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all right so we're back so once again um revenues is the money we earn from selling our good or service expenses is the money we spend in order to make or provide our good and services the difference between revenues
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and expenses and I'll just I'll put it off to the side here okay so if revenues are greater than
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expenses see if that fits yep I'm gonna tab over a little we have something called net income we've made money okay we're making more from selling our good or service than we are
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spending to sell our good or service so we're bringing in more money than we're spending great it's called net income however if it's revenues I'll keep it going this way right revenu are less
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than expenses then we have something referred to as a net loss it happens right businesses don't always can't always make money especially in their early years you'll have a bad year once in a while hopefully it's just once in a
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while but you can't sustain that forever that's known as a net loss okay so ultimately the difference between revenues and expenses and our retained earnings is captured there in the form of some kind of hopefully income and not a loss so this is our first real kind of
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technical piece of information foundational this um this formula that I provided this is the accounting formula it must always be true this formula must always be in Balance
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where assets always equal the sum of liabilities and stockholders Equity okay so we're going to see a little bit we're going to work with this go through some examples start to use our accounts to see how this equation remains in Balance okay so as we go through this the first
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thing I want to bring up and I think I've mentioned this in an earlier video uh we are you analyzing transactions a business goes through a multitude of transactions in a fiscal period in their business year let's say you have to
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capture those transactions in the appropriate accounts make sure your accounting formula is still always in Balance um and we're going to go through some examples here there are many in this slide deck we're going to go
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through probably a lot but not all you can go through them and any questions you have on the ones we don't cover please reach out and ask so what's a transaction um it's a business event that if affects you financially So when
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you buy something or sell something or you complete a deal of some kind you gain an asset or lose an asset then that is a transaction and we have to capture it so as we go through in accounting
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you're doing a few things you're identifying what accounts are affected in this transaction so over here this example you're buying a computer for the office for $2,000 cash so what accounts are being affected
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well cash is being affected right because I'm giving it over to a business the other account is my computer account or my equipment account because I'm gaining a computer all right um do are these accounts going up or down well my
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computer account is going up because I gained that computer but the cash account is going down because I removed cash and I gave it to a business when I bought the computer right and once once I record it am I still in is the
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statement still true where assets equal liability plus Equity okay so we're going to make sure all those things um happen as we go through and practice our transactions this down here hiring a new employee it's got that red X because
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technically it is not a financial transaction we hire a person they come on board we do some paperwork but there isn't anything financially that's happened yet once they start working and time passes and all of a sudden you owe them money that becomes a financial
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transaction but the hiring of them doesn't qualify okay so let's go through these let's start at the beginning our first transaction so there's this fictitious company Smart Touch learning and it's
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owned by Sheena brigh or she started it she contributes $30,000 cash to the company in exchange for stock so here's my equation we're going to see every transaction as we
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record what happens if this equation is still in Balance I'm making I'm being emphasizing the fact however this is not how we technically record things this is an exercise for the student who is learning
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that everything we in accounting keeps this equation IM balance this is not technically how you um capture transactions we're going to learn about that in Chapter 2 this is just so you can mentally start to understand and become comfortable with the the
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transactions and how they are always keeping and how we are always as accountants keeping this equation in Balance so $30,000 in cash in the exchange for stock so my two accounts are cash and common stock that's what's
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being affected here so those are my two accounts so are they now are they going up or down well she's giving the company cash right the company is gaining cash so
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cash is going up cash I told you on the other um slide is an asset so assets are going up so I'm going to put plus 30,000 under the asset category the other account I said was common
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stock I don't know if I said this yet so let's consider this Equity is the owner's claim on a business that's the definition I told you what assets are and liabilities and we talked about the different parts of equity but I probably should have clearly defined it for you
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so you understand this next part so that's what Equity is it's the owner's claim on the business so if $330,000 in ownership comes into the business even though we are handing over stock that's an increase to common
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stock an owner has a $30,000 interest in the business they have a claim to our Assets in the amount of $330,000 so common stock goes up $30,000 so if the left hand side of the equation goes up 30,000 and the right
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side goes up by 30,000 an equal amount my equation is imbalance let's look at another one now we're going to buy land okay so this Smart Touch learning that's the business buys land for $20,000 in cash means they take cash out
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of the bank they get the land so my cash goes down because I'm handing it over to whoever's selling the land but I have another asset account called land and that goes up what did I pay for the land 20,000 that's the cost at which I record
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it so again this is just an exercise so you see that the equation is always staying in Balance cash and land are my two accounts cash goes down land goes up they're both assets so if I take away and add an equal amount on
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the same side of the equal sign it Nets each other out I'm still in Balance so cash going down 20,000 land going up 20,000 still gives me 30,00 ,000 on the left hand side of the equation and 30,000 on the right hand sign my
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equation is still in Balance okay number three or transaction three we buy office supplies on account this is another thing you could start keeping track of there's little words that mean a lot in this class and in
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accounting when you hear the phrase on account account it means you're not pay paying or receiving physical cash you owe the money or the money is owed to you so in this case since we're buying something we owe the money we're paying
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on account so I am I bought office supplies and we know from the prior video office supplies is an asset so assets are going to go up but I owe money and you know
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from the prior video as well that o owing money means a liability that's an accounts payable so office supplies is an asset right here my assets will go up $500 that's how much I'm paying for them but liabilities the amount I owe someone
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on the right hand side is also going up $500 so if both sides go up $500 I'm still in Balance right $30,500 on the left side
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$30,500 on the right side I'm going to begin the next video right from this point I'll end this one right here