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Category: Accounting Basics
Tags: AccountingAssetsEquityFinanceLiabilities
Entities: Accounting equationAssetsCommon StockLiabilitiesRetained EarningsStockholders' Equity
00:00
all right welcome back for video four on chapter 1 I am going to all this information is in the next few slides and I will toggle back and forth but I just wanted to show you a little bit um kind of condense them for you or combine
00:16
them so the next objective talks about the accounting equation this is the basis for everything we're going to do going forward in accounting everything has to balance so our equation which requires everything
00:32
balances is this assets equals liability plus stockholders Equity we're using the term stockholders Equity because again we're a public corporation so we're going to Define each of these elements and I'm going to also give you an
00:49
example by the way this is you can manipulate this um equation and it would still be true so if I asked you on a test for example if assets us liabilities equals stockholders Equity the answer would be yes that's accurate
01:04
because all I do is subtract liabilities from both sides so if you manipulate this algebraically it will still be true but this is how um I will often present it in class so let's take each of these components so you know I call them elements um let's define them an asset
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is an economic resource or future economic benefit as we go through the course you're going to become more familiar with the various accounts that are assets so as I Define each of these for
01:39
you over the course of the next few chapters I'm going to give you an in accounting we deal with various accounts where we capture the information depending on what the item in the financial transaction is so some accounts that you're going to work with
01:55
and hear about that are assets include cash accounts receivable let me make that a little lighter actually it should be good a merchandise
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inventory land oops actually I am going to put first notes receivable land machinery
02:30
equipment they go together often uh office supplies these are just a few we're going to add more to them here's my suggestion I make this suggestion in the
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live classroom as we're introducing these elements um the asset category is the element you need to know all these accounts I've listed here that they are in fact assets because in chapter two when I start to introduce you the rules
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of debits and credits and how we record things you have to be able to um through memory identify oh this is an asset so these are the rules that follows so if you keep a listing now I think it will help going forward
03:18
with you know memorization and and understanding the rules so we're going to add to this list but please just start keeping a list so an asset is a future economic resource or benefit and here are some items so when we talk about cash every business has cash they
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have a bank account they have money in their checking account that's considered cash if I have to write a check pay a bill right now I'm going to pay it with my cash so your checking accounts um petty cash things you have lying around that's all considered cash whatever the
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total of that is is included in your cash account counts receivable is an account that tells you who owes you money your customers you sell a product I sell lamps some people come into my store and they pay me directly when they buy the lamp and they
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leave with the lamp some people I will give them credit and they'll pay me let's say in 30 days those people I have to keep track of in the account called accounts receivable or rather the amounts and the people but the amounts that I am owed I haven't
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been paid yet but I am owed based on what I've sold and um customer owes me money that's kept in accounts receivable inventory is the cost of the items that I sell in my business that I have inhouse they are available to be sold
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notes receivable is like accounts receivable it is that uh a little more formal so I gave someone I sold someone some lamps and I had a paper I had them sign a paper saying okay I'm you don't have to pay me down but you have to pay me in three months on this date and I'm
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going to charge you 5% interest here's the total you'll owe me so it's a little more formal something written up and we'll see that as well land is if I own any land in my business we'll talk about that more right the value of that land is included in my land account Machinery
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equipment same thing depending on what I do for a you know business Machinery to make my product or a xerox machine or anything like that a shredder things like that those are all included the cost I paid remember the cost principle
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so the cost I paid for them are included in my machinery and equipment account office supplies we're going to talk about a lot throughout this course those are ink um pens pencils erasers pads whatever uh Clips posits things that you
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buy to help you complete your work and the value of those brand new are recorded in office supplies you'll see by chapter 3 we're going to focus a lot on office supplies and what happens to those office supplies as we use them
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and they're no longer available for our use so these are assets they're available to us to use in the future to run our business okay so let's talk about liabilities liabilities are amounts of money you owe as a business okay they're
06:20
your debts your obligation often not always but often they are include the word payable in them so if I some examples some accounts that are
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liabilities are accounts payable I'm going to put notes payable uh salaries payable Insurance payable
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rent payable H there's so much uh here's one without the word payable unearned Revenue unearned revenue is one of those outliers where it doesn't have the word payable but it is in fact and we're
07:09
going to focus on that a lot as well so these are all accounts payables are the bills that came in I get my electric bill in the month I get it in December and it was for the electricity I used in November I'll pay that within 30-day time frame so I have it available I
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record it it is an accounts payable notes payable again is money I owe someone lent me money but it's more formal I signed a document I signed a note right the bank lend me money to buy some land I signed a note I owe the
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money at the end of the year with so much interest that's a notes payable salaries payable those are the money my employees have worked the time has passed I owe them their salary I've recorded it on the books at the amount of money I owe them Insurance rent same
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kind of things these are money iow to the insurance company the rent company unearned Revenue which is a little different is money that a customer pays me in advance of me delivering the product to them so they paid me before I
08:14
satisfied my end of the obligation so you get the idea and we will review these again as they come up because we're going to review many transactions before the end of this chapter where we use most of these accounts okay so again liabilities or amount of money or debt
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that we owe I switched back to the slides just for a quick moment because I want to introduce you to the idea of equity or stockholders Equity it has two components contributed capital and retained earnings so I'm going to put that on our sheet but I really
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want um you to see on this slide how there's two big Parts okay it has two pieces to it and then under each piece we'll talk about the different accounts so for contributed Capital when I I write that it's going to be mostly common stock that's the account and for
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retained earnings oops again I went too far right retained earnings are going to include revenues expenses and dividends okay so here we are back at our Excel
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spreadsheet I have stockholders Equity I've broken it down for you the two components of stockholders Equity are again contributed capital and retained earnings so when I speak to you about someone is buying into the company they're buying stock on the open exchange that transaction is going to
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partially be captured under our common stock account so again when stock is purchased it's common stock okay so typically in this class when we see this this will increase uh I am going to abbreviate
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stockholders Equity as sh sh okay so that common stock will increase a St common stock transaction will increase stockholders Equity oops I'm just try
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new let me just put the abbreviation here for stockholders Equity so you know sh for stockholders Equity the second part of stockholders Equity is retained earnings so the three accounts under retained earnings
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revenues expenses and dividends what are revenues revenue is the money we earn from selling our product or a good once we deliver that product or good once we've satisfied Our obligation to the customer we can call the money earned
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from that Revenue keep in mind CU we're going to see this again in later chapters as long as we've done our part we can call it Revenue that means if the customer pays me or owes me it doesn't
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matter as long as I have done my part in delivering the product I am going to record Revenue so if I have a lamp that I sell for $100 and a customer comes and buys it and I give them a note they're going to pay me in a
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month then I am still recording $100 of Revenue I'm saying I earned it even though I don't have the actual physical cash in we'll talk more about that but Revenue increases stockholders Equity so
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expenses are the cost of doing business it's everything you have to pay for uh paying salaries to your employees buying Insurance rent in your building or a mortgage or whatever it is not really a mortgage but um you know maybe um interest on a
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mortgage things like that those are expenses of running a business so like revenues it doesn't matter remember that utility bill I spoke about when I discussed accounts payable so even though I have that bill I haven't
12:12
paid it yet that bill was for a month that passed it's still an expense because it was incurred and you'll hear that word a lot incurred and since it was incurred whether I paid for the bill or not yet I am going to label it an expense and then
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expense decreases stockholders Equity okay dividends likewise are money from our earnings when a company creates um is making money A lot of times the
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board of directors will decide we want to give back to the stockholders and they'll pay them a dividend from what they've earned this also decreases stockholders Equity okay I'm going to stop this here and continue on the next video now