 Hello, in this presentation we will work a problem related to the accounts receivable cycle. Similar problem that we had in the past, however now we will be recording the transactions here as we did in the past, but not posting them directly to a worksheet, but rather to the general ledger, building the general ledger as we go, then using that general ledger in order to construct the trial balance, which will then remain in balance. So as you can see this is going to be a bit longer of a worksheet, this is kind of the traditional type of worksheet that we would work out, however we're going to set up this worksheet a bit differently than many book problems in that. We will be posting the journal entries as we go to the general ledger and then building the trial balance as we go. I suggest putting a system together like this whenever possible because it's going to save you time in that if you do everything at once over here and then post it to the general ledger and then post it to the trial balance, it's very likely that you will be out of balance and not know where to go, where to go back, where to start to see where to how to fix things. And if we do something in this format where we put it together as we go, it will be a lot easier for us to know when an error happened and know where to go in order to fix it rather than going back to the beginning. I also recommend using Excel as much as possible just to learn Excel and as well as it's just a great tool to learn these types of problems. Alright, first activity, we can say perform work on account and invoice the client. So we did work and invoice the client. Our first question is always, is cash affected? We're going to say here, no, cash is not affected because we invoice the client have not yet received any money. Therefore, I would think about what we have received. And we received an IOU accounts receivable. Accounts receivable is an asset. Assets have normal debit balances. We're going to make it go up by doing the same thing to it, which is another debit. So I'm going to copy accounts receivable. I'm in cell E6. So I'm going to right click and copy that cell in E6. Going to paste that to cell B5. So in B5, right click and paste it one, two, three. Then we're going to put the dollar amount of 13,000. So that's going to be in C5. So in C5, we will type in 13,000. No commas, nothing else, that's it. Once we select enter, it will then include the comma. Then we're going to put our cursor in D6. We know that we will then credit something. I'm going to do this with that formula, that formula being negative of this number. That'll take the 13,000 debit in cell C5, multiply it times negative one in essence, and flip the sign. So I'm going to represent the credits. We're going to represent the credits with brackets or negative numbers in Excel. And in this case in the credit column as well. Then we just need to know what this account will be. Why are people going to pay us 13,000 in the future? Because we earned it. We earned revenue. And therefore we're going to have the revenue account down here, revenue or income. I'm going to copy that. We're going to put that over here right below in B6, right click and paste it 123. Then we're going to double click right before the R, and space three times, indent that three spacings for the indentation. Now we know that we credited the revenue because we debited the accounts receivable. But if we think through it, we're going to say revenue has a normal credit balance. Revenue only goes up. Customers pay us. We don't pay customers. And therefore we will do the same thing to it, which in this case is another credit. So we can double check that we are crediting that account two different ways. Now we can post this. Remember that this is the general journal, this whole sheet. This is the journal entry that we posted into the general journal. The act of us recording the journal entry is journalizing the journal entry in the general journal. Now we will be posting the journal entry. This is the process of posting to the general ledger. So we're first going to have this accounts receivable here. Here it is on the trial balance. Second account. Here it is on the general ledger second account. So we are in the debit side. So here's the accounts receivable debit side since cell J16. We will use a formula to record this highly recommended using formulas because it will tie your worksheet together. So in J16, I'm going to say that equals and then just point to this 13,000 there. That's going to make this amount to go up by 13,000. It will also pull that total over here to the trial balance and it will of course put us out of balance by that 13,000. So there we have that. Then we're going to post the other side revenue. It's an order the accounts on the trial balance assets, then liabilities, then equity, then revenue. So revenue is going to be over here a bit. Therefore I'm going to try to make this a bit smaller so we can see more of this big spreadsheet in one page. I'm going to use these bars down here. You could hold down control and scroll down. I'm going to use this icon so you can see what I'm doing and I'm going to take it down from 130 to 120. And now you can see at 110, we can see the revenue. Remember it's an order assets, liabilities, equity, then revenue. We over here have a credit to revenue. Therefore we're going to credit revenue over here. So here's the revenue account. We're on the credit side and we're just going to be right here in CEL S9. S9 will say equals that I'm going to point to this 13,000. Once I select enter, it's going to increase this amount to 13,000 credit direction. That amount will also pull over to here in the revenue, put us back in balance and we'll have net income of 13,000. So there we have that 13,000 here, 13,000 there, back in balance. Net incomes at 13,000. Net income calculated as revenue minus expenses. Remember that this is revenue and we're seeing it as a credit. So that credit means we have net income. This isn't a loss. We're not working with kind of a plus and minus income statement. We're working with a debit and credit income statement. And here the credits are greater than the debits. Next activity, we said B, receive cash on account for work performed in the past. Note I just updated the worksheet to add here. So this is going to be the 13,000, 13,000 is going to be B, meaning we received cash on account for work performed in the past 13,000. And we're going to say our first question, is cash affected? We're going to say yes, we received cash keyword here being received. Remember that you might get mixed up with this terminology in that we see both the idea of received cash and on account. And when you see on account, you might just think, hey, that means cash is not affected. It means something else like receivable is happening. And that would be the case like it was in A. But in this case, of course, both of those things are happening, meaning accounts receivable is happening and the cash is happening. And it will be able to think that process through if we first think about the cash. So just the idea that we have received cash will tell us that cash is going up. So we're going to say cash is an asset, cash has a debit balance. We need to make it go up. So we're going to do the same thing to it as its normal balance, which is a debit. So I'm going to copy cash. I'm going to make this a bit larger too. I'm going to scroll back down here, back to our plus arrow, back to 130, scroll back over. So I just copied cash and I'm going to put that here in cell B8. So right click and paste. There we have that. The amount then is going to be that 13,000 again, 13,000. And if we debit something 13,000, we will credit something for 13,000. I'm going to do that with our formula negative of that cell. There we have that. Now we just need this amount here or this, this account here and that account. You would think if we got cash from a customer, you would think revenue, but clearly we had already recorded revenue in the past, that being the time that we earned it, that therefore the time that we recorded under the revenue recognition principle. So this time we're actually going to credit the receivable, of course, the receivable having 13,000 in it, representing people owing us money. Now they have paid us, therefore that receivable needs to go back down to zero, representing the fact that people don't owe us money anymore. So I'm going to copy that. I'm going to put that on the bottom and sell B nine, right click, paste one, two, three. We're going to double click in front of the A and indent three times on the space bar and enter. Now we know we're going to credit the receivable because we debited the cash, but we want to think through it, double check it. We know that the receivable has a debit balance. We know that it needs to go down because people paid us and they no longer need to have an account representing that they owe us. Therefore we will do the opposite thing to the receivable as it's normal balance. That being a credit. Then we'll post this. Remember this is the journal entry. We journalized in the general journal, which we will now post to the general ledger. So we have cash up top. That's going to be the first one. That's our first account on the trial balance, our first account on the general ledger. We debited it over here. We are going to put it in the debit side over here in cell J nine equals highly recommend using formulas here. We're going to say equals and then point to that 13,000 in cell C eight. You could just type in equals C eight. That's easier as well. You can say equals and then look over here and say that's C eight and do that. And that's going to increase once we select enter. It will increase this cell to 13,000. It increases the accounts receivable to 13,000 and puts us out of balance by 13,000. The second account is accounts receivable accounts receivable is our second account up here. And therefore will be our second account down here. We're going to be in the credit side. So I'm on the credit side. We are in cell K 17. Remember that you always want to keep skip a row whenever possible because it's really should be an order by date. Home book problems will try to squish everything together and put the credits right next to each other right next to a debit wherever there's room. But you really don't want to do that because typically a general ledger will be in order by date and each date should have its own line item. So we shouldn't really have a debit and a credit on the same line item. So we are on K 17 equals, we're going to select equals and then point to the accounts receivable here in D nine. And once we select enter, it should bring this back down to zero. It'll bring that zero over here to accounts receivable, put us back in balance, no effect on net income. So there we have that zero is here. We're back down just cash and the revenue. That's all that's happened so far during the activity of this problem. Your letter C perform work on account and invoice the client. So this should sound familiar. We'll go through this a bit quicker here. We're going to say is cash affected? No, we build the client therefore got an IOU that accounts receivable account. Counts receivables and assets. We need to make it go up. We'll do the same thing as its normal balance. Its normal balance being a debit means that we will then debit it again. The receivable, put it on top in cell B 11, right click, paste 123, the amount then 650. We're going to credit something for 650 with a negative of that number. So there we have that. Now we just need to put the account here. Why are people going to pay us 650 in the future? Because we earned revenue. We earned revenue. It's going to be this account, E10, right click, copy. We're going to put that and paste it in B12, right click and paste 123. Then we're going to double click right before the R and space bar three times and enter. So we know we're going to credit the receivable because we're going to credit the revenue because we debited the receivable, but we also can double check it in our mind. We can say that revenue has a normal credit balance. It only goes up. Customers pay us. We don't pay them. Therefore, we need to make the revenue go up by doing the same thing to it, which is another credit. So here's our receivable account. We have a debit here. It's our second account on the trial balance, second account therefore on the general ledger. We're going to post this 650 to the receivable GL in the debit side down here in J18. So within J18, we're going to say that that equals and then point to this 650 and that should bring this balance up to 650. We should be able to record that here 650 will then appear here in the trial balance and put us out of balance. So there's that side of it. Now we're going to record the receivable, the revenue side of it and notice that revenue is way down here. It's always an order, assets, liabilities, equity and then revenue. Same order on the general ledger. So in order to see that, I'm going to try to make this a bit smaller again so we can see more on one page. I'm going to select this negative and bring it down to 110% rather than 130%. As you do this, note that some of the cells might get too small and that means it'll show a bunch of like number signs. If that happens, just make it bigger again and they'll go back away. All that means is the cell is the row became too small for the cells and typically it'll correct itself as you adjust the screen back to whatever the default was that you were working with. Okay, second side. We're going to have here the credit side is going to be right here in S10. So within S10, I'm going to say that equals and then point to this 650. Once I select enter, this is going to increase by 650 and it'll also pull that balance over here. It'll put us back in balance and it will increase net income. So there we have that. We have 13650 now here and that's increasing net income because we have no expenses and therefore we have revenue minus expenses of just the revenue of 13650. Remember that is revenue that is not a loss, although it has brackets around it is a revenue account. Okay, D, perform work on account and received and invoiced the client performed work on account and invoiced the client. So same type of activity again, we're focusing in on that receivable cycle. So we're looking at that receivable cycle. So is cash affected? We're going to say no, we performed work and invoiced the client. No cash has happened at this time. We're going to say then that we got something we got an IOU that IOU being represented by accounts receivable. I'm going to go back down over here. I'm going to make this a bit larger again. I'm at 110 going to bring it back up to 130 and we have this receivable. So the receivable is going to go up people owe us more money. We have a debit balance in the receivable. We're going to increase it by doing the same thing to it as its normal balance, which in this case is another debit. So I'm going to copy that. We're going to put that on top. We're here in B14, right-click and paste 123. The amounts then is going to be 780, so 780. Then we're going to credit something by 780. So I'm going to go ahead and record that now. It's going to be a negative of that number and enter. And then we just need to know what that account should be. And if we are going to get paid in the future, then it's for work that we have done now. So that's going to be the revenue account. Revenue has a credit balance and we're going to increase it. So I'm going to copy revenue, put that on the bottom, right-click, paste 123, then double-click in front of the R and space it three times. Now we already knew that we're going to credit revenue because we debited the receivable. That's why we worked on the receivable first, but we can double-check ourselves by saying that revenue is a credit balance account. It only goes up and therefore we're going to do the same thing to it, which in this case is a credit. It's being a credit normal balance account. Then we're going to record this. So we've got accounts receivable 780. That's the second account on our trial balance and therefore second account on the general ledger. And we're going to just go to the next line down. That is on J19. So we're in accounts receivable. We're on the debit side. We're in line J19, sell J19. And we're going to use a formula equals and point to this 780. That's going to bring this balance up 760 plus 780 to 1430. That 1430 also will be pulled over to the trial balance as we go and we are out of balance by the 780 until we record the second half, that half being the revenue half. Now the revenue is going to be an order again. So it's an order assets, liabilities, equity, and then revenue. So it's in the same order on the GL, meaning revenue is going to be towards the end. So I'm going to make this a bit smaller again, bring it back down to 120 so we can see this revenue account. Note that revenue only goes up in the credit direction. We don't see any debits in the revenue account. There are no credit and debits in the revenue account unless something funny happened. So we're going to say that the revenue is a credit here and therefore we will put on the credit side here in cell S11 and say equals and then point to this 780. Once we select enter, it's going to increase this side here. It will pull that amount over to the trial balance over here and put us back in balance. So there we have that. We're at 14430 and net income now has increased to 14430. So we're going to make this a bit larger back up to 130 over here. We're going to scroll over to the left hand side and we are now on E received cash on account for work performed in the past. So first question is cash affected and we're going to say yes. It said received, therefore received cash. Note again that it also says on account, which is probably might be triggering in your mind. Hopefully at some point it's going to be triggering accounts receivable, which might make you think the cash isn't affected. But remember this is the second transaction. So both the receivable and the cash will be affected. So let's start with cash as always. And we're going to say cash has a debit balance. We got more of it. Therefore it's going up. How do we make something go up? We do the same thing to it as its normal balance, which in this case is a debit. So I'm going to copy cash going to put that on top right next to the E here. Right click and paste one, two, three. The amount will then be six hundred and fifty. And then we're going to credit something for six hundred and fifty. I'm going to do that with a formula, that formula negative of the cell, taking that cell, flipping the sign for a negative six hundred and fifty. We're then going to say, what are we going to credit? What accounts? We just need this accounts now. Now you would think maybe revenue since we got money for work. We have done, but we did the work in the past and had already recorded the revenue up here. Therefore, we're not going to credit revenue, but accounts receivable. We are decreasing the receivable. So I'm going to copy the receivable. We're going to put that down here in B 18. Right click, paste one, two, three. We're going to double click in front of a space three times. And we know that we credited the receivable because we debited the cash and therefore must have credited the receivable. If we think through it, then we would say, well, receivable represents the money owed to us. Now we have two people basically owing this money. Later on, we'll work with a subsidiary ledger that will tell us exactly who those two people are. But we can tell that it happened from these two different transactions. So we probably have two different people that owe us money there. Now, one of those individuals from this transaction has paid us and therefore the account representing people owing us money should go down. So this is a debit balance. We're going to make it go down by doing the opposite thing to it, which in this case is a credit. Now, we just need to post this out. So cash is here. It's the first account, first account here, first account on the general ledger. So we're in the cash account. We're going to we are going to credit to cash. So we're going to go to the next line. I'm sorry, I'm lower in the debit side. It's a debit to cash debit cash. We are in cell J 10. I'm going to say equals and then point to the 650. That 13,000 will then go up by 650 to 13,650, which will then be pulled over to the trial balance as well. Then we're going to credit the receivable. So here is the receivable. We're going to credit the receivable account down here. It's the second account on the trial balance, second account on the general ledger. We are on the credit side of it. Therefore, we're going to be in the credit column and we're going to be down here in cell K 20, where we will say equals and then point to this 650. That's going to bring this balance 1430 down by 650 to 780. That 780 will then be pulled over to the trial balance. And it'll also put us back in balance at this point. Note that if we look at the receivable account here, we'll see kind of the story of the receivables. This is what a receivable account will basically always look like. We're going to have we invoice the client and then we receive the check. And then we invoice the client and we receive the check. We invoice the client here have not yet received the check. So note that the invoice in this check received may not be right next to each other in date, such as this. But that will typically be the pattern we should see. We should see invoicing and then payments being received. Note also, however, that we might be invoicing and then receiving like installment payments or something like that, which could make the picture look a little muddier. But note, whenever we look at the receivable side of it, we're going to have both the debits and credits, the debits representing work we did us billing the clients, usually with the documentation of an invoice and then credits representing payment. Usually in the format of checks, we have received for work done in the past. That's going to be the typical thing you will see in the receivable cycle. If we look at the revenue side of things, note that there's typically less activity in revenue than, of course, the receivable because the receivable is going to have twice as many transactions, one for the for the billing of or the invoicing and one for the receipt of the check. But the revenue account only goes one way. Notice it's only going up in the credit direction. You're not going to see any debits in the revenue account, not until we close it out and that will typically be the case and what we will see within the general ledger of the revenue account. So note that these general ledger accounts are telling kind of the story. They're telling the history by transaction broken down to each individual account. And then that story is being condensed to one number that is then shown on the trial balance. And then we can basically see that we can tie all that out, all those ending balances to zero in a similar way. So this is kind of condensing the data that is being found on the general ledger to just the ending balances of all the GO accounts.