 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 gonna 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 gonna 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 gonna start with zero balances at this point in time We're then gonna record our transactions here and result in an Indian balance After every transaction for that Indian 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 gonna do work and invoice the client therefore first question is cash affected We're gonna say no and not in this case because we invoice 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 a book problem and in real life We want to know what's going on so that if there is an issue We can go and kind of see what the system is doing and a book problems Gonna 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 transit We're first gonna 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 gonna 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 gonna 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 gonna do the same thing to it which in this case is another debit So I'm gonna put my cursor here on E6 gonna copy this gonna put that on transaction a I'm gonna 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 one two three 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 gonna say that we have a 13,000 is the amount. So we're gonna just type that in C5 13,000 I'm not gonna 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 gonna represent negative numbers with the credits and I'm gonna try to use a formula here I could just type in negative 13,000 But I'm gonna go ahead and use a formula and try to connect as much as possible So I'm gonna 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 gonna delete that if I just start with a negative That's gonna tell Excel if I point to anything else. It's like an equal sign It's gonna try to take that cell so I'm gonna point to this 13 and it's gonna say okay You want that C5 13,000 and it's gonna 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 record 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 gonna credit revenue now. We already knew that I'm sorry. I'm gonna copy that I'm gonna put that in B5 B6 right click paste 1 2 3 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 gonna 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 gonna be the column we will post to so I'm gonna say revenue or accounts receivable Here I'm gonna go to sell g6 and say equals and then point to that 13,000 that's just gonna 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 gonna post the revenue side. So here's revenue there. Here's revenue starts at zero We're gonna be recording in cell g12 so in cell g12 I'm gonna 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 will 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 equal 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 the idea of the Reality of the world is that if you're learning debits and credits you're gonna get mixed up and have to differentiate No matter what between what a plus and minus is because we're gonna be adding and subtracting debits and credits so We're just no matter what you do You're gonna 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 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 gonna happen to the accounting equation? Well, we know that the assets went up the green accounts went up with receivables so that's gonna 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 gonna 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 gonna 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 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 year of entry But when we the second journal tree 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 gonna okay. We received cash. That's pretty clear language. Let's just record that first There's 13,000 if we received cash for well cash is it is an asset has a debit balance We need to make it go up. We've therefore will do the same thing to it Which in this case will be another debit, so I'm gonna copy cash We're gonna right-click on cash on e5. So e5 Copy we're gonna put that in cell B8 So in cell B8 right-click paste 1 2 3 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 gonna copy and paste as much as possible. So it's gonna be 13,000 in cell C 8 No formatting. We're just gonna type that in and then I'm gonna 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 gonna take whatever's in that cell I'm gonna 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. I mean we already recorded the revenue up here So the credit's not gonna go to revenue instead. It's gonna 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 about that as just one person then we're gonna say now they paid us 13,000 that then needs to go down It's an asset assets have normal debit balances We're gonna make it go down by doing the opposite thing to it which in this case is a credit So I'm gonna copy that right-click copy. I'm gonna paste that in cell B9. There's B9 Right-click paste one two three. I'm then gonna 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 gonna post that in the cash account. I'm gonna incel G5 so within cell G5 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 and then we have the accounts receivable here Here's the accounts receivable on the trial balance. We're gonna post it to G8 or G6 and I'm gonna double-click on it because there's something in it So C5 and the formula bars in it. So if I double-click on it I'll see that there it is and then I'm gonna 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 as it's 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 it under the revenue recognition principle C says Performed work on account and invoiced the client So we're gonna say is cash affected. We're gonna say no we did work on account So we invoice the client and typically that's gonna be the driving document later on when we started talking about Accounting software. It's an invoice that's gonna drive this transaction and we're gonna 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 gonna copy accounts receivable Gonna put that in cell B 11 right-click and paste 1 2 3 Put the dollar amount in C 11 of that dollar amount being 650 we then know that we will credit something I could put in just a negative 650 but I'm gonna start using that formula So I'm gonna say negative and then point to this 650 there and that will pull over the the number and flip the sign Now we just need to know what this account will be Why are people gonna pay us $650? Because we did work earned revenue and invoice the client expecting to be paid in the future Therefore the credit is gonna go to revenue. So here's the revenue account. We're gonna copy that I'm gonna paste that in B 12 right-click paste 1 2 3 again You could just type it in there But I'm gonna copy and paste is a bit faster bit easier bit easier to learn Excel Double-click on that cell. I'm gonna indent three times on the spacebar 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 gonna credit revenue because we debited the Receivable and we had to credit something but if we think about it run 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 It's normal balance being a credit resulting in us crediting it in order to increase it now. We'll post this We're gonna say receivables here is an asset. Here's the receivables account on the trial balance We are gonna record it in the blue section in column g. So we are on g5 double-click on g5 We see the activity. I'm gonna 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 I'm just gonna delete it then you're really just gonna go back and point say equals and point to everything with their receivables Including this has a receivable Plus and then I'm gonna 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 gonna go to the end of it and say plus and then point to the 650 over here that's gonna increase our revenue put it 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 gonna 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 to 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 to 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 invoiced the client. So same accounts again We're working on the same account. Let's receive a little account. So is cash affected We're gonna say no we did work on account key term on account Therefore, we're gonna say what did we receive and in this case? We received an IOU that IOU being represented by the receivable account It's gonna 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 gonna copy the receivable. We're gonna put that in B 14 right-click and paste one two three We'll then enter the dollar amount that dollar amount of seven hundred and eighty. So it's gonna be seven hundred and eighty I'm gonna credit seven hundred and eighty as well. So we have an equal number of debits and credits I'm gonna do that with a formula by saying negative and point to that seven hundred and eighty and enter Now we just need to know what that account will be and if we did work Then we earned revenue under the revenue recognition principle and a cruel principle Therefore, we will recognize revenue revenue is here. I'm gonna copy that I'm gonna paste that in cell B 15 by right-clicking and pasting one two three values only I'm thinking a double click on the revenue and indent or space three times to have the indentation Now we already know that we were gonna 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 gonna post this we got a debit to the receivable So I'm gonna scroll up to the receivable. That's in cell G Six 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 1004 30 which includes this 650 and this 780 then what we record the second side, which is the revenue side that is here So it's in G12. I'm gonna 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 gonna 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 gonna say that equity is increasing So that's gonna 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 gonna say yes key term Received cash. So cash is gonna 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 gonna make it go up by doing the same thing to it which in this case would be another debit So I'm gonna go ahead and copy cash We're gonna put that on top. It's on B17 right click and paste 1 2 3 Within the debit side, we're gonna put 650 and then we're gonna 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 we'll 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 a count 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 gonna decrease the receivable. I'm gonna copy the accounts receivable. I'm gonna paste that here and B18 right click paste 1 2 3 We're gonna double click before the a space bar three times and there we have that Now we know we're gonna credit the receivable because we deputed 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 a credit. So let's post this out now We got the cash first. I'm gonna go up to the cash account in cell g5 Something's in it gonna double click on it then go to the end plus Scroll back down. We're gonna get to this at 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 gonna 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 gonna point to that 650 once we hit enter It's gonna 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 it 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 The liabilities and no effect on The equity so that's gonna be like one of these weird transactions again Well, there's no effect on any of it is revenue recognized when we receive cash We're gonna say No, not necessarily. It's recognized when we earn the revenue when we do the work is Recognize as revenue recognized when we have earned it whether cash is and we're gonna 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 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 a cruel account of receivable because this is the account that helps us track who owes us money We're gonna back this account up later with a subsidiary ledger a list of clients who owe us money And so that's gonna be very important depending on the type of industry that we are in