 Hello in this presentation, we will look at transactions related to the accounts payable cycle accounts payable Transactions, we will record these transactions in accordance with the accounting equation that being assets equal Liabilities plus equity at the end of this we will be able to list transactions involving accounts payable and Record transactions involving accounts payable using the accounting equation We're gonna go through and list through the transactions. We're gonna look at our accounting equation We're gonna have a beginning balance list the transactions affected during one particular Transaction and then we'll have an ending balance in order to do this We want to remember our accounting equation. That's being assets equal liabilities plus equity We're gonna then have our list of accounts within that area in that Assets include cash accounts receivable supplies Liabilities deals with accounts payable. That is where we will be focusing most at this time Then the equity section is going to include the capital and the entire income statement that being revenue and expenses Note that the entire income statement is in this equity section. We currently have owners equity But if it was a partnership, it would be partnerships equity and if it was a corporation It would be stockholders equity the essence of equity as a total will be the same in that The entire income statement is going to be represented within equity when considering it through The accounting equation. We currently have total assets of 50,000 Equaling total liabilities of 50,000 that being cash as the assets and Capital as the liability on the equity and liability side There is no net income at this time net income calculated as revenue minus expenses Remember that we will be concentrated on the payable cycle. So this is going to be a cycle We're not looking at the transactions just by date here But by cycle which is often very practical because one that's often the way we do it in practice Meaning, you know work might work in a particular cycle like the accounts payable cycle and deal with the same types of transactions in order to specialize in some ways and To it's just easier to learn in cycles because of those processes being part of Of a set linked group of transactions So you get to know the transactions that go together by doing this and by doing that You can you can work through problems where you kind of have to assume what happened before So there's gonna be problems later on where they'll basically say, you know You got to pay off something on account and you have to assume that the prior transaction Took place. You got to kind of know in your mind how these things are related So if we go through them by cycle that will help to achieve that goal first Transaction we're gonna say purchase supplies on account if we go through our list of questions We're gonna say is cash affected in this case No, because we purchased it on account then we're gonna ask what we've received in this case supplies So we got supplies that is here It's gonna be an asset therefore the asset is going to go up because we got more of them Then the only question is what is the other account? It's not a decrease to cash because we didn't pay cash and therefore we must be doing something Somewhere else that will be accounts payable. So accounts payable is going to increase By the same amount. How do we know that two ways? One we know that supplies went up and if supplies went up on this side of the equal sign Then accounts payable must be going up on that side of the equal sign That's one way. We know that the 3050 is increasing We also know that the accounts payable is kind of like something we don't like so the bad thing Is going up we owe more money after this transaction therefore Accounts payable is increasing here is that transaction where we have this Balance beginning balance and what we actually did meaning we increase the supplies and we are increasing the liabilities That's an increase to total assets and an increase to total liability And that means that the equity then is going to remain the same So within this transaction then we see that assets are going to go up by that 315 liabilities going up by that 315 therefore the assets equal the liabilities and equity for that particular Transaction no impact on net income. We then need the total row Meaning we're gonna add up what happened last time or what with the beginning balances were plus the current Transaction will give us the total for example We had cash before plus zero is still the 50,000 the accounts receivable There was none there are still none the supplies were zero. We're adding the 315 to get to 315 Accounts payable was zero. We're adding the 315 to get to 315 Capital was 50,000. We're adding zero to get to 50,000 revenue auto meals all zero before Nothing happened all still zero after then if we were to add up the assets liabilities and equity assets have cash of 50,000 and supplies of 315 for a total of this five 50,000 315 and the liabilities had 315 for accounts payable and capital 50,000 for a total of 50,000 315 no effect on net income Why because we we purchased an asset if we had purchased a an expense or if we had consumed an expense Then it would be a decrease to net income But when we just purchased the supplies we have not yet consumed them in order to help us generate revenue and therefore It's gonna be an asset note that it has nothing to do with the fact that we bought it on account Rather than paying cash as to why we are not expensing it We're not expensing it because we bought supplies and assets that has not yet been consumed and we will Expense it at the point in time. It is consumed not the point in time that we pay cash necessarily Next transaction. We're gonna say paid for purchase purchases in the past on account 315 so here are our beginning balance now so our beginning balances are the same as we had in the prior slide and Now we're gonna say that we paying for something that we purchased in the past So first question is cash affected. We're gonna say, yeah, we paid keyword being paid anytime It says paid we can assume that cash is going down and Then we can just think about what the other account is now many times a problem will actually say you know, we paid for supplies in the past or something like that or we paid for supplies on account in the past and They'll actually give you the supplies and then we might think that we should be doing something to supplies but of course if it says on account or if it says anything that we says we did it on in the past on account being a key term on Account means either accounts receivable or accounts payable in this case accounts payable If it is accounts payable in this case, which it is then we know it must be going down for at least two reasons one Cash went down and cash is on this side or the left side of the equal sign And if this is the other account affected on the right side of the equal sign then it too Must be going down. We also know that the receivable the payable must be going down because The payable represents what we owe what the business owes to a third party to a vendor and This number represents we owe money and we're saying within this transaction that we paid paid money We paid it off and therefore the amount that we owe it needs to be going down So we can kind of double check ourselves and we should double check ourselves And to see that this number is going down and kind of double check our entire transaction in that way We see what happens then we're going to say that cash is going down And we see that the liabilities are going down. So cash is decreasing here We got the liabilities decreasing on that side We see that the total assets are going to equal total liabilities for this particular transaction Then we're going to see the total here Total balance just bringing the balances down now cash having 50 000 before we are subtracting The three thousand three hundred and fifteen to bring us to forty nine thousand six eighty five Counts receivable was zero before still zero after supplies was three fifteen before Three fifteen plus zero is three fifteen We have accounts payable was three fifteen before now we're subtracting three fifteen to bring that balance down to zero This is the typical kind of pattern we will see in accounts payable It may not be just right next to each other where we You know buy something on account and then pay it off We might buy multiple things on on account and pay it off in some kind of installments But we will typically see purchases and then payments and we should be able to match them up through the history of the account We then have capital 50 000 plus zero 50 000 and revenue Expense and expense all zero before all zero after Then if we were to add up our assets our liabilities and equity total assets our cash forty nine six eighty five and three fifteen totaling 50 000 and the liabilities and the equity Now just being zero in the payable and 50 000 in capital to be a total of 50 000 No effect on net income no effect so far on revenue or expenses Next transaction purchased auto service on account four sixteen So we're going to purchase auto service first question. Is cash affected? We're going to say no because we purchased it on account Therefore it's going to be accounts payable that will be affected. I often think about what we received is the second question In our thought process. What did we get and that might not be as useful when we're looking at the accounting equation But it's often more useful when we get to debit and credit So I would get in the practice of saying what did we get and in this case we got auto service Now auto service isn't buying the car not an asset therefore It's going to be an expense over here in the equity section Now expenses we're going to think they only go one way now typically when we think about debits and credits They only go up we can think they only go up here But we're looking at this in relation to the equity section So expenses are kind of like something we don't like it's bringing down total equity You can think of total equity in terms of the income statement going the same way As net income will go so net income is calculated as revenue minus expenses Therefore expenses only go up as expenses go up They bring down that income and they bring down total equity So when we're considering an expense in terms of the equity section We're going to say it's going to decrease The equity now I get I know that's a little bit confusing when we're thinking of expenses In terms of the accounting equation in terms of the equity section But when we get to debits and credits, they're always just going to be going in the debit direction And you'll hopefully get to know expenses pretty well because we will we will be working with expenses a lot There are typically more expenses than any other type of account So we'll get a good feeling of what the expenses are doing Therefore the auto expense will be going down and we got to do something to some other accounts. We did not pay cash It's not going to be cash that it's going down. It's going to be the liability Now we know the liability is going to be i'm sorry the liability is going to be affected and it will be going up Now we know that this accounts payable this liability will be going up for a couple different reasons one If this side of the equal sign in auto expense is bringing down equity Equity and liabilities are on the same side of the equal sign Then this account if it's the account that is affected, which it is Needs to be going up in order for the accounting equation to remain in balance We can also think through it in terms of the accounts payable. That's something we don't really like The bad thing is going up. We bought something have not yet paid for it We owe something in the future. That's what the accounts payable represents And that's what's happening here. The the amount we owe is going up If we look at the transaction then we've got 416 increase in the payable and we have the auto expense again It's going up. You can think of expense going up, but it's bringing down the equity section So it's bringing down net income. It's bringing down equity When you see a problem like this in a book problem It may sometimes put minus signs here So it'll have it in the formula or they may ask you to put a minus sign when you enter the data And this that's just one of the problems again with this accounting equation type of Problem when you move to debits and credits, it's pretty it's all straightforward. That's the point of debits and credits But we're trying to work with this accounting equation at first Just to get an idea of something that has pluses and minuses And it's not a perfect system because it does get confusing as we look through the areas over here With the plus and minus so we're subtracting The expense from total equity in this case we see that There's no effect on the accounting equation Because well, there's no effect on the total assets and the total liabilities and equity meaning Assets are going to stay the same Liabilities are increasing and capitals decreasing So this side of the equal sign is remaining the same meaning liabilities and equity went up and down meaning Accounts payable liability went up and expense brings equity down So liabilities and expenses are equal to total assets in terms of what happened Within this particular transaction the liability increasing and the equity then decreasing There is an effect on net income that being the expense net income calculated as Revenue minus expenses So the revenue is going to net income is going down Note that the total equity will go in the same direction as net income So anytime net income goes down that's going to break total equity down as well Assets then remain the same liabilities increase and equity decreases If we look at the balance side then we're going to say that cash started at 49 685 Nothing happened during this transaction ending balance 49 685 Accounts receivable nothing before nothing after Supplies started at 315 plus zero three 15 is the ending balance Accounts payable was at zero before this we are increasing it 416 to 416 Capital 50,000 before this nothing happened still 50,000 nothing in revenue Auto expense zero minus the 416 to 416 therefore if we add up the total assets we have 49 685 plus the 315 given us 50,000 if we add up the liabilities and equity 416 plus the 50 minus the 416 will give us the 50,000 So we are in balance then and net income is going down by the 416 in the total as well No revenue and only one expense of the 416 Next transaction purchase meals on account 1,950 Once again is cash affected we're going to say no we didn't we didn't pay cash We purchased it on account therefore accounts payable is affected I would typically get in the in the practice of working with meals and entertainment or the expense or what we got First because this will be easier once we get to debits and credits And that means we got meals and entertainment meals and entertainment is an expense It's in the equity section and it's going to bring down total equity So it's going to be just like all other expenses all expenses bring down equity So we're going to decrease the the meals and entertainment And that means we must be doing something to some other account It's not going to be cash. We didn't pay cash. So we're not decreasing cash We are increasing the bad thing rather than decreasing the good thing cash We're increasing the bad thing accounts payable So accounts payable will be the other side of this transaction We know it's going to increase for at least two reasons one We know that meals and entertainment is decreasing It's on the right hand side of this equal sign And therefore this must be going up if it's the other accounts affected Which it is in order to remain in balance We also know that the bad thing is increasing in that accounts payable means we owe money And it then is going up because we owe more money buying something on account that we have not yet paid for If we look at that transaction, here it is we have the accounts payable increasing We have the meals and entertainment Decreasing total equity again, it doesn't mean that meals and entertainment is going down It means that meals and entertainment is decreasing total equity If we look at our equation then we see that nothing happened to two assets Liabilities are increasing and equity is decreasing from this transaction We know that total assets then will be zero Liabilities going up and liabilities and equity going down Remains the total liabilities and equity will be zero Net income is affected here and that it is going down revenue minus expenses. We don't have any revenue We only have expenses for this time period so far So we have a net loss in this case of 1,950 We're then going to bring down the balance. So here is the balance. We had 49 685 plus zero keeps us at 49 685 We had zero receivables and we end with zero in the receivables supplies 315 plus zero 315 is what we end at there 416 accounts payable Plus 1,950 gives us 2,366 We had capital 50,000 plus zero keeps us at 50,000 We have auto expense 416 plus zero gives us 416 decrease in equity And meals entertainment zero plus or minus the 1,950 keeps us at the 1,950 if we are to add up then the total assets of 49 685 cash and 315 supplies we get to that 50,000 total assets to add up liabilities and equity we get 2,366 liabilities Plus 50,000 capital minus 416 in the auto expense minus meals and entertainment 1,950 bringing us to 50,000 net income total effect as of the end of all the transactions we have done thus far 2,366 That's a loss no income no revenue yet just expenses of 416 auto and meals and entertainment of 1,950 Next transaction paid for purchase made in the past is cash affected We're going to say yes cash has been going down key term here paid anytime we see paid We're going to decrease cash other side of the transaction We bought something but we don't know exactly what it is So you might think it should be some type of expense or something But we bought something that we purchased in the past often it'll say on account And that means accounts payable in this case meaning we're paying off the liability Now we know it's going down for at least a couple reasons one We know that if this side of the equal sign is going down Then if this is the other account affected which it is It must to be going down in order for the accounting equation to remain in balance We also know it's going down because accounts payable is a liability account It represents us owing people money or the company owing people money And we have now paid that money and therefore the amount owed should then go down So here's going to be the transaction. We're going to decrease cash by the 416 We're going to decrease accounts payable by 416 That means that total assets are decreasing by 416 with the cash And the accounts payable decreasing by 416 I'm sorry the total liabilities and equity is also decreasing by 416 due to the liabilities No effect on net income here. No effect on revenue and expenses in other words If we bring down the balance, we're going to say Well, let's go through this. We're going to say that the assets are going down Liabilities are going down and the equity is remaining the same from this row from this transaction Then we have the balances. We're going to say that the 49 685 Minus the 416 brings us to 49 49 269 Accounts receivable 0 plus 0 is 0 supplies 3 15 plus 0 is 3 15 Accounts payable 2366 minus 4 16 brings us to 1,950 capital 50,000 plus 0 is 50,000 Revenue 0 plus 0 is 0 Uh auto expense 416 negative and 0 is 416 Mills and entertainment 1,950 0 brings us to 1,950 If we then add these up, we have the cash 49 269 plus 0 Plus 3 15 gives us 49 548 49 584 and then the liabilities 1,950 plus the 50,000 capital plus 0 minus 4 16 minus 1,950 brings us to a balance of liabilities and equity of 49,005 84 Net income that means we're in balance here, of course Net income then is actually a loss meaning revenue minus expenses of 416 expense plus the 1,950 expense bringing us to the loss of 2,366 If we look at the total transactions then we can see the beginning balance the transaction brings us another balance Plus the transaction brings us the nether balance So this is what the entire worksheet would kind of look like in a problem such as this Notice it's a kind of a messy worksheet when we see it laid out like this when we work at it one thing at a time It's not too bad But it's a pretty messy worksheet when you see it all at one point in time It's actually less messy when we move to debits and credits. So that's why we move to debits and credits Note here that we're focusing in on the payables here So the liabilities and the payables we should see a pattern in that we see that the we have the 3 15 happening here And then 3 15 went out Increasing the balance then decreasing the balance back to zero We have the 4 16 here then the 4 16 went out So we increased the 4 16 and then decreased the 4 16 And then we had the 1,950 Which never paid off. We're still oh the 1,950 at the end. That's why that's the ending balance here That will be the typical pattern in a payable account We're going to increase it with a bill something that we incurred. We have not yet paid Something that we incurred on account and then at some point in the future We will pay it and decrease that amount and we should then be able to Match those two amounts out match the increases match the decreases As we go that should be the pattern that we will see Back to the objectives. We are now able to list transactions involving accounts payable and Record transactions involving record transactions involving accounts payable using the accounting equation