 Hello in this presentation We will work a problem related to the accounts payable cycle a problem similar to one we worked in the past However, this time instead of posting just to a worksheet We will be posting from the journal entries to the general ledger over here The process will then be that we were going to record the journal entries in here This will be the general journal. We will record the journal entries here in the general journal Journalizing the journal entries and then we will post those journal entries to the general ledger The general ledger will be in the same order as the trial balance Those balances then will be brought over to the trial balance where we can see whether we are in balance or not after each Transaction remember all the accounts will be in order of assets then liabilities then revenue then expenses Same order on the general ledger where we have assets Liabilities equity revenue and expenses We will be focusing in on the payable cycle or the purchasing cycle and therefore focusing in on the accounts payable Accounts we're gonna be purchasing things on account and then paying off those purchases on account at a later time Note that we will be recording these transactions from the general journal to the general ledger as we go And constructing the trial balance as we go and in so doing we will be able to see whether we or not We are in balance after each transaction a system I highly recommend doing it whenever possible because that'll help you to Catch problems as they occur and that's a technique that you really want to get down and anytime you're putting together Something within the accounting department or many departments so that you can you can fix the problem once it happens as opposed to Putting all the transactions down and then posting all of them and then creating the trial balance here from all of them If you have to work a problem with paper and pencil you may have to do it in that format But you may even want to still try to do it in a format similar to this meaning you erase the trial balance each time And write in the new trial balance to see whether or not you're in balance to see everything is working and Fix problems as you go If you're working in Excel, of course That's what I would recommend doing because you can see what is happening and you can make those types of changes without having to do It a lot of erasing So let's scroll down and see what we have here in the activities of first activity purchase supplies on account So we're gonna go through our series of questions and ask first is cash affected in this case We're gonna say no we purchased something on account and therefore did not pay cash But paid with something else the thing we're gonna pay with will be accounts payable However, it's more difficult oftentimes to know whether to debit or credit the accounts payable Therefore I would think about what we have received in this case We got supplies and we see supplies here in the assets category That's gonna be the account. I'll think about first It is an asset account if the assets are going up Therefore we're gonna do the same thing to it as its normal balance which in this case is another debit So I'm gonna copy the supplies in E7 right-click copy gonna put that over here in cell B5 right-click and paste not the Paste everything. Okay. I don't want the format. I just want the values only so we're gonna paste one two three Values only the amount then will be as given the 585 So we're gonna put 585 in cell C5. I'm then gonna credit something for that amount I know we will be crediting something. So I'm gonna put negative of that number And I'm gonna start using formulas You could put a negative and just type in the number once you select enter it'll put brackets I'm gonna use a formula as much as possible just to get in the practice of using format formulas as much as possible We then just need to know this other account and of course It's not gonna be cash because we did not pay cash It will be accounts payable Counts payable whenever we see that term on account It's either gonna typically mean accounts payable or accounts receivable. We hear dealing with accounts payable at this time So I'm gonna copy accounts payable in E8 by right-clicking Copy accounts payable gonna put that in cell B6 right-click paste one two three we're then gonna double-click in front of the a and Space three times to give an indentation for the credit there Remember that if you don't have something locked you could go here home tab Alignment group and then increase indent and that will give you that indentation as well without using or needing the space bar Note that we knew and we knew that we were gonna credit the accounts payable Because because we debited supplies, but we also want to think through it double-check it We know that accounts payable is a credit balance account because it's a liability account We know that it must be going up because the bad thing is going up. We owe more money for purchasing supplies Therefore we will do the same thing to it as its normal balance, which is another credit So we kind of double-check ourselves there also note that supplies is gonna be an asset our introduction to inventory Not an expense at the time of purchase Because we have not yet consumed it in order to help us generate revenue at the same time But are putting it on as an asset to be consumed in the future to help generate revenue at a future time We're gonna post this now This is the journal entry that we just recorded in the general journal the process of recording it being the process of Journalizing the journal entry and we will now post that journal entry to the general ledger We're gonna start with the supplies account that being the third account on the trial balance Then the third account on the general ledger, so I'm gonna scroll down a bit It's gonna be right there their supplies now I'm gonna try to make this screen a bit smaller so we can see more of it at one time about a hundred and thirty percent I'm gonna make it go down. Let's say to 110 Not quite so let's bring it down to 100 and then we can we can have to scroll down a little bit But I'll keep it there. We're at the supplies account right here. This is on the debit side. Here's supplies Here's the debit side. We're gonna be right here in J 24 now I'm gonna say equals and I'm gonna scroll up just a bit so I can point to that 585 Scroll back down just a bit. You can also just type in equals C5 But I do recommend using formulas here and that's when we hit enter that's gonna increase the supplies here It's gonna increase supplies on the trial balance and it's gonna put us out of balance here So let's do that. There it is 585 here 585 here 585 here gonna go back to a hundred and thirty percent down here 130% so there it is if it was a little bit small before and here it is here It's been pulled over the trial balance next We will post the accounts payable half accounts payables the fourth Transaction of the fourth account on the trial balance and therefore is the fourth account on the general ledger So here's the cash counts table supplies and then accounts payable first orange account only orange account only liability account We're gonna be here on the credit side. So we're an account payable credit side in 09 I'm gonna say equals and then just point to that 585 Once we select enter, it'll increase the balance here 585 it'll then pull that balance over here to the accounts payable 585 put us back in balance on the trial balance and enter So there we have that remember that this means that accounts payable is going up in the credit direction not a negative It's not going in the hole. We don't have a negative accounts payable We have it going up in the credit direction at this point Scrolling back down next activity that happened be says paid for supplies purchased in the past 585 first question is cash affected in this case We're gonna say yes the term being paid now. Remember you might have seen that you might have said paid is Usually a key term for cash and you might also say but it also says accounts on account Well, it doesn't say on account here But it could have said on account and if it had said on account note that you might start thinking that that cash isn't affected because it has something to do with accounts payable and if it were the account Relating to us purchasing supplies that would be true but notice here that we're paying off the payable on account and Therefore both cash and the payable will be affected. We'll see that first However by first concentrating on cash anytime we see paid. We're just basically going to say let's concentrate on cash first And we're gonna say okay cash has a debit balance. We need to make it go down So we're gonna do the opposite thing to it as it's normal debit balance Which in this case is a credit copy the cash in e5 right-click copy. We're gonna put that under the B So here's the B. We're gonna put it underneath in so B9 right-click and paste 123 We're gonna then double-click before the C space three times and then in cell D9 we're gonna put the amount of that amount of Credit 585 credit 585 the credits always go on the bottom So we're just gonna put that on the bottom and think about cash first even though it is on the bottom Then we're gonna debit something for 585. I'm gonna do that with a formula in cell C8 negative of This number and enter so we're gonna debit something for 585 We just need the account now at this point that account then Is going to be you might think it should be supplies But it's not of course because well that might be the first thing that jumps into our mind But it's not because we bought the supplies before and now of course We are paying off what we owe on the supplies kind of like paying off a credit card that we owe after a purchase has been made and That is gonna be the payable account So accounts payable. I'm gonna copy accounts payable We're gonna put that in B8 right-click and paste 123 in B8 Now we know that we're gonna debit the accounts payable because we credited cash and we need to debit something therefore We also want to double-check it. However, we see that accounts payable has a credits balance represented by the brackets it needs to go down because this account represents people owing us money and This transaction represents someone paying us money and therefore the account representing people owing us money must go down So we're gonna do the opposite thing to it as its normal balance, which in this case is a debit So that's how we can kind of double-check our thought process and better understand The workings and the function of accounts payable well then post this out We're gonna post accounts payable first. It's gonna be the fourth transaction on the trial balance Fourth account on the trial balance Therefore it's the fourth account on the general ledger as well So we got cash accounts receivable supplies and then of course accounts payable over here We are Debiting accounts payable. So we're on the debit side in sell in 10 where we will say equals and then point to this 585 debit that will bring the balance down to zero It'll pull that balance of zero over here to the trial balance as well and put us out of balance by 585 So there we have that we have the zero over here, which you can't really see but it's zero and then we got the zero here We're out of balance by 585 Pulling back over we're gonna post the cash side now cash has been credited That's gonna be the first account on of the trial balance and the first account on the general ledger Here's the cash account. We are on the credit side in this case. So we are in sell K9 so K9 Equals and then point to this 585. We have a debit balance here It's going down by 585 in the credit direction leaving a balance of 49 for 15 that balance being pulled over to the trial balance 49 for 15 and putting us back in balance here on the trial balance meaning debits equal the credit Next transaction. We see C says purchased auto service on account So we purchased auto service. So first question is cash affected. We're gonna say no cash isn't affected We purchased it on account key term on account. Therefore, we're gonna be affecting accounts payable However, it's often easier to know what we received in order to know Whether we debit or credit the account. So I would think about that first in this case. That's being auto Services, so that's not gonna be auto the asset. It's gonna be an expense here. So the expenses are down here auto expense I'm assuming it's like an oil change or something like that Expenses always have debit balances and they only go up. Therefore, we're gonna make it go up by doing the same thing to it Which in this case is another debit. So we're gonna copy the auto expense in E 11 Paste that here in B 11 right click paste one two three The amount then being 416 so 416 in C 11 We also want to put that same amount on the credit side on D 12 I'm gonna do that with a formula that formula negative of that number and enter Now we just need to put the account here again. We didn't pay cash So we're not gonna credit cash what we will credit is the accounts payable So we owe the accounts payable that will be the credit. I'm gonna copy accounts payable We're gonna put that on the bottom in cell B 12 right click and paste one two three Double click before the a in order to indent indent three times space bar There we have that now we already knew that we were gonna credit the accounts payable because we debited the auto expense But if we were to double check that we would say Accounts payable has a credit balance. We're gonna make it to go up by doing the same thing to it another credit We need to make it go up because the bad thing is going up meaning we bought something on account We bought something did not pay for it therefore needing to increase the account Representing the fact that we owe money in the future for something that we bought today or expended today So here is the auto expense We're gonna record that first note that the expenses are on the bottom meaning it's cash and then liabilities or sorry assets and Then liabilities then equity then revenue and then expenses So the expense is gonna be way over here on the general ledger as well It's in order of assets liabilities equity Expenses I'm gonna make this a little bit smaller so we can see more at one time So I'm gonna make this a bit smaller So there we have that and we have our expenses over on the right-hand side And we're looking to post this expense this debit way over here in the auto expense on the debit side Therefore we are here in our nine our nine We're gonna say that that equals and then point to this 416 once we select enter This will go up to 416 put us put the 416 in here as well put us out of balance by 416 and Net income will go down Expenses increasing brings net income down So there we have that we have the 416 over here 416 brought over to the trial balance And we are out of balance by 416 net income 50,000 minus 416 of 49 584 We're gonna make this a bit larger again go up back up to 130 We're then gonna post the second half here is the second half to accounts payable. So accounts payable That's the fourth account here. So here's accounts payable the fourth account to the general ledger We want to be on the credit side. So we're over here on the credit side next transaction down in cell 011 we will then say equals and point to this 416 That's gonna make this go up by 416. It's gonna put that same amount here in the accounts payable and put us out of balance So there we have that 416 out of balance by 416 Next transaction D says purchase business meals on account 1009 50 is cash affected. We're gonna say no cash is not affected We purchased them on account. Therefore, we purchased it basically with the accounts payable account But I would think about what we received first. So we received meals and entertainment That is what we consumed that would be an expense down here. So expenses, they all have debit balances They only go up in the debit direction. Therefore, we're gonna debit the meals and entertainment So I'm just gonna copy that. We just call it entertainment here to shorten it down and paste it in B 14 right-click and paste The amount then 195 01950 we're gonna credit something in D 15 for the same amount by saying negative of that number and Then the credit will go to the accounts payable accounts payable account So E 8 right-click copy the accounts payable paste in B 15 right-click paste 1 2 3 Then we're gonna double click in front of the a so we can indent it double click 1 2 3 space and indent Now again, we already knew that we were gonna credit the accounts payable because we debited the the expense here But if we double check it, we know that accounts payable represents a liability It's something that we owe it needs to go up. The bad thing is going up We owe more money after this transaction Therefore we will do the same thing to it as its normal balance, which is another credit Now we're gonna post this out So we're gonna post the this meals entertainment or just the entertainment first and that's gonna be here It's the last account assets liabilities equity revenue and expenses last account on the trial balance So it's gonna be the last account on the general ledger So I'm gonna make this a bit smaller bring it back down to 110 We're way over here in the meals and entertainment So we want to post this meals and entertainment all the way over here to this meals and entertainment on the debit side in cell R 15 R 15 We're gonna say that equals and then point to this 1950 way over here So that will be equal to C14 once we select enter it will populate this amount here That same amount will populate over here in entertainment and put us out of balance by that same amount So there we have that I'm gonna make this a bit larger bring it back up to 130% Now we're looking for the accounts payable. So here is accounts payable We're looking accounts payable. Here's our first light and only liability Here and we will then post stats over here to the general ledgers the fourth account on the trial balance Therefore the fourth account on the general ledger. We're gonna be down here in 012 012 is going to equal and we will point to this 1,950 once we select enter this will go up by 1,950 and this will then go up by the same 1,950 it'll put us back in balance down here. So enter. We're now at 2,366 here 2,366 here Then we got the last transaction here which says that we paid for auto service Which was purchased on account in the past for 16 So is cash affected? We're gonna say yes, and it's going down because we paid now again We might be saying hey, I see on account and I see paid those are our two factors that typically indicate cash and accounts payable Respectively and oftentimes we might think that those two things don't happen in the same transaction And if we were to purchase something on account then cash would not be affected However, in this case both are affected because we're paying something off with cash We're paying off the liability. We're paying off the accounts payable So what we're gonna do then is we're gonna say cash is going down cash has a debit to balance We will do the opposite thing to it Therefore to make it go down which in this case is a credit. So I'm gonna copy cash in cell C5 We're gonna put that on the bottom scroll down just a bit. We're gonna put that in B18 Right-click and paste 1 2 3 I'm gonna double-click. We're gonna double-click before the C and dent three times and enter Then we're gonna put the dollar amount 416 in the credit side on D18 by saying negative 418 and enter Double-check that's actually 416. Sorry about that negative 416 Then we're gonna put that same amount on the debit side I'm gonna do that with a formula of that formula negative of that number Taking that number flipping the sign making the negative a positive then we just need this account here and What will that account be you may think that it should be auto expense or that would probably be the first thing that we think of considering it's for auto expense, but of course We already recorded the auto expense in the past and at this time We are recording the reduction in the accounts payable account We're paying off what we owe for work done in the past We were recorded the expense at the point in time It was consumed in order to help generate revenue even though cash was not Expended according to the matching principle now. We're just paying off what we owe. So I'm gonna copy the payable We're gonna put that on top right-click paste 1 2 3 There we have that we already knew that we were gonna debit the payable Because we credited cash But if we double-check it now we can say well the payable represents what we owe to other people We're now paying off those people and therefore that credit balance needs to go down The way to make something go down as we do the opposite thing to it which in this case is a debit So you always want to kind of double-check that account now I'll give you a better idea of what the payable is how it functions and it'll double-check that full journal entry overall Then we're gonna post this So I'm gonna post this I'm gonna make this a bit smaller so we can see more at the same time So we're gonna post this to the payable so it's in order assets and then liabilities Here's the accounts payable on the general ledger this being the process of posting We want to be on the debit side down here in in 13 in 13 equals will then point to this for 16 Once we select enter it's gonna bring this balance of two three six six down by four sixteen and Then it'll bring that balance over to here and we'll be out of balance by 416 So there we have that we brought this down by 416 to 1009 50 that same 1009 50 brought over to the trial balance out of balance on the trial balance by 416 That 1009 50 now Representing just that one account that still owed which is the meals entertainment. We bought in D Section D or journal entry D and now we're gonna post the cash side now. So here's cash first account on the Trial balance first account on the GL. We want to be on the credit side So we're on the credit side and we are here in K 10 K 10 equals Pointing to that 416 That will bring this balance down It will bring that same balance over to the cash here and it will put us back in balance there So there we have that Note that this is a completed problem now if we take a look at accounts payable This is the typical kind of routine that you will see in the payable I'm gonna zoom in a bit more and that will be that we're gonna buy something on account It's kind of like a credit card. Well, we should see this when we look at the trial balance or the general ledger I should say or the t account this pattern should be the pattern We should see meaning we bought something on account Then we paid something on account Then we bought something on account then we paid something on account So it's always gonna be a credit balance because every time we purchase something on account It's gonna go up in the credit direction and every time we pay you something off It's gonna bring that balance back down Now note if you were thinking about something like your credit card statement It may be a little bit more complicated in that we might not be able to match up exactly You know, we might pay like installments So we might have to match up partial payments to make up the credit So the credit might be on there for 585 and we might have a hundred dollar payment and then a you know $485 payment But the point is that it should be increasing With a credit and then we make payments Decreasing it back down and typically we can actually go through there and just kind of cross off These transactions and see which ones are related to each other typical pattern We will see when working with accounts payable later on We're gonna have to track this activity not just by date But by who we owe and that's gonna be a subsidiary ledger We will track and it'll be by vendor by who we buy stuff from