000 there it is and that's the revenue account We're going to hit enter and that makes revenue go up from 26 8 to 29 8 And if we scroll back over to the trial balance, we'll see that 29 8 over here as well What happened to net income it went up by the 3000 now having 29 8 minus 8 minus 250 given us 28 50 All right next transaction. We are still on 5 31 And we had services provided on account cash has not yet been Collected so now this is the work that we did that we didn't get cash in this month for So therefore we did work and haven't got cash yet, but we are going to assume that we got something. What did we get? We got an iou. What's the iou account accounts receivable? So if we did the work, we're going to assume we got something on the accrual basis We don't do work and not get anything. We haven't got anything physically yet But we're going to assume that we got an iou here for the work that we did The accounts receivable 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 we're going to right click on that going to copy that going to bring our cursor down to h20 Right click and paste it one two three Then the amount will be 2000 We're going to credit something for the same 2000s. We're going to put a negative 2000 in this case And uh, then the question is why are people going to pay us money? Because we earned revenue So it's assets on top then liabilities then equity of then revenue revenue has a credit balance 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 right click on that going to copy that going to put that in cell h21 Right click and paste it one two three Then we can go ahead and post this out So this is the general journal that we're going to post to the general ledger We're looking for the counts receivable and counts people will be in cell s 13 We're going to say equals in cell s 13 going to go ahead and point to that 2000 next to the receivable Which should make the receivable go up from 38 to Five eight puts us out of bounds by that 2000 until we record the other side So the other side being revenue. So the general ledger is in order. We got assets over here in green and Liabilities in orange and then equity and then revenue So here's revenue down here notice. They all have credits because they only go one way They go up in the credit direction and we are in af 20 in this case So we're going to say equals in af 20 and hold down that left arrow Until we get to the revenue account There's the 2000 i'm going to say enter and revenue will go up from 29 8 to 31 8 Where will we see that 31 8 also on the trial balances where we will see it right there What happened to net income it went up by 2002 31 8 minus 8 minus 9 50 equals net income of 30,050 also shown in the tax bar 30,050 because we are highlighting those cells Okay, one more transaction on 5 31 And the owner withdraws money. So if we are the owner then we're going to say, okay I'm going to take some money out of the business the business account is of course for business If I want to go on vacation or whatnot on the personal side Then I should first take the money out of the business account put into my personal account then Go on vacation. So that's that's going to be the plan now We're going to pull out the money from the business. So is cash affected? Yeah, for the business the money is being pulled out So cash has a debit balance. We're going to make it go down by doing the opposite thing to it Which in this case would be a credit So I'm going to copy the cash going to put it on the bottom So here's the date going to go to the bottom right click hasted 1 2 3 Going to go to the column j credit side negative 10 1,000 we're going to debit something the debit will go on top for the same amount 10 1,000 and the only question is what will that debit be then and the owner's drawing the money out So it's going to be down here in the equity section and the reason I make the equity section highlighted in blue in this case is because that's kind of like the dividing line between the balance sheet Which is up here and the income statement, which is down here. So here's the equity section Here's the amount owed to the owner as of the beginning of the time period And uh, we're going to make that go down, but we're not going to put it to that account directly We're going to make kind of like a contra equity account just called draws So that we can see directly how much money was taken out by the owner And uh, that's important when we're a sole proprietor becomes more important when we're a partnership because we want to see exactly How much each partner took out during the turn certain time period So we're going to say draws is going to be the debit We already know it's going to be a debit because we credited cash If we think about it, why is it a debit because really it's bringing this equity account down It's kind of like a contra equity account that has a credit balance We need to make it go down by doing the opposite thing to it So we're making a new account, which will actually go up in the debit direction But it's really bringing the total equity down So we're going to go ahead and copy that and paste it here in h 23 right click paste it 123 And then post that out. So that's an equity account So we're posting this general journal entry to the general ledger looking for draws, which is an equity account General ledgers in order assets and then liabilities then equity. So here's draws over here in a e 14 so a e 14 We're going to say equals i'm going to hold down the left arrow We're going to go to this draws Of 10 000 and enter And there's the 10 000 we can see the 10 000 here We are now out of balance by the 10 000 until we record the other side to cash Which will be over here in sell p 20. So we're in p 20 And we'll just say equals and left down to cash and when we hit enter the 10 that's 53 250 will go down to 53 uh, 43 250 and that will also be on the trial balance over here And we are back in balance. Uh, so just notice that the trial balance is back in balance if we look at the, uh, the Accounting equation we can see that assets equal liabilities plus ono's equity If we rearrange that also note that it also means that assets minus liabilities Will equal equity meaning the equity is the book value and you can see that here too notice that if I highlight the assets Uh adding this adding this adding this i'm up to 77 One if you keep watching that number it's going to now go down by the 330 to the 76 Uh 770 then down to 68 970 and so on till it gets to uh 62 350 That 62 350 has to be the same as these blue numbers here So the reason all these numbers are blue even though we have the revenue the expenses Is because really they're all part of equity notice they're all part of this number And that has to make sense because the top half represents What we have minus who we owe it to The bottom half represents what is owed to the owner or what the book value of the company is worth But it's currently broken out between basically the beginning balance and or investments And what was taken out and all of the what was earned through that time period So if we highlight this second half We also come out to this 62 350 which we have up here 62 350 so uh keep that in mind you you can look at this trial balance uh and spend some time looking at the trial balance and Highlighting different things and seeing how this ties out to the accounting equation