 Hello! In this presentation we will be recording a problem related to the accounts payable cycle and recording transactions with regard to the accounting equation. The accounting equation of assets equaling liabilities plus owners equity. We're going to be focusing in on the accounts payable or purchasing cycle, focusing in on the account mainly of accounts payable right here, the liability account. Remember that we will be recording these transactions related to the accounting equation and we need to know which accounts are the accounts in regard to the account category of the accounting equation, meaning assets include cash, accounts receivable, and supplies. Liabilities will include accounts payable, and the equity section, in this case owner's equity, because we're talking about a sole proprietor, is capital and the entire income statement of revenue and expenses being part of the equity section. Remember that the equity section principles can apply to other types of entities, including partnerships and corporations. It simply means that a partnerships equity section will be called partners equity and a corporation stockholders equity. However, the entire equity section taken as a whole will remain much the same, except in a corporation of course the capital account would be called we would have retained earnings and common stock, and in a partnership we would have multiple capital accounts for multiple partners, but in total the equity section will still encompass the entire income statement including revenue and expenses, and the amount owed to the owner, in this case formatted in terms of the capital account. We will be recording transactions here, taking the beginning balance plus the transaction taking us to the ending balance. Every transaction will of course have two accounts affected and the accounting equation will remain in balance after every transaction. So let's take a look at the first transaction. A purchase supplies on account for five hundred and eighty five dollars. So first question we would typically ask is is cash affected? In this case we're going to say it's not affected because we purchased the supplies on account. Therefore we didn't pay cash for it. What we did is we purchased it on accounts payable. Now oftentimes I'm going to start to go to our second question in the thought process which will be helpful later on as we do debits and credits, and that is what did we receive? In this case we received supplies, and supplies is going to be right here in the assets section. So I'm going to go in column four or in column A, and so I'm in cell F4 column. It's the first problem or A on our worksheet, and we're going to increase the supplies by five eight five. So I'm just going to type in five eight five. No special formatting needed. I am now in the cell rather than on the cell. I'm going to hit enter and that will put that balance there. Then we're going to need to do something on another account here. That account not decreasing cash, but increasing the payable. So we're going to increase the payable. It might be a bit more confusing if we had not known that this side of the equal sign is going up to know whether the payable is going up or down. Meaning in this case the payable is a bad thing, and really that bad thing is going up. So we owe more money, kind of like if we bought something on a credit card statement. We would then owe more money to the credit card statement. So we also know that the accounts payable is going up because it's on the other side of the equal sign. If supply goes up, then the payable must also go up. So we're going to enter five eight five here on this side as well. I'm then going to go through and I'm going to put in zeros to the rest of the worksheet so that we have just a practice put in zeros in there. And so we can have a completed worksheet with no empty sales. Also some database programs depending on the homework you are working in will have the same. So I'm going to put zero. I'm in B four zero tab tab and D four zero tab, tab, tab, tab, tab and J four zero tab, tab and L four zero tab, tab and four zero tab, tab and P four zero enter. Now it's actually really good practice to just work through tapping through doing the data entry. It'll actually save you a lot of time later on. I know it seems like kind of brainless work, but it's not unnecessary work. It's not unusual work. It's going to be something that will save time so you can get to that type of work that is more intensive in terms of calculations. I'm also going to put the zeros up here in the beginning balance where it didn't start. We didn't have the problem start with that, but we will enter those here as well. So in D three, I'm going to put zero tab, tab F three zero, tab, tab H three zero, tab, tab, tab, tab L three zero, tab, tab N three zero, tab, tab and P three zero and enter. Note that in this problem, we started with this beginning balance of 50 with 50,000 cash and 50,000 in capital. We entered this first transaction here increasing the supplies and increasing the payable, thereby increasing the assets side by the 585 and increasing the liability and capital side by the same 585. We could see that balancing factor happening over here. Total assets equal in total liabilities plus equity net income has no change net income being calculated as revenue minus expenses. No revenue has happened at this point or expenses. No effect on net income because we bought the supplies have not yet expensed or used the supplies. Next, we're gonna we're gonna sum up and record the new balance. So here's the prior balance. We're then basically just going to add every column of this row and get to the new balance in this column. We will be using the most popular, the most famous and the most useful and the most needed function, the sum function. So I'm going to say equals SUM double click the sum function, highlight the 50 and the zero and tab. Now I'm going to do this just to where the numbers are first. So I'm in F F five equals SUM double click the sum function, highlight the zero and the 585 and enter. I'm going to be in H five equals SUM double click the sum function, highlight the zero and the 585 I'm going to select tab tab. I'm in J five equals SUM double click the sum function, highlight the 50 and the zero and enter. That should put our balance and balance now. So now if we scroll back over here, we see that total assets in our balance equal liabilities plus equity. We can confirm that by highlighting the total assets, adding up to 50,000 585, adding up the liabilities and equity on the other side. It also equal equalling 50,000 585. I'm then going to sum up the zeros here just summing up the zeros just to complete our worksheet. So we have no blank cells in the worksheet. We're going to use the same sum function. So we'll practice the sum function. However, this time we're going to do that with just the keyboard. So we're going to say equals SUM hold down shift nine, up arrow one time, hold down shift, up arrow again and tab. There's our zero. We added up zero plus zero equals zero. Tabbing over I'm now in cell L five equals SUM shift F nine. Let go of shift up arrow one time, hold down shift up arrow again and tab tab in cell in five equals SUM shift nine. Let go of shift up arrow one time, hold down shift up arrow again and tab tab in P five equals SUM shift nine. Let go of shift up to arrow one time, hold down shift up arrow again and enter. So we've now entered the data for a journal and the transaction one. So here's our beginning balance. Here's what happened. Here's the ending balance. We are now only concerned with this row. This is our starting point. Then we're going to enter the data in transaction B and then add the balance plus transaction B to get to the new transaction. Scrolling down to our data we have B paid for supplies purchase in the past on account. So it should be purchased in cash on account 585. So now we would ask is cash affected and in this case we're going to say yes we paid cash. Now we also said something said on account and we might be thinking well that on account typically means accounts payable or accounts receivable. It will mean in this case accounts payable. But we probably want to think of cash first whenever possible because it's easier to know whether cash is going up or down and later will be much easier to know whether we debit or credit cash. So it's a good practice to say let's let's think about cash first and anytime it says paid that means cash is affected. Therefore I'm going to be in cell B6 I'm going to put a negative 585 and enter. So we're going to decrease cash. The other account why did we pay cash? Because we did buy supplies however we purchased them in the past on account and therefore owe this 585 represented as a liability in accounts payable. We are now paying that liability off and therefore that 585 needs to go down to zero. We also know that it needs to go down because of course we have decreased the side of the equal sign and in order to remain in balance we need to decrease this side of the equal sign therefore we're going to put a negative 585 and enter. Then I'm going to go through here where we are now in balance of course this transaction having an equal number of debts and total liabilities and equity. We'll now go through here and enter all the zeros in the rest of the blank cells starting in cell D6. So in cell D6 I'm going to say zero, tab, tab, in cell F6 zero, tab, tab, tab, tab, in cell J6 zero, tab, tab, in cell L6 zero, tab, tab, in cell D6 zero, tab, tab and in cell P6 zero and enter. So there's our data there's our first transaction. Now we're going to enter the new balance. So here's our previous balance. We then had our transaction and we will end up then in our new balance here by basically just summing up each column in these two each row in these two columns. So we're going to start here in B7. We're going to use of course the sum function. So I'm going to say equals SUM and double click the sum function highlight the 50 and the 585. Now although we're using a sum function indicating addition, we are we will be seeing subtraction happening due to the fact that the second number is a negative number. Excel seeing a positive number plus a negative number resulting in a subtraction problem. So that's what we hoped to see it. We wanted to see go down because we paid cash. I'm going to scroll over here to H7 and work with the cells where we had transactions first. So in H7 equals SUM double click the sum function and then highlight the 585 and the 585 and enter. That goes back down to zero zero in accounts payable is what we would expect given the fact that we have now paid off what we have owed from a purchase in the past. Going to go through now and enter the rest of the transactions with data in the prior time period. Note that we've pulled down the the points where we have data in the current transaction, but we're still out of balance in our balance column because we have not pulled down the data for those points that are not in the current transaction and we will now do that. So let's start with F7 equals SUM double click the sum function highlight the 585 and the zero and tab tab tab tab. We are now in J7 equals SUM double click the sum function highlight the 50 and the zero and enter. Now I'm just going to pull down the rest of the zeros. I'm going to use the same sum function, but in order to practice something a bit different, we will use the sum function with just the keyboard. So I'm in cell D7 equals SUM shift nine up arrow one time hold down shift up arrow again and tab tab tab tab tab tab tab all the way over here in L7 L7 equals SUM shift nine let go of shift up up arrow one time hold down shift up arrow again and tab tab in cell in seven equals SUM shift nine let go of shift up arrow one time hold down shift up arrow again and tab tab in cell P7 equals SUM shift nine let go of shift up arrow one time hold down shift up arrow again and enter. So we now have the new balance here we are now in balance we can highlight these to let excel calculate this for us at 50,000 total assets and highlight the liabilities and equity for excel to calculate the same 50,000 or possibly a different 50,000 but the amounts being equal in any case. We are now going to record transaction C remembering that this is the starting point that we are at our beginning balance not concerned at all with anything above this at this point in time only concerned with this balance our new transaction and then the new balance that will result from these three columns. Let's take a look at transaction C. Purchase auto service on account. So first question is cash affected when we purchase the auto service and in this case we're going to say no it is not because it doesn't say cash paid obviously in real life we would know this pretty easily in a book problem it's going to have to tell us it's some time typically most texts will tell you that it's paid or received and paid or received means cash on account typically will mean either accounts receivable or accounts payable in this case of course it means accounts payable as we are working with the accounts payable cycle or the purchasing cycle now because it's often easier to think about what we have received both in terms of the accounting equation because it's it's easier to know whether that account will go up or down and it will definitely be easier when we move to debits and credits I suggest that if cash is not affected we first think about what we got in this case we got auto service now auto service isn't the car which would be an asset it's just a maintenance on the car which is going to be over here an expense all expenses all income statement accounts being part of the equity section so we are over here in cell in eight in the equity section and what we are going to do here is put this 416 and decrease the equity section by 416 now the equity section is going down by expenses because expenses only go one way expenses go in the expense direction later we're gonna say that always goes up expenses always go up but expenses going up will bring down net income and will bring down total equity therefore it's going to be a negative in terms of the equity section on the accounting equation and that might be a little bit confusing when we're considering the accounting equation however when we work with debits and credits expenses will always basically be a debit and it'll start to be a lot easier to know that the expenses are just pretty much going to be a debit all the time when we're working with the accounting equation we know that expenses are always going to decrease equity because we know that expenses are going to decrease net income net income calculated as revenue minus expenses so we know that the other side then is not going to be cash because we didn't pay cash and therefore must be some other account that other account being a liability account so again it might be difficult to know whether this accounts payable account is going up or down because it's kind of like it's a bad thing and it's in is it going up or down we're getting more liability meaning we owe more money we bought something kind of on credit therefore I phrase it as the bad thing is going up meaning are basically our balance is going up you can think of it as if a credit card balance is going up we owe more money for the purchase of auto service in other words and therefore it's going to go increase now we also know it's going to increase because this and this both of these two accounts are on the same side of the equal sign therefore if this is going down and this is on the same side it must then be going up so there's our 416 and enter there is our transaction I'm going to go ahead and enter the rest of the data here starting with cell B8 we're just going to go through and enter the zeros again so I'm going to say zero tab tab in cell D8 zero tab tab in cell F8 zero tab tab tab tab in cell J8 zero tab tab in cell L8 zero tab tab tab tab and in cell P8 zero and enter we will now bring down the balances so we're going to sum up remember we're just looking at the prior balance which is this balance and adding to it the current transaction of this transaction which will will result in the new balance down here the way we will calculate this is just to sum up the each column in these three rows and we'll start with the rows with activity which will be first this row here with our current activity our current transaction so we'll be in H9 equals SUM double-click the sum function highlight the zero and the 416 and tab we're then going to move over here to N9 we're going to say equals SUM double click the sum function highlight the zero and the 416 and tab so there are those activities note that although we have pulled down the balances for our current transaction we are in this particular case when we pull down the balances for these transactions we're actually in balance because there's no there's no transaction or data in the account from prior entries but in order to bring down all the numbers we need to bring down the rest of the balances that have activity in them and so we need to bring down all this activity that have the other beginning balances and therefore we will use the sum function once again working with those cells which first have data in them in terms of numbers as opposed to zeros starting with row or column B cell B9 equals SUM double-click the sum function highlighting the 49 415 and the zero and tab then moving over to cell F9 equals SUM and double-click the sum function highlighting the 585 and the zero and tab tab tab tab now in cell J9 equals SUM double-click the sum function highlight the 50 and the zero and tab so there's the data that should put us back in balance again and we see the effect on net income bringing net income down that caused by the expenses being affected meaning expenses are really going up but in terms of the equity section it's bringing equity down and it's bringing net income down important to remember and note or helpful to remember and note that the total equity will go in the same direction as net income net income increases with an increase in revenue and as does equity net income decreases with an increase in expense as does the equity section in total we're now going to bring down the rest of the numbers we're going to sum up all the zeros this time using the sum function solely with the keyboard starting with cell d9 equals SUM shift F9 let go of shift up arrow one time pull down shift up arrow again and tab tab tab tab tab tab tab tab tab we're now in cell L9 equals SUM pull down shift 9 let go of shift up arrow one time hold down shift up arrow again and tab tab tab we are now in cell P9 equals SUM hold down shift 9 let go of shift up arrow one time hold down shift up arrow again and enter so now we've entered all the data for and through transaction C giving us our new balance of numbers here we are now going to move to transaction D not worrying about the information above but concentrating first on this balance then the new transaction transaction D and then the new balance after transaction D which will result these are the three rows we are now concerned with scrolling down to transaction D we see that we purchased business meals on account first question is cash affected we're going to say that cash is not affected because we purchased the business meals on account therefore we paid for it with something other than cash we know now that that's going to be probably accounts payable but again in order to practice basically for what we're going to do next time in terms of debit and credits it's going to be easier to think about when we think about debits and credits to think about what we have received and in this case we have received an expense in this case meals and entertainment something what we consumed in the current time period to help us generate revenue so it's going to be over here in meals and expense in the equity section and it's going to bring down equity meaning expenses only go one way later we'll know that they only go in the debit direction now we know that they always bring down equity so I'm going to scroll down here and we're going to start with this column and send cell P 10 I know we can't see the first row but I'm going to scroll down to P 10 and that will be the item if we want to freeze the pain we can actually try to freeze the pain freezing the pain will allow us to see that first row and still scroll down so it can be confusing but it can also be helpful in order to do that what I'm trying to do is save these row one in row two I'm going to click on B3 I'm going to go to my tabs up top we're going to go to the view tab then these are the groups I'm going to go to the windows group and I'm going to go to this freeze pains within the windows group click on that and we're going to go ahead and freeze the pains and you'll see what that does is when we scroll down we'll still be able to see those top couple rows and so we can see kind of what we're doing as we're doing it which is useful at times so we're going to say that we purchased meals and entertainment for 1,950 so we're going to scroll back up I'm in P 10 1 9 5 0 and it's a negative negative 1 9 5 0 notice I'm putting a negative no commas no other formatting when we select enter or tab it will then do the formatting for us because excel will format it for us we're then going to scroll back over and look at the other account that account being accounts payable we purchased meals and entertainment so we know that accounts payable is going to go up a few different ways one we know it's going up because meals and entertainment went down and it's on the same side of the equal sign and therefore if something on this side of the equal side went down and the other account also is on this side of the equal sign then it must be going up 1 9 5 0 we also know that it's going to go up because it's increasing a bad thing so the accounts payable something we don't really like in that we owe something in the future and if we bought something on account then the amount that we owe in the future is going up similar to if we bought something for credit card on credit with a credit card then our credit card balance would be going up the bad things going up our debt in a way is going in their debt is going up all right so then we're going to that will put us in balance here assets equal liabilities plus equity and then we're going to enter the rest of the data just entering the zeros for the rest of the data starting with b10 0 tab tab d10 0 tab tab f10 0 tab tab tab j10 0 tab tab l10 0 tab tab n10 0 and enter we now have our balance here and we're going to now take our previous balance we're going to add to it the current activity in in the current transaction leaving us with the new balance down here the new balance which we will basically be adding up or summing up the columns in each of these three rows we will start with the areas that have new information in it including area or starting with the cell h11 so in cell h11 we're going to say equals sum I'm going to double-click the sum function and highlight the 416 and the 109 50 and enter we're then going to move over here to sell p11 and say equals SUM and double-click the sum function highlight of the zero and the 109 50 and enter so there's going to be our activity that happened we're going to be out of balance because we have not brought down the previous balances here so now I'm going to bring down the previous balances in all cells that have previous balances other than zero previous balance starting with cash in cell b11 so b11 equals SUM double-click the sum function highlight the 49 415 and the zero and tab tab tab tab in cell f11 I'm going to say equals SUM double click the sum function highlight the 585 and the zero tab tab tab tab in cell j11 equals SUM double-click the sum function highlight the 50,000 and the zero tab tab tab tab in cell n11 equals SUM double-click the sum function highlight the 416 and the zero and enter then we're going to go back through this and we're going to we're going to sum up all the areas that have the zeros in them using just the keyboard as we sum them up starting with d11 so in cell d11 equals SUM hold down shift 9 let go of shift up arrow one time hold down shift up arrow again and tab tab tab tab tab tab tab tab tab in cell l11 equals SUM hold down shift 9 let go of shift up arrow one time hold down shift up arrow again and enter so there is that data we should now be in balance over here we can see total assets equaling liabilities and equity net income now calculated as a negative this is a negative 2366 revenue minus expenses meaning that we only have expenses we have no revenue at this point therefore we are bringing down net income or in other words have a net loss which is bringing down equity we'll now record the final transaction remember that we are starting with this column here this is our beginning column at this point we are no longer concerned with the activity above this column but are concerned with this column and the new transaction transaction e and then the new balance that will result as we add together the balance and the new transaction looking at transaction e we have paid for auto service which was purchased on account in the past okay so we paid for auto service so we're gonna say is cash affected and in this case we're gonna say that cash is affected now note that we purchased something in the past on account and therefore we might be tempted to think first about the accounts payable account rather than cash but remember that it's far easier for us to know whether cash is going up or down and it will then be easier for us to know whether accounts payable is going up or down so we first recommend thinking about cash and even if you have a good concept of accounts payable at this point in time as we move to debits and credits it will be far easier for us to know whether we debit or credit cash then whether we debit or credit accounts payable and therefore working with cash first is recommended because it will then help us determine what we do to the other account that will be involved and therefore I'm gonna put this 416 here in cell B12 and it will be a negative 416 so we're not gonna put any brackets around it we're just gonna put the negative sign and enter and the negative sign will then be formatted by Excel then we're gonna go to the other side of the transaction which will be the accounts payable so accounts payable over here also must be going down by the 416 so I'm gonna put a negative 416 why must it be going down we can know this for at least two reasons one is that if this side of the equal sign is going down and we know that the other transaction is here on the other side of the equal sign then it too must be going down in order for the accounting equation to remain in balance we also know that it must be going down because we're paying the accounts payable and therefore we owed something and now after paying it off we owe less the account here showing what we owe then should be decreasing so that's gonna be our transaction we are in balance now meaning assets equal liabilities plus equity in this transaction E we will now record the zeros in this transaction to fill in all the rest of the cells so we are in cell D 12 0 tab tab cell F 12 0 tab tab tab cell J 12 0 tab tab cell L 12 0 tab tab cell N 12 0 tab tab and cell P 12 0 and enter we will now take the beginning balance here we will add to it the activity happening in row E and that will result in the ending balance we will sum up each column in these three rows starting with those that had current activity in it in in section E here so we will start with cell B 13 equals SUM double-click the sum function highlight the 49 for 15 and the 416 that will result in a subtraction problem even though we are using the sum function because it is summing up a positive and negative number we will then scroll over to cell H 13 equals SUM double-click the sum function highlight the 2366 and the 416 that will then be a subtraction problem because we are summing up a positive and negative number there we have that then we're we know that we've done the new transactions here however we are not in balance because we have not yet brought down the other balances involved and therefore we will do so starting with those that have balances that are other than zero starting with cell F 13 in F 13 we're going to say equals SUM double-click the sum function highlight the 585 and the 0 and tab tab tab then we are now in cell J 13 equals SUM double-click the sum function highlight the 50,000 and the 0 tab tab tab tab we are now in cell N 13 equals SUM double-click the sum function highlight the 416 and the 0 tab tab we are now in cell P 13 equals SUM double-click the sum function highlight the 1,950 and the 0 and enter that should put us back in balance total assets equaling liabilities plus equity our net income remaining the same at 2003 66 calculated as 14 6 416 plus 1,950 and we can also calculate that we are in balance by highlighting the asset side adding up to 49 585 and the liability and equity side also adding up to 49 585 we will now bring down the last couple balances here summing up using just the keyboard in cell D 13 starting point equals SUM shift 9 let go of shift up arrow one time hold down shift up arrow again and tab tab tab tab tab tab tab tab in cell L 13 equals SUM shift 9 let go of shift up to arrow one time hold down shift up arrow again and enter so we now have our full our full worksheet here focusing in on the accounts payable account we will see a trend as will happen in all accounts payable accounts that being that we're gonna first have some type of bill increasing the payable increasing the amount that we owe we will then pay off that bill in some format decreasing the amount that we owe we will then increase the amount we owe purchasing something else on account increasing the amount we owe again increasing the amount we owe and at some point decrease the amount we owe so if we are paying off actual vendors we often will see the exact amounts match off so we can kind of tie them out here's the bill here's the payment here's the bill here's the payment in this case we have not yet paid this item here this item here that then is remaining we will expect to pay that sometime in the near future