 Hello, in this presentation, we are going to record business transactions involving cash using debits and credits. At the end of this, we will be able to list transactions involving cash, record transactions involving cash using debits and credits, and explain the effect of transactions on assets, liabilities, equity, revenue, expenses, and net income. We're going to record these transactions on the left-hand side in accordance with our thought process. We are then going to post them to a worksheet format, not necessarily or in this case not a general ledger, but in a similar way, we will post it to this worksheet in order to see what is happening to each of these accounts individually as well as the groups of accounts in terms of assets, liabilities, equity, revenue, and expenses. With the order of the trial balance always in the order of assets, in this case in green, liabilities in orange, and then we have the equity and revenue and expenses, the income statement accounts, and net income at the bottom, calculated as revenue minus expenses. We're going to start with transactions that will include cash because cash is going to be that account we'll get most familiar with. That's our first question in our thought process. Once we understand what is going on with cash, then we can understand what is going on with the second component of the transactions. First transaction says owner deposits cash into a business. This is typically going to be one of the first transactions that will happen within a business and within a many types of book problems if we're having a longer comprehensive book problem. First question is cash affected? We're going to say yes, the owner deposits cash into the business. Cash is affected. Cash is going up because there is a deposit into the business. Cash has a normal debit balance and in order to make any account go up, we do the same thing to it as its normal balance, which in this case would be another debit. We're going to think about cash first and we're going to think about the idea that we need to debit the cash account and we're going to write that down as we go. We're going to do this in Excel or by hand. Even if it's a problem where they don't give us the numbers, I would write down the fact that we are going to debit cash first and then think about the second component. If we were to post this out, then we're starting at zero. We're going in the debit direction 100,000 to 100,000. We then need a credit of something and we just need to know what that credit account will be. The person who put the money in in this case is the owner. We're not crediting revenue because it wasn't a customer that gave us the money. It's going into the owner capital account in this case. If it was a corporation, note that this would be the type of transaction would be the purchase or selling of stock, investors purchasing stock within the corporation and the common stock would be the credit. There's going to be the credit increasing. Note that we knew that we were going to have the credit because we debited cash and therefore must have credit some other account if there's only one other account affected as there is in this case. But we want to double check ourselves so that we better understand this second account here. In order to double check ourselves, we're going to say, is the capital account a debit or credit normal balance? It's a credit normal balance. Should it be going up or down? Bit more difficult to know than the cash account. That's why we focused on cash first as to whether the capital account should be going up or down. But it should be going up because the company owes the owner more money in this case or the net value of the company has increased. How do we make something go up? We do the same thing to it as its normal balance, which in this case would be a credit. Note that here I have the debits and credits in terms of the debit and credit column and credits in brackets. Over here, we just have the credits represented in brackets. So we have an adjusting entry, a debit and a credit. And then we have the ending balance, a debit and a credit. This is very useful when we work with a worksheet like this. And that's why I want to get used to this kind of worksheet. It will very much simplify the worksheet. And if you use formulas within Excel, which I highly recommend doing, then it will simplify those formulas as well. Assets are increasing. Nothing's happened into the liabilities. And equity is increasing. Net income, however, is staying the same. Note that nothing is happening to the revenue or expense accounts. Therefore, nothing's happening to net income, although equity and the whole income statement is kind of part of equity, remember, is going up due to the capital going up. Next transaction, we're going to say receive cash for work completed. So first question we will have here is cash affected? And of course, the keyword is received. So we're going to say, yes, received cash. Cash is going, is it going up or down? Of course, it's going up because we received cash. How do we make something go up? We do the same thing to it as its normal balance. Cash has a debit normal balance represented by the fact that it does not have brackets in this case. Therefore, in order to make it go up, we will do the same thing, another debit. So we're going to debit cash. If we were to post that out, then we have the 10,000 increasing the debit balance by another debit to a debit of 110,000. We now know that we're going to credit something for that 10,000 and just need to know what that credit should go to. And we have done work, meaning we have earned, in this case, revenue. So we earn revenue when we do the work. People paid us cash at the same point in time that the work was completed in this case. Therefore, we have cash and revenue happening at the same time. Revenue being recognized under the revenue recognition principle because we had completed the work at this point in time. If we were to post that out, 10,000 increasing in the credit direction. We knew that we were going to credit revenue over here because we debited cash. But we also want to think through that and see if it makes sense. We know that revenue has a credit balance. We also know that revenue only goes up, meaning customers don't pay us, we only pay customers. Net income will go down, but net income goes down when expenses go up. Net income doesn't go down because generally revenue goes down because revenue typically doesn't go down. So note that the entire income statement, revenue and expenses typically only go up and then net income is calculated as revenue minus expenses. Therefore, how do we make revenue go up? We do the same thing as its normal balance, which in this case would be a credit. Once again, note the credits represented by brackets here. This not being a negative number for our purposes in terms of debiting credits, but representing an increase in the credit direction. Counting equation, assets are going up because the cash went up, liabilities remaining the same, equity increasing because equity is going to do the same thing as net income. Net income is calculated as revenue minus expenses and net income went up because revenue went up. Therefore, total equity is going up. Note that, of course, net income is going up as we just said here because the revenue is increasing and net income calculated as revenue minus expenses. Next transaction, paid employee wages of 30,000. First question, is cash affected? We're going to say that cash is affected and is it going up or down? In this case, we're going to say it's going down keyword paid. When we say paid, we usually mean paid with cash. And of course, the cash would be decreasing if something were then paid. How do we make cash go down? We do the opposite thing to it as its normal balance. Its normal balance being a debit means that we will do the opposite of a credit to make it go down. Note here that we're going to put the credit on the bottom. I'm leaving a space to put something on top, credits typically go on the bottom. It is a convention that the debits go on top, credits go on the bottom. Because of that convention, however, it's not required that we work from top to bottom left to right. I would recommend working in any way that's easiest for us to work. It's easiest to think about cash first and therefore think about cash first and put that transaction on the bottom. Also note that this idea of having debits on the top and credits on the bottom is really only a convention. If you had them in the right column and format it in whatever way is the correct way in accordance to what you're working with, then it wouldn't really matter that the debits are on top or the credits are on top. But it's a convention that we do want to follow as much as possible. And it is a convention for computer programming. I think that's part of the convention and part of the reasoning for it. If we were to program a computer code, the computer would need to know what it wants to put on top typically and typically the debits will go on top. If, however, we're constructing a more difficult journal entry, a longer journal entry, as we will do later, we might deviate from this convention if we were doing something like an audit and we wanted to be able to go back to that journal entry and read it and figure out exactly what we did. Then it would be better for us to construct that transaction in a way that we can then interpret it in which we as human beings could read it and interpret it and understand what we did and why we did it. But we're going to stick with the convention as much as possible. Just note that we're going to work with what we think is best to do or easiest to do, crediting cash, that in this case, and that will mean that we're going to debit something and we just need to know what that debit will be posting out the cash transaction. We have a debit balance, normal balance of 110. We're doing the opposite thing to it, crediting it, bringing the balance down to 109.400. We're then going to debit wages expense. So wages expense will be debited down here. It's an expense account. They always go up in the debit direction. Note that we knew we were going to debit wages expense because we credited cash. That's why we always start with cash. But we want to think through it now. We're going to say wages expense, wages expense is an expense. All expenses have normal debit balances. All expenses typically only go up. For example, the employees don't typically pay us. We pay the employees. The utility bill doesn't usually pay us. We pay the utility bill. So we're always going to increase expenses in the debit direction. And that's always going to decrease net income. That's always going to decrease the owner capital or the total equity, I should say. So in this case, we're saying that assets went down and liabilities remain the same. And we're saying that the equity section is going down because expenses went up, bringing net income down. Net income calculated as revenue minus expenses. So here we see that net income is decreasing and that's represented by the 600. So we were at 10,000 minus the 600, bringing us to 9,400 to 10,000 minus the 600. Receive next transaction. Received cash for work that will be done in the future 15,000. In this case, we're going to say is, well, in all cases, we're first question, is cash affected? Yes. Is it going up or down? Up keyword, received cash. How do we make cash go up? How do we make anything go up? We do the same thing to it as its normal balance. Normal balance for cash being a debit means we will debit cash. So we're going to say cash is going up. Then we know we're going to credit something we just then need to know what we are going to credit. In this case, the work is done in the future. So whenever we get cash, it's typically going to be from the customer. But we can't always credit revenue. We need to know when the work was done. That being the driving factor, when on an accrual basis, the accrual basis driven by the revenue recognition principle saying that we recognize revenue when earned. So it's not when we receive the cash. In this case, we're saying we're going to do the work in the future. So we haven't done the work yet. So even though we got cash, I cannot credit revenue and therefore must credit something else. That's something else in this case is unearned revenue. It's a liability account. So cash is going to increase with the debit. So doing the same thing to it increasing and the liability account is going to be unearned revenue. Now, again, if we could figure out that it's unearned revenue, we already know that we're going to credit it. But we do want to think about that and say, why would that be the case? And in this case, we owe something in the future. We owe work in the future or we owe that money back. And therefore, that's going to be the definition of an liability, something that we owe in the future because of a transaction that happened in the past. Therefore, we're increasing a liability. Liabilities typically have credit balances or always have credit balances. We need to make it go up. The bad thing is increasing by doing the same thing to it as its normal balance, which in this case is a credit. So that's the justification there. We see now that assets are going down, liabilities are going up, equity remaining the same, no effect on net income, no effect on revenue and expenses. Even though we got the cash because we have not yet earned that cash we have received, not yet earned the revenue. Next transaction, paid cash for utilities, seven hundred and fifty dollars. First question is cash affected? We're going to say cash is affected. Is it going up or down? It's going down. Keywords, paid cash. Therefore, cash has a debit balance. How do we make any accounts go down? We do the opposite thing to it as its normal balance. Cash has a debit normal balance, the opposite then a credit. We'll start off with the credit to cash. Remember that we're going to leave a space and put the credit on the bottom. We're going to start with the credit, even though it's not the first thing in the rows from left to right top to bottom, because it's the easiest thing to think about. Posting that out, then we'll bring the balance in cash from a debit of one twenty four four hundred minus the credit of seven fifty two one twenty three six fifty. We then need to debit something. And in this case, that something would be utilities expense. So utility expense, we already knew that we were going to debit it because we credited cash. That's the point of crediting cash. But we also want to think through it. We know that utilities is an expense. All expenses have debit balances, and they only go up in the debit direction. Therefore, we're going to increase utilities expense by doing the same thing to it, in this case, another debit. So we increase the utilities expense assets, then going down from this transaction. The liabilities remaining the same and the equity decreasing because net income is going down. Net income calculated as revenue minus expenses. And therefore going down, bringing total equity down. Net income here going down, it was at nine thousand four hundred. We we increase the expense decreasing net income to eight thousand six fifty net income calculated as ten thousand minus six hundred minus seven fifty total equity being the one hundred thousand plus the ten thousand minus the six hundred minus the seven fifty. Next transaction paid cash for supplies. First question is cash affected? We're going to say yes, cash is affected. Cash is going down. Keywords paid. Therefore, we're going to do the opposite thing to it as its normal balance. This case, that being a credit, we're going to put the credit on the bottom. We then know we're going to debit something. That debit being what we purchased will be supplies. So supplies in this case is we had to debit it because we credited cash. But we want to think through it. Supplies is an asset account. It's going to be increasing. We got more of it. Assets like cash have debit balances. We need to make it go up and therefore are doing the same thing to it as its normal balance, which is another debit. So we're kind of justifying or double checking that amount. There's the increase there, bringing the balance up. The effect on the accounting equation. Assets are going up, but also going down. No net effect on the accounting equation. One asset increasing, one decreasing liabilities remaining the same. Equity remaining the same. Once again, net income also remaining the same. The supply is going on the books as an asset because it has not yet been used, not consumed in order to help generate revenue and therefore not yet expense. We are now able to list transactions involved in cash, record transactions involving cash using debits and credits and explain the effect of transactions on assets, liabilities, equity, revenue, expenses and net income.