 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 gonna 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 gonna 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'll 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. All right first activity We can say perform work on account and invoiced the client So we did work and invoiced the client our first question is always is cash affected We're gonna say here. No cash is not affected because we Invoiced the client have not yet received any money Therefore, I would think about what we have received second question and we received an IOU accounts receivable Accounts receivable is an asset assets have normal debit balances. We're gonna make it to go up by doing the same thing to it Which is another debit? So I'm gonna copy accounts receivable. I'm in cell E6 So I'm gonna right-click and copy that cell in E6 gonna paste that to cell B5 So in B5 right-click and paste it one two three Then we're gonna put the dollar amount of 13,000 so that's gonna be in C5 So in C5, we will type in one three zero zero zero no commas nothing else jet That's it once we select enter it will then include the comma Then we're gonna put our cursor in D6. We know that we will then credit something I'm gonna do this with a formula that formula being negative of this number That'll take the 13,000 debit in cell C5 Multiply times negative one in essence and flip the sign so I'm gonna represent the credits We're gonna represent credits with brackets and 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 gonna pay us 13,000 in the future? Because we earned it we earned revenue and therefore we're gonna have the revenue account down here revenue or income I'm gonna copy that We're gonna put that over here right below in B6 right-click and paste it one two three Then we're gonna double-click right before the R and space three times indent that three four 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 gonna 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 when that we could 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 we are in the debit side So here's the accounts receivable debit side since cell J 16 We will use a formula to record this highly recommend using formulas because it will tie your worksheet together So in J 16, 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 credits 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 Cell s9 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 statements and here the credits are greater than the debits Next activity we said be receive cash on account for work performed in the past Note, I just updated the worksheet tab 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 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 b9 Right click paste 123 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 its 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. Therefore, we are going to put it in the debit side over here in cell j9 Equals highly recommend using formulas here We're going to say equals and then point to that 13 000 in cell c8 You could just type in equals c8 if that's easier as well You can say equals and then look over here and say that's c8 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 some book problems We'll 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 9 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 zeros here We're back down to just cash and the revenue. That's all that's happened so far during the activity of this problem Number c or 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 an accounts receivable account Accounts receivables and assets we need to make it go up. We'll do the same thing as its normal balance It's normal balance being a debit means that we will then debit it again Copy and 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. That's going to be this account e 10 Right click copy We're going to put that and paste it in b 12 right click and paste 123 Then we're going to double click right before the r and spacebar three times And enter so we know we we're going to credit the receivable because we debited the we're going to credit the Revenue because we debited the receivable But we also can double check it in our mind. We could 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 j 18 So within j 18, 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 in 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 percent rather than 130 percent As you do this note that some of the cells might get too small for and that means it'll show a bunch of like Number signs if that happens just 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 gonna have here The credit side is going to be right here in s 10. So within s 10 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 13 650 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 13 650 Remember that is revenue. That is not a loss. Although it has brackets around it. 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 I'm 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 one two three The amount then is going to be Uh 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 one two three 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. 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 got a counts 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 j 19 So we're in accounts receivable. We're on the debit side. We're in line j 19 cell j 19 And we're going to use a formula equals and point to this 700 and 80 That's going to bring this balance up 760 plus 780 to 14 30 That 14 30 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 in order again So it's an 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 um the revenue is a credit here And therefore we will put it on the credit side here in cell s 11 and say equals And then point to this 700 and 80 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 14 4 30 and net income now has increased to 14 4 30 Last transaction and make this a bit larger back up to 130 over here 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 we 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 that cash isn't affected but remember this is the second transaction So both the receivable and 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 I'm going to put that on top right next to the e here right click and paste 123 The amount will then be 650 And then we're going to credit something for 650. I'm going to do that with a formula that formula negative of the cell Taking that cell flipping the sign for a negative 650 We're then going to say what are we going to credit what account we just need this account 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 b18 right click paste 123 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 cash. So we're going to go to the next line I'm sorry. We're we're 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 14 30 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 received a check and then we invoice the client and we received the check We invoice the client here have not yet received the check So note that the the invoice in this check receipt 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 the picture look a little muddier But note whenever we look at the receivable side of it We're going to have both debits and credits the debits represented work We did us billing the clients Usually with the documentation of an invoice and then credits representing payments 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 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 gl accounts