[{"Name":"Introduction to Recording of Transactions","TopicPlaylistFirstVideoID":0,"Duration":null,"Videos":[{"Watched":false,"Name":"Overview","Duration":"5m 1s","ChapterTopicVideoID":26478,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":"https://www.proprep.uk/Images/Videos_Thumbnails/26478.jpeg","UploadDate":"2021-09-26T11:45:55.9570000","DurationForVideoObject":"PT5M1S","Description":null,"MetaTitle":"Overview: Video + Workbook | Proprep","MetaDescription":"Recording of Transactions - Introduction to Recording of Transactions. Watch the video made by an expert in the field. Download the workbook and maximize your learning.","Canonical":"https://www.proprep.uk/general-modules/all/introduction-to-financial-accounting-and-reporting/recording-of-transactions/introduction-to-recording-of-transactions/vid28508","VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:02.820","Text":"My name is Dave Kolitz."},{"Start":"00:02.820 ","End":"00:05.415","Text":"By the end of this section,"},{"Start":"00:05.415 ","End":"00:09.915","Text":"you will be able to understand the accrual concept."},{"Start":"00:09.915 ","End":"00:11.850","Text":"Now, the accrual concept is 1 of"},{"Start":"00:11.850 ","End":"00:16.230","Text":"the most important concepts in the learning of accounting."},{"Start":"00:16.230 ","End":"00:20.280","Text":"You will also be able to understand the principles underlying"},{"Start":"00:20.280 ","End":"00:25.635","Text":"the recognition of both income and expenses."},{"Start":"00:25.635 ","End":"00:29.480","Text":"The recognition of income and expenses you will see"},{"Start":"00:29.480 ","End":"00:33.425","Text":"is closely tied in with the accrual concept."},{"Start":"00:33.425 ","End":"00:37.310","Text":"Lastly, you will become familiar with what is"},{"Start":"00:37.310 ","End":"00:41.525","Text":"called the double entry bookkeeping process."},{"Start":"00:41.525 ","End":"00:45.665","Text":"This involves the recording of journal entries,"},{"Start":"00:45.665 ","End":"00:50.210","Text":"the posting of those entries to a ledger,"},{"Start":"00:50.210 ","End":"00:55.655","Text":"and finally, the preparation of a trial balance."},{"Start":"00:55.655 ","End":"01:03.565","Text":"In this video, we will simply focus on an overview of the recording of transactions."},{"Start":"01:03.565 ","End":"01:06.575","Text":"Any accounting system records"},{"Start":"01:06.575 ","End":"01:12.875","Text":"business events which importantly have monetary consequences."},{"Start":"01:12.875 ","End":"01:15.260","Text":"Events which do not have"},{"Start":"01:15.260 ","End":"01:20.705","Text":"a monetary consequence will not be recorded in the accounting system."},{"Start":"01:20.705 ","End":"01:26.300","Text":"For example, if a business entity hires an employee,"},{"Start":"01:26.300 ","End":"01:28.475","Text":"but only, for example,"},{"Start":"01:28.475 ","End":"01:31.640","Text":"pays the employee at the end of the month,"},{"Start":"01:31.640 ","End":"01:37.954","Text":"there is no transaction to record the hiring of the employee."},{"Start":"01:37.954 ","End":"01:45.590","Text":"The accounting system records business events which have a monetary consequence."},{"Start":"01:45.590 ","End":"01:50.000","Text":"Now, the importance of a monetary consequence is that events"},{"Start":"01:50.000 ","End":"01:54.605","Text":"which do not have a monetary consequence are not recorded."},{"Start":"01:54.605 ","End":"02:00.860","Text":"For example, if a business entity hires an employee,"},{"Start":"02:00.860 ","End":"02:05.885","Text":"the hiring of the employee does not have any monetary consequence,"},{"Start":"02:05.885 ","End":"02:08.375","Text":"and is therefore not recorded."},{"Start":"02:08.375 ","End":"02:13.625","Text":"It is only when the business entity actually pays a salary,"},{"Start":"02:13.625 ","End":"02:18.365","Text":"pays the employee will that event have a monetary consequence,"},{"Start":"02:18.365 ","End":"02:21.350","Text":"and will therefore be recorded."},{"Start":"02:21.350 ","End":"02:26.540","Text":"Now, those business events involve exchanges of"},{"Start":"02:26.540 ","End":"02:33.020","Text":"economic resources between the firm and outsiders."},{"Start":"02:33.020 ","End":"02:40.220","Text":"Now, the reference to the firm here is referring to the business entity."},{"Start":"02:40.220 ","End":"02:43.925","Text":"Remember the concept of perspective,"},{"Start":"02:43.925 ","End":"02:48.020","Text":"which you\u0027ve learned about in previous videos."},{"Start":"02:48.020 ","End":"02:52.135","Text":"All accounting transactions are prepared,"},{"Start":"02:52.135 ","End":"02:57.125","Text":"and are recorded from the perspective of the business entity,"},{"Start":"02:57.125 ","End":"03:00.320","Text":"and not from any outside party."},{"Start":"03:00.320 ","End":"03:08.675","Text":"Now, these economic resources involve the buying of both goods,"},{"Start":"03:08.675 ","End":"03:11.840","Text":"and the buying of services."},{"Start":"03:11.840 ","End":"03:15.125","Text":"What do we mean by the buying of goods?"},{"Start":"03:15.125 ","End":"03:24.275","Text":"If the business is a trading entity as opposed to a service entity,"},{"Start":"03:24.275 ","End":"03:27.335","Text":"it will buy goods for resale,"},{"Start":"03:27.335 ","End":"03:33.834","Text":"and those goods its buying for resale will be known as inventory,"},{"Start":"03:33.834 ","End":"03:37.475","Text":"or also known as stock."},{"Start":"03:37.475 ","End":"03:42.085","Text":"Now, a business entity could also buy services."},{"Start":"03:42.085 ","End":"03:44.435","Text":"When it buys services,"},{"Start":"03:44.435 ","End":"03:53.220","Text":"it is buying items such as buying rent or pay for rent as a service,"},{"Start":"03:53.220 ","End":"03:57.020","Text":"repairs of goods as a service."},{"Start":"03:57.020 ","End":"03:59.800","Text":"Examples here could be rent,"},{"Start":"03:59.800 ","End":"04:04.130","Text":"or it could be, in fact, repairs."},{"Start":"04:04.130 ","End":"04:11.590","Text":"Now, a entity will also sell goods and services."},{"Start":"04:11.590 ","End":"04:16.525","Text":"Now, again, if the business entity is a trading entity,"},{"Start":"04:16.525 ","End":"04:22.840","Text":"that entity will sell its inventory or stock at a profit."},{"Start":"04:22.840 ","End":"04:27.295","Text":"But a entity could also be known as a service entity."},{"Start":"04:27.295 ","End":"04:29.780","Text":"Other word is a service entity."},{"Start":"04:29.780 ","End":"04:34.610","Text":"It will provide a service to its customers."},{"Start":"04:34.610 ","End":"04:37.610","Text":"Examples could be an architect,"},{"Start":"04:37.610 ","End":"04:40.190","Text":"a lawyer, even a plumber,"},{"Start":"04:40.190 ","End":"04:43.400","Text":"are all examples of service entities."},{"Start":"04:43.400 ","End":"04:47.090","Text":"Now, all business entities will also,"},{"Start":"04:47.090 ","End":"04:48.485","Text":"at some point in time,"},{"Start":"04:48.485 ","End":"04:53.275","Text":"receive cash, and will also pay cash."},{"Start":"04:53.275 ","End":"04:56.810","Text":"The receiving of cash and the paying of cash will"},{"Start":"04:56.810 ","End":"05:00.960","Text":"be in relation to the goods and services."}],"ID":28508},{"Watched":false,"Name":"Accrual concept PART 1","Duration":"14m 53s","ChapterTopicVideoID":26479,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:02.850","Text":"My name is Dave Kolitz,"},{"Start":"00:02.850 ","End":"00:04.110","Text":"and in this video,"},{"Start":"00:04.110 ","End":"00:07.560","Text":"we will focus on the accrual concept."},{"Start":"00:07.560 ","End":"00:10.590","Text":"What is the accrual concept all about?"},{"Start":"00:10.590 ","End":"00:16.515","Text":"The accrual concept focuses on income and expenses."},{"Start":"00:16.515 ","End":"00:19.920","Text":"These income and expenses are recorded in"},{"Start":"00:19.920 ","End":"00:24.360","Text":"the accounting system in the period to which they relate."},{"Start":"00:24.360 ","End":"00:29.000","Text":"Now what do we mean by the period to which they relate?"},{"Start":"00:29.000 ","End":"00:35.780","Text":"Well, let\u0027s just think quickly of income and think quickly of expenses."},{"Start":"00:35.780 ","End":"00:40.550","Text":"When we refer to income being recorded in the period which it"},{"Start":"00:40.550 ","End":"00:47.185","Text":"relates we saying in what period is the income earned?"},{"Start":"00:47.185 ","End":"00:51.170","Text":"The income will be earned in a period when"},{"Start":"00:51.170 ","End":"00:55.625","Text":"the business can record a measure of accomplishment."},{"Start":"00:55.625 ","End":"01:01.115","Text":"That\u0027s useful term to think about when remembering income."},{"Start":"01:01.115 ","End":"01:05.090","Text":"Income is earned when the business has accomplished something,"},{"Start":"01:05.090 ","End":"01:06.710","Text":"it\u0027s sold the goods,"},{"Start":"01:06.710 ","End":"01:08.845","Text":"or it\u0027s provided the service."},{"Start":"01:08.845 ","End":"01:10.645","Text":"With expenses."},{"Start":"01:10.645 ","End":"01:14.950","Text":"Expenses being recorded in the period which they relate"},{"Start":"01:14.950 ","End":"01:19.960","Text":"refers to the expense being incurred in the period."},{"Start":"01:19.960 ","End":"01:26.920","Text":"The expenses incurred in the period when the sacrifice takes place."},{"Start":"01:26.920 ","End":"01:34.540","Text":"We will talk about this concept of income being earned as a measure of accomplishment and"},{"Start":"01:34.540 ","End":"01:37.720","Text":"expenses being incurred as a measure of"},{"Start":"01:37.720 ","End":"01:42.835","Text":"sacrifice extensively in the examples that will follow this."},{"Start":"01:42.835 ","End":"01:45.400","Text":"Now, taking this a little bit further."},{"Start":"01:45.400 ","End":"01:54.605","Text":"The accrual concept implies that cash may be received at 1 of 3 points in time."},{"Start":"01:54.605 ","End":"02:02.057","Text":"Cash may be received before the income is recognized as earned,"},{"Start":"02:02.057 ","End":"02:07.820","Text":"it could be received at the same time as the income is recognized as earned,"},{"Start":"02:07.820 ","End":"02:15.200","Text":"or it could in fact be received in the period after the income is recognized as earned."},{"Start":"02:15.200 ","End":"02:19.775","Text":"We will look at examples of these in the following slides."},{"Start":"02:19.775 ","End":"02:24.890","Text":"The same principle applies now to expenses."},{"Start":"02:24.890 ","End":"02:31.310","Text":"Cash may be paid at 3 different points in time."},{"Start":"02:31.310 ","End":"02:37.577","Text":"Cash may be paid before the expense is recognized as incurred,"},{"Start":"02:37.577 ","End":"02:45.110","Text":"the cash could be paid at the same time as the expense is recognized as incurred,"},{"Start":"02:45.110 ","End":"02:53.525","Text":"or thirdly, cash maybe paid after the expense is recognized as incurred."},{"Start":"02:53.525 ","End":"02:59.150","Text":"Now the important principle to appreciate when understanding the accrual basis is"},{"Start":"02:59.150 ","End":"03:04.880","Text":"that irrespective of when the cash is received or paid,"},{"Start":"03:04.880 ","End":"03:08.720","Text":"the income or the expense is always"},{"Start":"03:08.720 ","End":"03:14.750","Text":"recorded in the accounting system in the period to which it relates."},{"Start":"03:14.750 ","End":"03:19.355","Text":"In other words, in which period the income has been earned,"},{"Start":"03:19.355 ","End":"03:22.639","Text":"or in which period the expense has been incurred."},{"Start":"03:22.639 ","End":"03:25.970","Text":"The income earned as a measure of accomplishment,"},{"Start":"03:25.970 ","End":"03:31.265","Text":"or the expense incurred as a measure of sacrifice."},{"Start":"03:31.265 ","End":"03:35.570","Text":"We will now start the first of 6 examples."},{"Start":"03:35.570 ","End":"03:38.675","Text":"The first 3 will focus on income,"},{"Start":"03:38.675 ","End":"03:42.560","Text":"and the second 3 will focus on expenses."},{"Start":"03:42.560 ","End":"03:49.490","Text":"Example 1, cash received before the income is recognized as earned."},{"Start":"03:49.490 ","End":"03:57.545","Text":"In this example, an airline receives 1,000 currency units from passengers in December."},{"Start":"03:57.545 ","End":"04:03.680","Text":"The cash is received in December but note that the flights will be taken in January."},{"Start":"04:03.680 ","End":"04:10.370","Text":"The financial year end of the airline is 31 December."},{"Start":"04:10.370 ","End":"04:13.565","Text":"Let\u0027s now look at this on a timeline."},{"Start":"04:13.565 ","End":"04:17.465","Text":"We have here the year end of the entity,"},{"Start":"04:17.465 ","End":"04:20.090","Text":"which is 31 December."},{"Start":"04:20.090 ","End":"04:22.000","Text":"That is the year end."},{"Start":"04:22.000 ","End":"04:25.633","Text":"Here is the first year or year 1,"},{"Start":"04:25.633 ","End":"04:29.895","Text":"and here\u0027s the second year or year 2."},{"Start":"04:29.895 ","End":"04:34.370","Text":"Note, the cash is received here in year 1."},{"Start":"04:34.370 ","End":"04:36.992","Text":"Here is where the cash is received,"},{"Start":"04:36.992 ","End":"04:42.350","Text":"but note the income will be only earned in"},{"Start":"04:42.350 ","End":"04:47.750","Text":"year 2 because it\u0027ll only be after 31 December."},{"Start":"04:47.750 ","End":"04:51.605","Text":"In other words, in January when the flights will be taken."},{"Start":"04:51.605 ","End":"04:57.920","Text":"Therefore the income can be recognized as earned as a measure of accomplishment."},{"Start":"04:57.920 ","End":"05:02.524","Text":"How will this look on the accounting equation worksheet,"},{"Start":"05:02.524 ","End":"05:04.775","Text":"which will become familiar with."},{"Start":"05:04.775 ","End":"05:12.955","Text":"Let\u0027s set it up, assets equals liabilities plus owner\u0027s equity."},{"Start":"05:12.955 ","End":"05:19.660","Text":"The asset we\u0027re looking at is an asset called cash and the liability,"},{"Start":"05:19.660 ","End":"05:21.568","Text":"which we will refer to in a moment,"},{"Start":"05:21.568 ","End":"05:27.185","Text":"you will see we will call deferred income."},{"Start":"05:27.185 ","End":"05:29.405","Text":"What is happening over here?"},{"Start":"05:29.405 ","End":"05:35.720","Text":"In year 1 the entity receives 1,000 pounds in cash."},{"Start":"05:35.720 ","End":"05:38.600","Text":"Some ethical cash increases."},{"Start":"05:38.600 ","End":"05:42.710","Text":"But the entity cannot recognize income in year 1"},{"Start":"05:42.710 ","End":"05:47.180","Text":"because the income has not yet been earned as a measure of accomplishment."},{"Start":"05:47.180 ","End":"05:51.305","Text":"The flight has not yet transported the passengers."},{"Start":"05:51.305 ","End":"05:54.395","Text":"Therefore, income cannot be recognized,"},{"Start":"05:54.395 ","End":"05:57.860","Text":"but the entity must recognize a liability"},{"Start":"05:57.860 ","End":"06:02.840","Text":"being the obligation to provide the service in the future."},{"Start":"06:02.840 ","End":"06:07.595","Text":"This liability we refer to as deferred income,"},{"Start":"06:07.595 ","End":"06:11.285","Text":"often also called unearned income."},{"Start":"06:11.285 ","End":"06:14.735","Text":"Then when we come along to year 2,"},{"Start":"06:14.735 ","End":"06:18.425","Text":"this case it will be January of year 2."},{"Start":"06:18.425 ","End":"06:21.860","Text":"The services provided to the passengers,"},{"Start":"06:21.860 ","End":"06:24.895","Text":"the airline provides the flight."},{"Start":"06:24.895 ","End":"06:35.585","Text":"At that points in time the liability decreases and income is recognized as being earned."},{"Start":"06:35.585 ","End":"06:41.480","Text":"Now you should recall from previous video presentations that income is"},{"Start":"06:41.480 ","End":"06:47.795","Text":"earned either from an increase in assets or a decrease in liabilities."},{"Start":"06:47.795 ","End":"06:55.075","Text":"Here is an example of income being earned through a decrease in a liability."},{"Start":"06:55.075 ","End":"06:57.610","Text":"In example 2,"},{"Start":"06:57.610 ","End":"07:03.995","Text":"cash is received at the same time the income is recognized as earned."},{"Start":"07:03.995 ","End":"07:11.480","Text":"Here the airline receives 1,000 currency units in cash from passengers in December,"},{"Start":"07:11.480 ","End":"07:16.250","Text":"and note here the flights are to be taken also in December."},{"Start":"07:16.250 ","End":"07:21.025","Text":"The year end is still 31 December."},{"Start":"07:21.025 ","End":"07:26.775","Text":"Looking now at a timeline as we did in the previous example,"},{"Start":"07:26.775 ","End":"07:31.740","Text":"here is the 31st of December,"},{"Start":"07:31.740 ","End":"07:34.230","Text":"which is the end."},{"Start":"07:34.230 ","End":"07:36.900","Text":"Here is Year 1,"},{"Start":"07:36.900 ","End":"07:39.315","Text":"and here is Year 2."},{"Start":"07:39.315 ","End":"07:41.205","Text":"In this example,"},{"Start":"07:41.205 ","End":"07:42.705","Text":"in Year 1,"},{"Start":"07:42.705 ","End":"07:49.320","Text":"the cash is being received and the income is being"},{"Start":"07:49.320 ","End":"07:53.655","Text":"earned because the service has been provided"},{"Start":"07:53.655 ","End":"07:58.650","Text":"in the same period as the receipt of the cash."},{"Start":"07:58.650 ","End":"08:02.294","Text":"Looking at this in the accounting equation worksheet,"},{"Start":"08:02.294 ","End":"08:09.045","Text":"we have assets equals liabilities plus owner\u0027s equity."},{"Start":"08:09.045 ","End":"08:13.875","Text":"The asset here is going to be an asset called cash."},{"Start":"08:13.875 ","End":"08:15.810","Text":"In Year 1,"},{"Start":"08:15.810 ","End":"08:19.230","Text":"cash of 1,000 is received."},{"Start":"08:19.230 ","End":"08:24.000","Text":"There\u0027s no need to record liability now because the service is being"},{"Start":"08:24.000 ","End":"08:28.830","Text":"provided in the same period as the receipt of the cash and therefore,"},{"Start":"08:28.830 ","End":"08:34.770","Text":"the 1,000 can be recognized as income in Year 1."},{"Start":"08:34.770 ","End":"08:36.810","Text":"In example 3,"},{"Start":"08:36.810 ","End":"08:42.385","Text":"the cash is received after the income is recognized as earned."},{"Start":"08:42.385 ","End":"08:46.700","Text":"Here the airline receives 1,000 currency units in"},{"Start":"08:46.700 ","End":"08:52.115","Text":"cash from passengers and note the cash is received in January,"},{"Start":"08:52.115 ","End":"08:56.245","Text":"whereas the flights were taken in December."},{"Start":"08:56.245 ","End":"09:00.735","Text":"Again, the financial year end is 31 December."},{"Start":"09:00.735 ","End":"09:04.770","Text":"An example of this could be a corporate client of"},{"Start":"09:04.770 ","End":"09:09.495","Text":"the airline where many flights are being booked on a regular basis,"},{"Start":"09:09.495 ","End":"09:16.005","Text":"and the corporate client pays the airline only in the following period."},{"Start":"09:16.005 ","End":"09:19.530","Text":"Again, let us draw a timeline."},{"Start":"09:19.530 ","End":"09:23.040","Text":"Here is the year end of the entity,"},{"Start":"09:23.040 ","End":"09:26.010","Text":"which we said is 31 December."},{"Start":"09:26.010 ","End":"09:28.680","Text":"As in the previous examples,"},{"Start":"09:28.680 ","End":"09:30.675","Text":"here is Year 1,"},{"Start":"09:30.675 ","End":"09:35.190","Text":"and after 31 December comes Year 2."},{"Start":"09:35.190 ","End":"09:37.335","Text":"Now in this example,"},{"Start":"09:37.335 ","End":"09:38.865","Text":"as you have seen,"},{"Start":"09:38.865 ","End":"09:42.060","Text":"the flights are taken in December."},{"Start":"09:42.060 ","End":"09:44.505","Text":"So here in Year 1,"},{"Start":"09:44.505 ","End":"09:47.775","Text":"the income is earned,"},{"Start":"09:47.775 ","End":"09:54.525","Text":"but the cash is only received in the following year, in Year 2."},{"Start":"09:54.525 ","End":"09:57.019","Text":"It should be obvious,"},{"Start":"09:57.019 ","End":"10:00.770","Text":"where we\u0027re going to head to now following the accrual concept,"},{"Start":"10:00.770 ","End":"10:06.335","Text":"income is recognized in the period when it is earned as a measure of accomplishment,"},{"Start":"10:06.335 ","End":"10:11.320","Text":"we need to recognize the income is earned in the first year."},{"Start":"10:11.320 ","End":"10:16.020","Text":"Let\u0027s see how this looks like in an accounting equation worksheet."},{"Start":"10:16.020 ","End":"10:23.505","Text":"We have assets equals liabilities plus owner\u0027s equity."},{"Start":"10:23.505 ","End":"10:28.035","Text":"The asset is going to be cash,"},{"Start":"10:28.035 ","End":"10:32.190","Text":"as 1 asset, it will also need a second asset,"},{"Start":"10:32.190 ","End":"10:35.295","Text":"which will be the accounts receivable."},{"Start":"10:35.295 ","End":"10:39.900","Text":"Lets look at the transactions in the 2 years."},{"Start":"10:39.900 ","End":"10:42.180","Text":"In Year 1,"},{"Start":"10:42.180 ","End":"10:45.360","Text":"the flights are provided to the customers,"},{"Start":"10:45.360 ","End":"10:50.775","Text":"but no cash is received in the year ending 31 December of Year 1."},{"Start":"10:50.775 ","End":"10:55.695","Text":"Therefore, the airline entity, remember perspective."},{"Start":"10:55.695 ","End":"10:58.020","Text":"You\u0027re always looking at this from the perspective of"},{"Start":"10:58.020 ","End":"11:01.080","Text":"the entity whose records we are preparing."},{"Start":"11:01.080 ","End":"11:05.655","Text":"The entity recognizes 1,000 as accounts receivable,"},{"Start":"11:05.655 ","End":"11:09.210","Text":"but the same time it can recognize income"},{"Start":"11:09.210 ","End":"11:13.785","Text":"as being earned because the service has been provided."},{"Start":"11:13.785 ","End":"11:16.755","Text":"Then when we come along to Year 2,"},{"Start":"11:16.755 ","End":"11:21.375","Text":"the cash is now received from the customers."},{"Start":"11:21.375 ","End":"11:26.355","Text":"Therefore, an asset called cash is increased by 1,000."},{"Start":"11:26.355 ","End":"11:29.580","Text":"We clearly can\u0027t recognize income again,"},{"Start":"11:29.580 ","End":"11:34.559","Text":"and we now decrease the assets accounts receivable."},{"Start":"11:34.559 ","End":"11:42.405","Text":"We now start the first of 3 examples, looking at expenses."},{"Start":"11:42.405 ","End":"11:49.755","Text":"Example 4, cash is paid before the expense is recognized as incurred."},{"Start":"11:49.755 ","End":"11:52.800","Text":"We follow on with the airline company,"},{"Start":"11:52.800 ","End":"11:58.080","Text":"and the airline now pays 100 currency units in cash."},{"Start":"11:58.080 ","End":"12:03.120","Text":"The payment takes place in December for rent of office space,"},{"Start":"12:03.120 ","End":"12:07.200","Text":"and the rent of the office space is for January."},{"Start":"12:07.200 ","End":"12:12.315","Text":"The financial year end is again, 31 December."},{"Start":"12:12.315 ","End":"12:17.235","Text":"If you draw a timeline of what is happening,"},{"Start":"12:17.235 ","End":"12:24.600","Text":"here is the year end of 31 December and here is the Year 1,"},{"Start":"12:24.600 ","End":"12:27.015","Text":"and here is Year 2."},{"Start":"12:27.015 ","End":"12:29.130","Text":"Now in this example,"},{"Start":"12:29.130 ","End":"12:33.970","Text":"the cash is being paid in Year 1,"},{"Start":"12:35.630 ","End":"12:43.050","Text":"but really the expense will be incurred in Year 2."},{"Start":"12:43.050 ","End":"12:45.660","Text":"Because according to the accrual concept,"},{"Start":"12:45.660 ","End":"12:50.925","Text":"expenses are recognized as incurred in the period which they relate."},{"Start":"12:50.925 ","End":"12:53.265","Text":"If the rent is for January,"},{"Start":"12:53.265 ","End":"12:57.240","Text":"the sacrifice is happening in January and"},{"Start":"12:57.240 ","End":"13:02.985","Text":"the rent expense must be recognized as an expense in January."},{"Start":"13:02.985 ","End":"13:07.290","Text":"If we now look at the accounting equation of"},{"Start":"13:07.290 ","End":"13:13.410","Text":"assets equals liabilities plus owner\u0027s equity."},{"Start":"13:13.410 ","End":"13:17.895","Text":"We now will need 2 types of assets."},{"Start":"13:17.895 ","End":"13:22.920","Text":"We\u0027ll have the cash assets as usual and now we\u0027ll have"},{"Start":"13:22.920 ","End":"13:28.440","Text":"to have an asset called a prepaid expense,"},{"Start":"13:28.440 ","End":"13:31.125","Text":"which we\u0027ll use in a moment."},{"Start":"13:31.125 ","End":"13:33.900","Text":"Going into Year 1,"},{"Start":"13:33.900 ","End":"13:38.940","Text":"the entity pays 100 currency units in cash,"},{"Start":"13:38.940 ","End":"13:42.090","Text":"so the asset called cash decreases."},{"Start":"13:42.090 ","End":"13:45.030","Text":"But we can\u0027t recognize an expense in"},{"Start":"13:45.030 ","End":"13:49.155","Text":"Year 1 because the expense has not yet been incurred."},{"Start":"13:49.155 ","End":"13:55.095","Text":"We therefore recognize an asset which we call a prepaid expense."},{"Start":"13:55.095 ","End":"13:59.790","Text":"This prepaid expense as an asset is the right the entity"},{"Start":"13:59.790 ","End":"14:04.620","Text":"has to occupy the office space in the following period,"},{"Start":"14:04.620 ","End":"14:06.450","Text":"in this case, in January."},{"Start":"14:06.450 ","End":"14:09.465","Text":"When we then come along to Year 2."},{"Start":"14:09.465 ","End":"14:13.260","Text":"In this case, it will be in January of Year 2,"},{"Start":"14:13.260 ","End":"14:17.760","Text":"and the office space is now being occupied for the month."},{"Start":"14:17.760 ","End":"14:20.220","Text":"They\u0027ll be no cash transaction,"},{"Start":"14:20.220 ","End":"14:23.220","Text":"but we now need to recognize an expense."},{"Start":"14:23.220 ","End":"14:28.440","Text":"We will reduce the prepaid expense asset and"},{"Start":"14:28.440 ","End":"14:34.395","Text":"the same time reduce equity by recognizing an expense."},{"Start":"14:34.395 ","End":"14:37.590","Text":"Remember back to definition of expenses,"},{"Start":"14:37.590 ","End":"14:44.775","Text":"expenses come about through a decrease in assets or an increase in liabilities."},{"Start":"14:44.775 ","End":"14:46.655","Text":"In this particular example,"},{"Start":"14:46.655 ","End":"14:54.030","Text":"the expense is coming about through a decrease in the asset, prepaid expenses."}],"ID":28509},{"Watched":false,"Name":"Accrual concept PART 2","Duration":"14m 56s","ChapterTopicVideoID":26480,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:02.370","Text":"In Example 5,"},{"Start":"00:02.370 ","End":"00:09.490","Text":"the cash is paid at the same time as expenses recognized as incurred."},{"Start":"00:09.490 ","End":"00:13.884","Text":"What we\u0027re seeing over here is the airline is paying"},{"Start":"00:13.884 ","End":"00:22.365","Text":"100 currency units in December to rent the office space for the month of December."},{"Start":"00:22.365 ","End":"00:28.620","Text":"The financial year-end is again the same 31 December."},{"Start":"00:28.620 ","End":"00:32.220","Text":"If you take a look at a timeline,"},{"Start":"00:32.220 ","End":"00:35.820","Text":"here is the 31 December,"},{"Start":"00:35.820 ","End":"00:43.620","Text":"which is the year-end and here is the first year, Year 1."},{"Start":"00:43.620 ","End":"00:46.575","Text":"Here\u0027s the second year, Year 2."},{"Start":"00:46.575 ","End":"00:48.420","Text":"In Year 1,"},{"Start":"00:48.420 ","End":"00:51.075","Text":"the cash is being paid,"},{"Start":"00:51.075 ","End":"00:55.795","Text":"the 100 currency units and also in Year 1,"},{"Start":"00:55.795 ","End":"00:59.390","Text":"the expense is being recognized as"},{"Start":"00:59.390 ","End":"01:05.645","Text":"incurred because the rent was paid for the month of December."},{"Start":"01:05.645 ","End":"01:09.560","Text":"So if we now look at an accounting equation worksheet,"},{"Start":"01:09.560 ","End":"01:15.394","Text":"assets equals liabilities plus owner\u0027s equity."},{"Start":"01:15.394 ","End":"01:19.195","Text":"We will need the asset, cash."},{"Start":"01:19.195 ","End":"01:25.160","Text":"When we go into Year 1 the 100 currency units is paid."},{"Start":"01:25.160 ","End":"01:31.100","Text":"It\u0027s an asset called cash decreases and because the expense is being"},{"Start":"01:31.100 ","End":"01:37.430","Text":"recognized as incurred in the same period as the cash is being paid both in December,"},{"Start":"01:37.430 ","End":"01:44.870","Text":"we can recognize an expense in December through a decrease in equity."},{"Start":"01:44.870 ","End":"01:47.770","Text":"Looking at example number 6,"},{"Start":"01:47.770 ","End":"01:53.645","Text":"the cash is paid after the expenses recognized as incurred."},{"Start":"01:53.645 ","End":"01:59.630","Text":"The airline pays, again a 100 currency units in cash."},{"Start":"01:59.630 ","End":"02:03.584","Text":"The payment takes place in January and note this is"},{"Start":"02:03.584 ","End":"02:07.729","Text":"in respect of renting office space in December."},{"Start":"02:07.729 ","End":"02:11.030","Text":"In other words, the cash is only being paid in the period"},{"Start":"02:11.030 ","End":"02:15.620","Text":"after the expense has being incurred."},{"Start":"02:15.620 ","End":"02:20.645","Text":"Again, the financial year-end is 31 December."},{"Start":"02:20.645 ","End":"02:27.580","Text":"Let\u0027s take a look at a timeline and here is our 31 December,"},{"Start":"02:27.580 ","End":"02:31.600","Text":"which is the year-end and here is the first year,"},{"Start":"02:31.600 ","End":"02:34.340","Text":"Year 1 and here\u0027s the second year,"},{"Start":"02:34.340 ","End":"02:36.025","Text":"which is Year 2."},{"Start":"02:36.025 ","End":"02:39.800","Text":"Now if you look carefully at the information in this example,"},{"Start":"02:39.800 ","End":"02:42.845","Text":"the office space is used in December."},{"Start":"02:42.845 ","End":"02:45.140","Text":"So therefore in December,"},{"Start":"02:45.140 ","End":"02:49.160","Text":"the expense is being incurred."},{"Start":"02:49.160 ","End":"02:57.215","Text":"But note the cash is only being paid in the following period in January."},{"Start":"02:57.215 ","End":"03:01.744","Text":"How do we show this on the accounting equation worksheet?"},{"Start":"03:01.744 ","End":"03:03.260","Text":"Well, here\u0027s the worksheet,"},{"Start":"03:03.260 ","End":"03:09.305","Text":"assets equals liabilities plus owner\u0027s equity."},{"Start":"03:09.305 ","End":"03:11.990","Text":"We\u0027ll again have to have the assets,"},{"Start":"03:11.990 ","End":"03:17.435","Text":"cash to work with and now you will see we will need liability,"},{"Start":"03:17.435 ","End":"03:22.740","Text":"which we\u0027re going to call here accrued expenses."},{"Start":"03:22.740 ","End":"03:25.994","Text":"Let\u0027s look what happens in the 2 years."},{"Start":"03:25.994 ","End":"03:28.010","Text":"In the first year,"},{"Start":"03:28.010 ","End":"03:30.605","Text":"there is no cash being paid out,"},{"Start":"03:30.605 ","End":"03:34.340","Text":"but we\u0027re going to have to recognize an expense."},{"Start":"03:34.340 ","End":"03:37.445","Text":"Now if you think back to the expense definition,"},{"Start":"03:37.445 ","End":"03:42.380","Text":"expenses come about as we saw in the previous example through a decrease in"},{"Start":"03:42.380 ","End":"03:48.185","Text":"assets or expense come about through an increase in liabilities."},{"Start":"03:48.185 ","End":"03:52.580","Text":"We would not have to record an increase in a liability,"},{"Start":"03:52.580 ","End":"03:59.405","Text":"which we call an accrued expense or an expense payable and at the same time,"},{"Start":"03:59.405 ","End":"04:04.805","Text":"recognize the expenses being incurred with the decrease in equity."},{"Start":"04:04.805 ","End":"04:10.070","Text":"Note that accounting equation balances because on the right side of the equation,"},{"Start":"04:10.070 ","End":"04:15.980","Text":"we have the increase in liabilities and a decrease in expenses."},{"Start":"04:15.980 ","End":"04:20.390","Text":"When come along to year number 2 and we\u0027ve not"},{"Start":"04:20.390 ","End":"04:25.055","Text":"actually paid the cash to the landlord for the rent,"},{"Start":"04:25.055 ","End":"04:28.040","Text":"the asset called cash will decrease."},{"Start":"04:28.040 ","End":"04:32.150","Text":"We can\u0027t recognize an expense in year 2,"},{"Start":"04:32.150 ","End":"04:40.540","Text":"but we do then reduce the liability because the cash has now been paid."},{"Start":"04:40.540 ","End":"04:44.630","Text":"We will now look at 2 further examples before"},{"Start":"04:44.630 ","End":"04:48.784","Text":"we complete this section on the accrual concept."},{"Start":"04:48.784 ","End":"04:55.445","Text":"These 2 examples will focus on deferred income and prepaid expenses."},{"Start":"04:55.445 ","End":"05:03.035","Text":"Now recall the 6 accrual scenarios explained to you earlier on in this presentation."},{"Start":"05:03.035 ","End":"05:08.855","Text":"This example here focuses on the first of those accrual scenarios,"},{"Start":"05:08.855 ","End":"05:13.700","Text":"or as explained in the previous example 1."},{"Start":"05:13.700 ","End":"05:19.700","Text":"Here a customer places an order for 1,000 bolts."},{"Start":"05:19.700 ","End":"05:24.290","Text":"We\u0027re told each bolt costs 1 currency unit and"},{"Start":"05:24.290 ","End":"05:30.199","Text":"the customer pays a 30 percent deposit when the order is placed."},{"Start":"05:30.199 ","End":"05:36.785","Text":"Then subsequently, those 1,000 bolts are delivered to the customer."},{"Start":"05:36.785 ","End":"05:40.280","Text":"In other words, now there is a measure of accomplishment,"},{"Start":"05:40.280 ","End":"05:48.305","Text":"and then the customer pays us the remaining 70 percent of the amount owed."},{"Start":"05:48.305 ","End":"05:54.860","Text":"Let us now see how this appears in an accounting equation worksheet."},{"Start":"05:54.860 ","End":"05:58.520","Text":"We will set up the accounting equation worksheet of"},{"Start":"05:58.520 ","End":"06:04.490","Text":"assets equals liabilities plus owner\u0027s equity."},{"Start":"06:04.490 ","End":"06:10.610","Text":"We\u0027ll have an asset called cash and we\u0027ll have to have a liability,"},{"Start":"06:10.610 ","End":"06:14.315","Text":"you will see called deferred income."},{"Start":"06:14.315 ","End":"06:18.125","Text":"Now we have not been given dates in this transaction."},{"Start":"06:18.125 ","End":"06:21.975","Text":"So we will simply look at the 2 time frames,"},{"Start":"06:21.975 ","End":"06:25.910","Text":"we\u0027ll look at the transaction when the deposit was"},{"Start":"06:25.910 ","End":"06:32.600","Text":"received and the transaction when the bolts were actually delivered to the customer."},{"Start":"06:32.600 ","End":"06:37.414","Text":"When the deposit is received from the customer,"},{"Start":"06:37.414 ","End":"06:41.930","Text":"an asset called cash will increase by 300."},{"Start":"06:41.930 ","End":"06:48.715","Text":"Remember it\u0027s a 30 percent deposit on 1000 bolts at 1 currency unit each."},{"Start":"06:48.715 ","End":"06:51.995","Text":"We can\u0027t recognize any income as being"},{"Start":"06:51.995 ","End":"06:56.000","Text":"earned because there\u0027s been no measure of accomplishment."},{"Start":"06:56.000 ","End":"07:00.380","Text":"The entity here has not delivered the bolts to the customer."},{"Start":"07:00.380 ","End":"07:04.200","Text":"Therefore, liability called deferred income,"},{"Start":"07:04.200 ","End":"07:08.120","Text":"as you saw in example 1 is recognized."},{"Start":"07:08.120 ","End":"07:15.494","Text":"The second part of the story is now the delivery of the bolts to the customer."},{"Start":"07:15.494 ","End":"07:19.780","Text":"Now, this is going to be an interesting application of"},{"Start":"07:19.780 ","End":"07:25.060","Text":"the definition of income because now remember,"},{"Start":"07:25.060 ","End":"07:30.070","Text":"income can be recognized as earned either through"},{"Start":"07:30.070 ","End":"07:35.935","Text":"an increase in cash or a decrease in liabilities."},{"Start":"07:35.935 ","End":"07:38.770","Text":"Maybe just note that down on the side here."},{"Start":"07:38.770 ","End":"07:42.100","Text":"Income can be recognized through"},{"Start":"07:42.100 ","End":"07:49.355","Text":"an increase in assets or through a decrease in liabilities."},{"Start":"07:49.355 ","End":"07:54.045","Text":"In this transaction when the bolts are delivered to customers,"},{"Start":"07:54.045 ","End":"08:00.540","Text":"we know the entity needs to recognize income of 1,000."},{"Start":"08:00.540 ","End":"08:02.840","Text":"How does it do so?"},{"Start":"08:02.840 ","End":"08:05.950","Text":"700 is received in cash."},{"Start":"08:05.950 ","End":"08:09.250","Text":"There\u0027s an increase in the asset cash of 700 on"},{"Start":"08:09.250 ","End":"08:13.210","Text":"the left side of the equation and at the same time,"},{"Start":"08:13.210 ","End":"08:16.000","Text":"there is a decrease in the liability,"},{"Start":"08:16.000 ","End":"08:19.060","Text":"the deferred income of 300."},{"Start":"08:19.060 ","End":"08:21.655","Text":"Here in 1 transaction,"},{"Start":"08:21.655 ","End":"08:25.345","Text":"you are seeing the application of the income definition."},{"Start":"08:25.345 ","End":"08:30.040","Text":"Income is now earned through both an increase in"},{"Start":"08:30.040 ","End":"08:36.190","Text":"assets of 700 and a decrease in liabilities of 300."},{"Start":"08:36.190 ","End":"08:42.040","Text":"Note the accounting equation balances because on the left side of the equation,"},{"Start":"08:42.040 ","End":"08:47.980","Text":"we have here an increase in assets of 700 and on the right side of the equation,"},{"Start":"08:47.980 ","End":"08:52.240","Text":"we have a net increase of 700 as well."},{"Start":"08:52.240 ","End":"08:54.685","Text":"Following on from this,"},{"Start":"08:54.685 ","End":"08:58.720","Text":"we\u0027re going to examine a bit more closely whether"},{"Start":"08:58.720 ","End":"09:04.270","Text":"that deferred income is in fact correctly recognized as a liability."},{"Start":"09:04.270 ","End":"09:09.070","Text":"You\u0027ll note here it\u0027s referred to as the cash received in advance."},{"Start":"09:09.070 ","End":"09:13.510","Text":"The cash received in advance is referred to as deferred income,"},{"Start":"09:13.510 ","End":"09:17.350","Text":"or as I mentioned before unearned income."},{"Start":"09:17.350 ","End":"09:20.065","Text":"Looking at the liability definition,"},{"Start":"09:20.065 ","End":"09:22.345","Text":"we have to ask ourselves the question,"},{"Start":"09:22.345 ","End":"09:28.615","Text":"is this deferred income a present obligation to transfer"},{"Start":"09:28.615 ","End":"09:35.665","Text":"an economic resource and did it come about as a result of past events?"},{"Start":"09:35.665 ","End":"09:38.874","Text":"Looking at the present obligation first,"},{"Start":"09:38.874 ","End":"09:40.675","Text":"we can say, yes,"},{"Start":"09:40.675 ","End":"09:45.640","Text":"we satisfy that obligation because the merchant here has"},{"Start":"09:45.640 ","End":"09:53.360","Text":"an obligation to provide the bolts to the customer or otherwise refund the customer."},{"Start":"09:53.360 ","End":"09:59.545","Text":"Is there a transfer of an economic resource in this transaction?"},{"Start":"09:59.545 ","End":"10:02.560","Text":"Again, we could answer yes,"},{"Start":"10:02.560 ","End":"10:05.920","Text":"because the merchant will have to deliver the bolts worth"},{"Start":"10:05.920 ","End":"10:12.595","Text":"at least 300 currency units in respect of the cash received in advance."},{"Start":"10:12.595 ","End":"10:17.860","Text":"Thirdly, is this as a result of past events?"},{"Start":"10:17.860 ","End":"10:22.420","Text":"Again, we can say yes because the past event was"},{"Start":"10:22.420 ","End":"10:27.925","Text":"the receipt of the 300 currency units from the customer."},{"Start":"10:27.925 ","End":"10:33.850","Text":"Therefore, the deferred income is correctly recognized as a liability."},{"Start":"10:33.850 ","End":"10:39.640","Text":"The second of these 2 examples focuses on pre-paid expenses."},{"Start":"10:39.640 ","End":"10:43.240","Text":"Now recall in terms of the 6 accrual scenarios,"},{"Start":"10:43.240 ","End":"10:48.025","Text":"this was scenario number 4 which we looked at earlier on,"},{"Start":"10:48.025 ","End":"10:53.110","Text":"or example 4 in the previous set of 6 examples."},{"Start":"10:53.110 ","End":"10:55.000","Text":"In this situation here,"},{"Start":"10:55.000 ","End":"10:59.950","Text":"the entity is paying 1,200 currency units in cash."},{"Start":"10:59.950 ","End":"11:02.920","Text":"The payment is made on the 1st of January,"},{"Start":"11:02.920 ","End":"11:07.450","Text":"and this is for insurance cover for the period going from 1,"},{"Start":"11:07.450 ","End":"11:11.965","Text":"January all the way through to 31, December."},{"Start":"11:11.965 ","End":"11:16.975","Text":"Let us now analyze this on the accounting equation worksheet."},{"Start":"11:16.975 ","End":"11:24.220","Text":"Assets equals liabilities plus owner\u0027s equity."},{"Start":"11:24.220 ","End":"11:27.700","Text":"You will see we will have an asset called cash,"},{"Start":"11:27.700 ","End":"11:36.135","Text":"which we\u0027ll have to deal with and also an asset called the pre-paid expenses."},{"Start":"11:36.135 ","End":"11:41.420","Text":"Now here we\u0027ll simply use the dates to illustrate the transactions."},{"Start":"11:41.420 ","End":"11:44.425","Text":"On the 1st of January,"},{"Start":"11:44.425 ","End":"11:49.405","Text":"the entity is paying 1,200 currency units in cash."},{"Start":"11:49.405 ","End":"11:54.765","Text":"The asset called cash must decrease by 1,200."},{"Start":"11:54.765 ","End":"11:58.050","Text":"Note we can\u0027t recognize an expense"},{"Start":"11:58.050 ","End":"12:03.300","Text":"immediately because the sacrifice has not yet taken place."},{"Start":"12:03.300 ","End":"12:07.075","Text":"The entity has not yet incurred the expense"},{"Start":"12:07.075 ","End":"12:11.795","Text":"relating to the insurance cover for the 12 months."},{"Start":"12:11.795 ","End":"12:15.105","Text":"Therefore, an asset is recognized upon"},{"Start":"12:15.105 ","End":"12:20.055","Text":"payments of this cash to the insurance company of 1,200."},{"Start":"12:20.055 ","End":"12:26.005","Text":"Now, all the way down for 12 months, month by month,"},{"Start":"12:26.005 ","End":"12:31.630","Text":"up until 31 December or I\u0027m going to do it now in 1 transaction,"},{"Start":"12:31.630 ","End":"12:34.675","Text":"which is the more common way in practice."},{"Start":"12:34.675 ","End":"12:36.550","Text":"At the end of the year,"},{"Start":"12:36.550 ","End":"12:44.020","Text":"the entity can now recognize an expense in relation to this insurance."},{"Start":"12:44.020 ","End":"12:48.010","Text":"Again remember, how do expenses come about?"},{"Start":"12:48.010 ","End":"12:51.340","Text":"Expenses come about through either a decrease in"},{"Start":"12:51.340 ","End":"12:55.480","Text":"assets or through an increase in liabilities."},{"Start":"12:55.480 ","End":"12:59.365","Text":"Now we will not see an increase in liabilities in this transaction,"},{"Start":"12:59.365 ","End":"13:03.250","Text":"but we will see a decrease in assets."},{"Start":"13:03.250 ","End":"13:05.500","Text":"At 31 December,"},{"Start":"13:05.500 ","End":"13:11.995","Text":"the entity has now incurred the expense of insurance for the 12 months."},{"Start":"13:11.995 ","End":"13:15.880","Text":"Therefore, the asset, pre-paid expenses,"},{"Start":"13:15.880 ","End":"13:18.625","Text":"decreases by 1,200,"},{"Start":"13:18.625 ","End":"13:26.200","Text":"and equity decreases by 1,200 as well recognizing the expense for the period."},{"Start":"13:26.200 ","End":"13:32.470","Text":"Here we see the decrease in assets giving rise to the expense."},{"Start":"13:32.470 ","End":"13:35.035","Text":"Let us now focus on"},{"Start":"13:35.035 ","End":"13:38.050","Text":"that pre-paid expenses and think about"},{"Start":"13:38.050 ","End":"13:41.410","Text":"whether the pre-paid expenses are in fact an asset."},{"Start":"13:41.410 ","End":"13:46.390","Text":"In this case here, it is the pre-paid insurance expense and asset?"},{"Start":"13:46.390 ","End":"13:48.505","Text":"The asset definition,"},{"Start":"13:48.505 ","End":"13:52.150","Text":"is there a present economic resource which is"},{"Start":"13:52.150 ","End":"13:57.160","Text":"controlled by the entity as a result of past events?"},{"Start":"13:57.160 ","End":"13:59.620","Text":"The first part of the definition,"},{"Start":"13:59.620 ","End":"14:02.755","Text":"is there a present economic resource?"},{"Start":"14:02.755 ","End":"14:04.930","Text":"The answer is yes,"},{"Start":"14:04.930 ","End":"14:08.320","Text":"there is a present economic resource because"},{"Start":"14:08.320 ","End":"14:14.365","Text":"the entity has a right to benefit from the insurance cover,"},{"Start":"14:14.365 ","End":"14:17.305","Text":"which has the potential to produce"},{"Start":"14:17.305 ","End":"14:21.430","Text":"economic benefits through that insurance cover and a loss"},{"Start":"14:21.430 ","End":"14:29.110","Text":"of potentially income of the inventory is destroyed or the premises are destroyed."},{"Start":"14:29.110 ","End":"14:33.545","Text":"Is this controlled by the entity?"},{"Start":"14:33.545 ","End":"14:35.855","Text":"Again, we can answer yes."},{"Start":"14:35.855 ","End":"14:41.435","Text":"It\u0027s controlled by the entity through the contract with the insurance company."},{"Start":"14:41.435 ","End":"14:46.510","Text":"Finally, is this as a result of past events?"},{"Start":"14:46.510 ","End":"14:48.470","Text":"Again, yes, it is."},{"Start":"14:48.470 ","End":"14:51.590","Text":"The past event here is the payment or was"},{"Start":"14:51.590 ","End":"14:56.940","Text":"the payment of the cash to the insurance company."}],"ID":28510},{"Watched":false,"Name":"Recognition of income and expenses","Duration":"8m 43s","ChapterTopicVideoID":26481,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:02.550","Text":"My name is Dave Kolitz,"},{"Start":"00:02.550 ","End":"00:03.795","Text":"and in this video,"},{"Start":"00:03.795 ","End":"00:08.700","Text":"we will focus on the recognition of income and expenses."},{"Start":"00:08.700 ","End":"00:11.910","Text":"You will appreciate that the recognition of income and"},{"Start":"00:11.910 ","End":"00:17.185","Text":"expenses is closely aligned with the accrual concept."},{"Start":"00:17.185 ","End":"00:22.085","Text":"You\u0027ve come across the definition of income a number of times before."},{"Start":"00:22.085 ","End":"00:27.470","Text":"Just to recap, income is recognized as earned when there"},{"Start":"00:27.470 ","End":"00:32.870","Text":"is an increase in assets or a decrease in abilities,"},{"Start":"00:32.870 ","End":"00:37.030","Text":"which increases equity, excluding,"},{"Start":"00:37.030 ","End":"00:42.680","Text":"therefore other than contributions from holders of equity claims,"},{"Start":"00:42.680 ","End":"00:46.775","Text":"in other words, excluding contributions from owners."},{"Start":"00:46.775 ","End":"00:51.230","Text":"Firstly, focusing on an increase in assets."},{"Start":"00:51.230 ","End":"00:55.985","Text":"Now you\u0027ll recall from and we\u0027ve seen in previous examples"},{"Start":"00:55.985 ","End":"01:01.885","Text":"that an entity could provide services or sell goods for cash,"},{"Start":"01:01.885 ","End":"01:04.510","Text":"or could provide the services,"},{"Start":"01:04.510 ","End":"01:06.380","Text":"or sell goods on credit,"},{"Start":"01:06.380 ","End":"01:10.510","Text":"in other words, establishing an asset called accounts receivable."},{"Start":"01:10.510 ","End":"01:16.515","Text":"Either way, if the asset called cash or accounts receivable increases,"},{"Start":"01:16.515 ","End":"01:20.740","Text":"and remember this goes back to the accrual basis of accounting because"},{"Start":"01:20.740 ","End":"01:25.299","Text":"we need to recognize the income in the period when earned."},{"Start":"01:25.299 ","End":"01:28.870","Text":"Whether the cash is received in the current period,"},{"Start":"01:28.870 ","End":"01:32.650","Text":"or whether in fact the services are provided"},{"Start":"01:32.650 ","End":"01:36.490","Text":"on credit and the cash will be received in the following period."},{"Start":"01:36.490 ","End":"01:38.600","Text":"According to the accrual concept,"},{"Start":"01:38.600 ","End":"01:42.075","Text":"when we increase the asset cash or accounts receivable,"},{"Start":"01:42.075 ","End":"01:48.005","Text":"we can increase equity and recognize income as being earned."},{"Start":"01:48.005 ","End":"01:51.380","Text":"Turning to the decrease in abilities scenario,"},{"Start":"01:51.380 ","End":"01:57.070","Text":"you will also recall here that there were 2 legs to this type of transaction."},{"Start":"01:57.070 ","End":"02:00.740","Text":"In order to recognize income from a decrease in"},{"Start":"02:00.740 ","End":"02:05.945","Text":"abilities there had to have been a advanced receipt of cash."},{"Start":"02:05.945 ","End":"02:09.370","Text":"Other words, cash being received in the current period"},{"Start":"02:09.370 ","End":"02:14.990","Text":"relating to services that will be provided in a future period."},{"Start":"02:14.990 ","End":"02:17.075","Text":"As a starting point,"},{"Start":"02:17.075 ","End":"02:20.210","Text":"we had to recognize an increase and this would be"},{"Start":"02:20.210 ","End":"02:24.274","Text":"an increase in the asset cash being received."},{"Start":"02:24.274 ","End":"02:32.825","Text":"We would recognize a liability called deferred income increasing as well."},{"Start":"02:32.825 ","End":"02:39.260","Text":"No recognition of income because the cash was received in advance."},{"Start":"02:39.260 ","End":"02:42.840","Text":"Then subsequently in a following period,"},{"Start":"02:42.840 ","End":"02:44.885","Text":"when the income is earned,"},{"Start":"02:44.885 ","End":"02:48.905","Text":"the liability decreases and we recognize"},{"Start":"02:48.905 ","End":"02:55.090","Text":"income as being earned when in fact the service is provided."},{"Start":"02:55.090 ","End":"03:00.200","Text":"Finally, turning our attention to an increase in equity and exclusion,"},{"Start":"03:00.200 ","End":"03:03.275","Text":"the exclusion of contributions from owners."},{"Start":"03:03.275 ","End":"03:05.900","Text":"If an owner contributes cash,"},{"Start":"03:05.900 ","End":"03:08.300","Text":"and this will again be cash over here,"},{"Start":"03:08.300 ","End":"03:10.535","Text":"an owner contributing cash,"},{"Start":"03:10.535 ","End":"03:13.370","Text":"that will also increase equity,"},{"Start":"03:13.370 ","End":"03:16.250","Text":"but note income will not be earned."},{"Start":"03:16.250 ","End":"03:20.090","Text":"This will be simply regarded as a contribution from"},{"Start":"03:20.090 ","End":"03:25.565","Text":"the owner and it cannot be part of a measure of accomplishment."},{"Start":"03:25.565 ","End":"03:31.895","Text":"Turning our attention now to a review of the definition of an expense."},{"Start":"03:31.895 ","End":"03:36.860","Text":"You will recall that expenses come about through a decrease in"},{"Start":"03:36.860 ","End":"03:43.645","Text":"assets or an increase in liabilities that decreases equity,"},{"Start":"03:43.645 ","End":"03:50.540","Text":"excluding therefore other than distributions to holders of equity claims,"},{"Start":"03:50.540 ","End":"03:56.330","Text":"in other words, excluding distributions or dividends to owners."},{"Start":"03:56.330 ","End":"03:59.855","Text":"Looking first at a decrease in assets."},{"Start":"03:59.855 ","End":"04:03.980","Text":"Let\u0027s use the example of a cash asset."},{"Start":"04:03.980 ","End":"04:09.320","Text":"The entity pays out cash and cash decreases that will result in"},{"Start":"04:09.320 ","End":"04:14.825","Text":"an expense being incurred and a corresponding decrease in equity."},{"Start":"04:14.825 ","End":"04:18.440","Text":"You\u0027ll also recall looking at liabilities that"},{"Start":"04:18.440 ","End":"04:23.240","Text":"expenses can be incurred through an increase in liabilities."},{"Start":"04:23.240 ","End":"04:27.320","Text":"The liability that will be increasing here will be called,"},{"Start":"04:27.320 ","End":"04:31.730","Text":"as you\u0027ve learned already, the accrued expense."},{"Start":"04:31.730 ","End":"04:35.179","Text":"If the entity has incurred an expense,"},{"Start":"04:35.179 ","End":"04:37.525","Text":"but has not yet paid for it,"},{"Start":"04:37.525 ","End":"04:42.080","Text":"we recognize liability called accrued expenses and at"},{"Start":"04:42.080 ","End":"04:47.615","Text":"the same time decrease equity to recognize the expense."},{"Start":"04:47.615 ","End":"04:50.840","Text":"Finally, looking at the exclusion."},{"Start":"04:50.840 ","End":"04:54.544","Text":"Again here we are looking at the cash assets."},{"Start":"04:54.544 ","End":"05:01.309","Text":"If cash is paid out as a distribution or dividends to owners,"},{"Start":"05:01.309 ","End":"05:03.860","Text":"the owners equity must decrease,"},{"Start":"05:03.860 ","End":"05:09.425","Text":"but that cannot be recognized as a measure of sacrifice or as an expense."},{"Start":"05:09.425 ","End":"05:15.265","Text":"It is simply recognized as a distribution or dividend to the owner."},{"Start":"05:15.265 ","End":"05:19.095","Text":"The same as the contribution do not affect income,"},{"Start":"05:19.095 ","End":"05:21.890","Text":"distributions do not affect expenses."},{"Start":"05:21.890 ","End":"05:24.995","Text":"They\u0027re not part of the measurement of performance"},{"Start":"05:24.995 ","End":"05:29.020","Text":"and therefore not part of the profit for the period."},{"Start":"05:29.020 ","End":"05:36.395","Text":"We will now take a look at an example combining the recognition of income and expenses."},{"Start":"05:36.395 ","End":"05:41.060","Text":"This example looks at sales and cost of goods sold."},{"Start":"05:41.060 ","End":"05:43.505","Text":"You will see in the example,"},{"Start":"05:43.505 ","End":"05:51.875","Text":"we start off with an opening balance of inventory at a cost of 1,200 currency units."},{"Start":"05:51.875 ","End":"05:56.060","Text":"Therefore, we will have an asset which we\u0027ll call"},{"Start":"05:56.060 ","End":"06:02.050","Text":"inventory and we simply put in here a balance of 1,200."},{"Start":"06:02.050 ","End":"06:08.195","Text":"You are then told that inventory with a cost of 500,"},{"Start":"06:08.195 ","End":"06:12.090","Text":"is sold for 750 in cash."},{"Start":"06:12.090 ","End":"06:16.165","Text":"Now there are going to be 2 sides to this transaction."},{"Start":"06:16.165 ","End":"06:21.610","Text":"We will have to firstly recognize the income side of the transaction,"},{"Start":"06:21.610 ","End":"06:27.084","Text":"which will be to recognize the 750 cash received as income,"},{"Start":"06:27.084 ","End":"06:31.360","Text":"and then recognize the expense side of the transaction"},{"Start":"06:31.360 ","End":"06:36.130","Text":"to recognize the cost of 500 as an expense,"},{"Start":"06:36.130 ","End":"06:42.340","Text":"which you will see this referred to as cost of goods sold."},{"Start":"06:42.340 ","End":"06:46.550","Text":"Firstly, recognizing this 750 as income."},{"Start":"06:46.550 ","End":"06:50.465","Text":"We will have an asset which is cash,"},{"Start":"06:50.465 ","End":"06:56.315","Text":"and the asset cash will increase by an amount of 750."},{"Start":"06:56.315 ","End":"06:58.085","Text":"At the same time,"},{"Start":"06:58.085 ","End":"07:01.340","Text":"equity will increase by 750,"},{"Start":"07:01.340 ","End":"07:04.140","Text":"recognized as income,"},{"Start":"07:04.140 ","End":"07:08.015","Text":"other words the income side of the transaction."},{"Start":"07:08.015 ","End":"07:11.195","Text":"But in earning that income,"},{"Start":"07:11.195 ","End":"07:13.550","Text":"as a measure of accomplishment,"},{"Start":"07:13.550 ","End":"07:17.465","Text":"the entity had to sacrifice inventory,"},{"Start":"07:17.465 ","End":"07:20.760","Text":"which cost 500, and therefore,"},{"Start":"07:20.760 ","End":"07:24.590","Text":"we recognize an expense of 500,"},{"Start":"07:24.590 ","End":"07:27.800","Text":"which is shown as a decrease in"},{"Start":"07:27.800 ","End":"07:32.690","Text":"the asset inventory because the asset inventory has decreased by 500,"},{"Start":"07:32.690 ","End":"07:38.120","Text":"inventory costing 500 has left the premises of the entity,"},{"Start":"07:38.120 ","End":"07:44.370","Text":"and this is recognized as an expense of 500."},{"Start":"07:44.370 ","End":"07:46.625","Text":"As I\u0027ve said a few minutes ago,"},{"Start":"07:46.625 ","End":"07:52.685","Text":"that expense is known as a cost of goods sold expense."},{"Start":"07:52.685 ","End":"07:57.725","Text":"Finally, a brief word about the matching concept."},{"Start":"07:57.725 ","End":"08:00.830","Text":"Some of you may have heard of the matching concept."},{"Start":"08:00.830 ","End":"08:06.785","Text":"It is currently not a qualitative characteristic of accounting information."},{"Start":"08:06.785 ","End":"08:10.460","Text":"It used to be an important concept in the past."},{"Start":"08:10.460 ","End":"08:16.414","Text":"Applying the accrual basis will often result in matching."},{"Start":"08:16.414 ","End":"08:23.720","Text":"What this means is that when we apply the accrual basis of accounting and recognize"},{"Start":"08:23.720 ","End":"08:33.255","Text":"income when it is earned and recognize expenses when they are incurred,"},{"Start":"08:33.255 ","End":"08:43.440","Text":"this will often result in the matching of the income with the expenses."}],"ID":28511},{"Watched":false,"Name":"Double entry bookeeping PART 1","Duration":"9m 6s","ChapterTopicVideoID":26482,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:03.900","Text":"My name is Dave Kolitz and in this video,"},{"Start":"00:03.900 ","End":"00:07.395","Text":"we will focus on double-entry bookkeeping."},{"Start":"00:07.395 ","End":"00:10.979","Text":"Double-entry bookkeeping forms the basis of recording"},{"Start":"00:10.979 ","End":"00:14.895","Text":"all transactions in any set of accounting records."},{"Start":"00:14.895 ","End":"00:20.159","Text":"There are a few important principles to note in learning about double-entry bookkeeping."},{"Start":"00:20.159 ","End":"00:26.870","Text":"Firstly, every transaction must affect at least 2 accounts."},{"Start":"00:26.870 ","End":"00:30.260","Text":"These accounts could be balance sheet accounts,"},{"Start":"00:30.260 ","End":"00:33.305","Text":"they could be asset accounts,"},{"Start":"00:33.305 ","End":"00:38.165","Text":"or they could be the liability or equity accounts."},{"Start":"00:38.165 ","End":"00:40.400","Text":"Also looking at the 2 accounts,"},{"Start":"00:40.400 ","End":"00:44.975","Text":"the transactions can also affect the income statement accounts,"},{"Start":"00:44.975 ","End":"00:47.930","Text":"in other words, the income accounts,"},{"Start":"00:47.930 ","End":"00:51.040","Text":"or the expense accounts."},{"Start":"00:51.040 ","End":"00:56.855","Text":"Now, when we say that all transactions must affect at least 2 accounts,"},{"Start":"00:56.855 ","End":"01:05.205","Text":"this is achieved by having 1 debit and 1 credit in every transaction,"},{"Start":"01:05.205 ","End":"01:10.355","Text":"or at least 1 debit and at least 1 credit in every transaction."},{"Start":"01:10.355 ","End":"01:14.560","Text":"Debits and credits form the basis of double-entry bookkeeping."},{"Start":"01:14.560 ","End":"01:17.885","Text":"We\u0027ll now examine the principles of"},{"Start":"01:17.885 ","End":"01:22.310","Text":"debits and credits in double-entry bookkeeping in the next slide."},{"Start":"01:22.310 ","End":"01:26.795","Text":"Pay close attention to the information on this slide."},{"Start":"01:26.795 ","End":"01:29.945","Text":"This is the slide you need to keep coming back to,"},{"Start":"01:29.945 ","End":"01:36.785","Text":"to understand double-entry bookkeeping and the principles of debits and credits."},{"Start":"01:36.785 ","End":"01:40.970","Text":"On the top you will see the familiar accounting equation of"},{"Start":"01:40.970 ","End":"01:45.670","Text":"assets equals liabilities plus equity."},{"Start":"01:45.670 ","End":"01:52.440","Text":"Now, You\u0027ll also note that on the left-hand side of the equals sign are"},{"Start":"01:52.440 ","End":"02:00.350","Text":"the assets and on the right-hand side of the equals sign are the liabilities and equity."},{"Start":"02:00.350 ","End":"02:05.165","Text":"You will also notice that each of the assets,"},{"Start":"02:05.165 ","End":"02:11.285","Text":"liabilities, equity, have a T-shaped account."},{"Start":"02:11.285 ","End":"02:14.645","Text":"I\u0027m drawing in the T shapes over here."},{"Start":"02:14.645 ","End":"02:20.375","Text":"We can indicate the left-hand side and the right-hand side."},{"Start":"02:20.375 ","End":"02:22.740","Text":"Again, the left-hand side,"},{"Start":"02:22.740 ","End":"02:24.720","Text":"and the right-hand side,"},{"Start":"02:24.720 ","End":"02:26.495","Text":"and the left-hand side,"},{"Start":"02:26.495 ","End":"02:31.280","Text":"and the right-hand side of each of the assets, liabilities and equity."},{"Start":"02:31.280 ","End":"02:34.145","Text":"Now, listen carefully to the following logic."},{"Start":"02:34.145 ","End":"02:39.125","Text":"Assets sit on the left side of the accounting equation."},{"Start":"02:39.125 ","End":"02:47.735","Text":"Therefore, to increase an asset requires a left side entry or a debit."},{"Start":"02:47.735 ","End":"02:52.355","Text":"Liabilities sit on the right side of the equation."},{"Start":"02:52.355 ","End":"02:58.610","Text":"Therefore, to increase liability requires a right-hand entry or a credit."},{"Start":"02:58.610 ","End":"03:00.200","Text":"In the same way,"},{"Start":"03:00.200 ","End":"03:04.910","Text":"equity sits on the right-hand side of the equation."},{"Start":"03:04.910 ","End":"03:11.945","Text":"Therefore, to increase equity also requires a right side entry or a credit."},{"Start":"03:11.945 ","End":"03:15.350","Text":"What you\u0027ve seen already is that debit or"},{"Start":"03:15.350 ","End":"03:20.660","Text":"credit does not mean increase or decrease as such."},{"Start":"03:20.660 ","End":"03:23.840","Text":"It\u0027s important to look at it in relation to"},{"Start":"03:23.840 ","End":"03:27.950","Text":"what side of the accounting equation we are referring to."},{"Start":"03:27.950 ","End":"03:34.775","Text":"Therefore, with assets, increases are recorded as debits on the left side,"},{"Start":"03:34.775 ","End":"03:39.860","Text":"whereas with liabilities and equity increases are recorded as"},{"Start":"03:39.860 ","End":"03:45.250","Text":"credits on the right side of each of the respective accounts."},{"Start":"03:45.250 ","End":"03:47.180","Text":"Now, by contrast,"},{"Start":"03:47.180 ","End":"03:52.970","Text":"to decrease an asset requires a right side entry or"},{"Start":"03:52.970 ","End":"04:01.565","Text":"a credit and to decrease a liability requires a left side entry or a debit."},{"Start":"04:01.565 ","End":"04:09.455","Text":"In the same way as to decrease equity requires a left side entry or a debit."},{"Start":"04:09.455 ","End":"04:12.875","Text":"Turning to the income statement accounts,"},{"Start":"04:12.875 ","End":"04:20.180","Text":"we can also insert a T shape on the income account and a T shape on"},{"Start":"04:20.180 ","End":"04:22.475","Text":"the expense account and insert"},{"Start":"04:22.475 ","End":"04:28.760","Text":"a left side and a right side and a left side and a right side."},{"Start":"04:28.760 ","End":"04:36.680","Text":"Recall that income increases equity and expenses decrease equity."},{"Start":"04:36.680 ","End":"04:40.190","Text":"Therefore, the increases and decreases in income and"},{"Start":"04:40.190 ","End":"04:45.850","Text":"expenses must always follow the same principles as equity."},{"Start":"04:45.850 ","End":"04:48.020","Text":"Let us look at income first."},{"Start":"04:48.020 ","End":"04:55.395","Text":"To increase income requires a right side account or a credit,"},{"Start":"04:55.395 ","End":"05:04.085","Text":"whereas to increase expenses requires a left side account or a debit."},{"Start":"05:04.085 ","End":"05:12.390","Text":"Note that expenses increase with a left-hand entry or a debit,"},{"Start":"05:12.390 ","End":"05:17.375","Text":"and that is because increases in expenses decrease"},{"Start":"05:17.375 ","End":"05:23.465","Text":"equity and equity decreases with a debit on the left side."},{"Start":"05:23.465 ","End":"05:26.645","Text":"Conversely, looking back to income,"},{"Start":"05:26.645 ","End":"05:32.690","Text":"to decrease income requires a left entry or a debit and"},{"Start":"05:32.690 ","End":"05:38.600","Text":"to decrease an expense requires a right entry or a credit."},{"Start":"05:38.600 ","End":"05:41.975","Text":"Now, these principles may appear complex,"},{"Start":"05:41.975 ","End":"05:44.870","Text":"but you\u0027ll become very familiar with them as you"},{"Start":"05:44.870 ","End":"05:48.220","Text":"start working with double-entry bookkeeping."},{"Start":"05:48.220 ","End":"05:50.640","Text":"To emphasize 2 important points,"},{"Start":"05:50.640 ","End":"05:54.390","Text":"debit or credit does not mean good or bad,"},{"Start":"05:54.390 ","End":"05:57.335","Text":"it does not mean increase or decrease."},{"Start":"05:57.335 ","End":"06:02.760","Text":"All a credit represents is a decrease in assets or"},{"Start":"06:02.760 ","End":"06:09.205","Text":"expenses or an increase in liabilities, equity and income."},{"Start":"06:09.205 ","End":"06:11.770","Text":"I will repeat the last couple of sentences,"},{"Start":"06:11.770 ","End":"06:15.020","Text":"this time using a red pen to illustrate."},{"Start":"06:15.020 ","End":"06:22.250","Text":"Remember, the debits and credits do not mean good or bad or increase or decrease."},{"Start":"06:22.250 ","End":"06:30.630","Text":"A debit entry simply represents an increase in assets or a decrease in liabilities,"},{"Start":"06:30.630 ","End":"06:32.750","Text":"a decrease in equity,"},{"Start":"06:32.750 ","End":"06:34.999","Text":"a decrease in income,"},{"Start":"06:34.999 ","End":"06:37.820","Text":"or an increase in expenses."},{"Start":"06:37.820 ","End":"06:45.875","Text":"All a credit entry represents is a decrease in assets or an increase in liabilities,"},{"Start":"06:45.875 ","End":"06:48.095","Text":"an increase in equity,"},{"Start":"06:48.095 ","End":"06:50.195","Text":"an increase in income,"},{"Start":"06:50.195 ","End":"06:53.720","Text":"or a decrease in expenses."},{"Start":"06:53.720 ","End":"06:58.670","Text":"This slide looks at what is often called the accounting process."},{"Start":"06:58.670 ","End":"07:03.320","Text":"The process starts by a business event occurring."},{"Start":"07:03.320 ","End":"07:08.195","Text":"The business event could be the buying of goods or services,"},{"Start":"07:08.195 ","End":"07:10.415","Text":"the selling of goods or services,"},{"Start":"07:10.415 ","End":"07:11.795","Text":"the receipt of cash,"},{"Start":"07:11.795 ","End":"07:13.375","Text":"or the payment of cash."},{"Start":"07:13.375 ","End":"07:15.150","Text":"That event is then"},{"Start":"07:15.150 ","End":"07:21.365","Text":"documented with some form"},{"Start":"07:21.365 ","End":"07:26.854","Text":"of cash slip or receipt or other similar document."},{"Start":"07:26.854 ","End":"07:35.480","Text":"The third step analyzes the data from the documents and journal entries are recorded."},{"Start":"07:35.480 ","End":"07:38.630","Text":"The journal entry is the first time that"},{"Start":"07:38.630 ","End":"07:41.840","Text":"the transaction is entered into the accounting system."},{"Start":"07:41.840 ","End":"07:44.930","Text":"The journal entry is entered into"},{"Start":"07:44.930 ","End":"07:51.565","Text":"the accounting system with a debit and a credit as previously described."},{"Start":"07:51.565 ","End":"07:54.225","Text":"Following on from the journal entries,"},{"Start":"07:54.225 ","End":"08:01.435","Text":"those entries are then posted to another accounting record called a ledger."},{"Start":"08:01.435 ","End":"08:07.085","Text":"A ledger is a record or a book featuring the individual accounts,"},{"Start":"08:07.085 ","End":"08:09.680","Text":"for example, the individual asset,"},{"Start":"08:09.680 ","End":"08:13.460","Text":"liability, equity, income and expense accounts."},{"Start":"08:13.460 ","End":"08:18.985","Text":"Those accounts are then balanced and balances are drawn up."},{"Start":"08:18.985 ","End":"08:23.270","Text":"A balance in an account represents the net increase or"},{"Start":"08:23.270 ","End":"08:28.625","Text":"decrease or the net debits or credits or credits over debits,"},{"Start":"08:28.625 ","End":"08:31.225","Text":"depending on which account we are looking at."},{"Start":"08:31.225 ","End":"08:37.225","Text":"From there, a document called a trial balance is prepared."},{"Start":"08:37.225 ","End":"08:42.270","Text":"After that, adjusting entries are processed,"},{"Start":"08:42.270 ","End":"08:46.010","Text":"and in conjunction with the adjusting entries,"},{"Start":"08:46.010 ","End":"08:49.580","Text":"a set of financial statements is prepared."},{"Start":"08:49.580 ","End":"08:56.390","Text":"There\u0027ll be examples following looking at the preparation of journal entries,"},{"Start":"08:56.390 ","End":"09:00.950","Text":"the posting to a ledger and the preparation of a trial balance."},{"Start":"09:00.950 ","End":"09:07.470","Text":"The adjusting entries and financial statements can in a following presentation."}],"ID":28512},{"Watched":false,"Name":"Double entry bookeeping PART 2","Duration":"8m 22s","ChapterTopicVideoID":26483,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:06.780","Text":"Looking now at an example of salaries paid to employees,"},{"Start":"00:06.780 ","End":"00:10.455","Text":"the documentation will be the HR,"},{"Start":"00:10.455 ","End":"00:16.770","Text":"Human Resources, or finance department producing payslips and these"},{"Start":"00:16.770 ","End":"00:19.710","Text":"payslips record individual payment details"},{"Start":"00:19.710 ","End":"00:23.370","Text":"and a summary of the total amount paid to employees."},{"Start":"00:23.370 ","End":"00:26.670","Text":"A journal entry is then recorded,"},{"Start":"00:26.670 ","End":"00:34.285","Text":"which increases the salaries expense and decreases the balance in the bank account."},{"Start":"00:34.285 ","End":"00:39.799","Text":"Let us now take a look at a few examples of double-entry bookkeeping."},{"Start":"00:39.799 ","End":"00:41.735","Text":"In example 1,"},{"Start":"00:41.735 ","End":"00:49.310","Text":"salaries are paid to employees on 31 January amounting to 10,000 currency units."},{"Start":"00:49.310 ","End":"00:52.895","Text":"Don\u0027t be concerned about the balance of the cash account right now,"},{"Start":"00:52.895 ","End":"00:57.065","Text":"we will use that balance when we come to the ledges in the following slide."},{"Start":"00:57.065 ","End":"01:01.265","Text":"Let\u0027s focus on the journal entry as a starting point."},{"Start":"01:01.265 ","End":"01:08.660","Text":"To do that, think back to the double-entry principles explained previously."},{"Start":"01:08.660 ","End":"01:15.880","Text":"We had assets equals liabilities plus owner\u0027s equity."},{"Start":"01:15.880 ","End":"01:18.395","Text":"We had 4 assets."},{"Start":"01:18.395 ","End":"01:23.630","Text":"The debit side on the left and the credit side on the right."},{"Start":"01:23.630 ","End":"01:30.950","Text":"We represented increases on the left and decreases on the right."},{"Start":"01:30.950 ","End":"01:32.921","Text":"For owners equity."},{"Start":"01:32.921 ","End":"01:41.700","Text":"You\u0027ll recall that there were income and expenses also affecting owner\u0027s equity."},{"Start":"01:41.700 ","End":"01:44.770","Text":"Looking at the expenses specifically,"},{"Start":"01:44.770 ","End":"01:50.515","Text":"we can also have a debit side and a credit side."},{"Start":"01:50.515 ","End":"01:55.279","Text":"Remember, expenses decrease equity."},{"Start":"01:55.279 ","End":"02:00.310","Text":"Therefore, to increase an expense required a debit entry,"},{"Start":"02:00.310 ","End":"02:04.525","Text":"and to decrease an expense required a credit entry."},{"Start":"02:04.525 ","End":"02:08.660","Text":"Therefore to analyze this transaction, expenses,"},{"Start":"02:08.660 ","End":"02:13.475","Text":"in this case, salaries expense is increasing."},{"Start":"02:13.475 ","End":"02:22.060","Text":"Therefore to increase salaries expense or any expense requires a debit entry."},{"Start":"02:22.060 ","End":"02:28.620","Text":"Therefore, we debit salaries with the 10,000."},{"Start":"02:28.620 ","End":"02:31.730","Text":"Bank is an asset."},{"Start":"02:31.730 ","End":"02:37.610","Text":"We\u0027re going to have to credit the asset because you want to decrease it."},{"Start":"02:37.610 ","End":"02:44.365","Text":"Therefore, we will credit bank with the amount, of 10,000."},{"Start":"02:44.365 ","End":"02:47.690","Text":"What you see here are the ledger accounts."},{"Start":"02:47.690 ","End":"02:50.780","Text":"The ledger account for salaries expense,"},{"Start":"02:50.780 ","End":"02:53.795","Text":"and the ledger account for bank."},{"Start":"02:53.795 ","End":"02:59.240","Text":"Note, the ledger accounts have a debit side and a credit side."},{"Start":"02:59.240 ","End":"03:02.570","Text":"For each account, debit side and a credit side,"},{"Start":"03:02.570 ","End":"03:05.420","Text":"it might be quite useful to insert"},{"Start":"03:05.420 ","End":"03:10.985","Text":"the increases and decreases relating to the particular type of account."},{"Start":"03:10.985 ","End":"03:18.380","Text":"We know expenses increase on the debit side and decrease in the credit side."},{"Start":"03:18.380 ","End":"03:24.605","Text":"Assets also increase on the debit side and decrease on the credit side."},{"Start":"03:24.605 ","End":"03:28.004","Text":"When we post journal entries"},{"Start":"03:28.004 ","End":"03:34.475","Text":"the important items to identify is what accounts to debit and credit."},{"Start":"03:34.475 ","End":"03:38.015","Text":"Importantly, note the contra account."},{"Start":"03:38.015 ","End":"03:45.365","Text":"All the contra account means is the name of the other account in the transaction."},{"Start":"03:45.365 ","End":"03:50.390","Text":"Let us then start with the debit to salaries expense."},{"Start":"03:50.390 ","End":"03:53.660","Text":"Here is the salaries expense account."},{"Start":"03:53.660 ","End":"03:59.155","Text":"We need to debit it with an amount of 10,000."},{"Start":"03:59.155 ","End":"04:01.445","Text":"The name of the other account,"},{"Start":"04:01.445 ","End":"04:05.105","Text":"the contra account is the bank account."},{"Start":"04:05.105 ","End":"04:09.950","Text":"We then go to the bank account and the bank account needs to be"},{"Start":"04:09.950 ","End":"04:15.590","Text":"credited because we want to decrease the bank account."},{"Start":"04:15.590 ","End":"04:19.895","Text":"We, therefore, credit the bank account with 10,000."},{"Start":"04:19.895 ","End":"04:23.480","Text":"The contra account is the name of the other account in this case,"},{"Start":"04:23.480 ","End":"04:28.880","Text":"the debit account, which is the salaries expense."},{"Start":"04:28.880 ","End":"04:33.350","Text":"Now looking at the balance in the bank account,"},{"Start":"04:33.350 ","End":"04:41.485","Text":"we mentioned on the previous slide that the bank account had a debit balance of 20,000."},{"Start":"04:41.485 ","End":"04:43.970","Text":"Note, indicated as a debit balance."},{"Start":"04:43.970 ","End":"04:49.615","Text":"We have now posted a 10,000 credit to the bank account."},{"Start":"04:49.615 ","End":"04:54.590","Text":"The balance now therefore goes down to 10,000."},{"Start":"04:54.590 ","End":"04:56.780","Text":"The salaries expense account,"},{"Start":"04:56.780 ","End":"04:59.785","Text":"because there was only a 10,000 debit,"},{"Start":"04:59.785 ","End":"05:06.485","Text":"the balance in this account is 10,000 and also debit at this point."},{"Start":"05:06.485 ","End":"05:11.605","Text":"Looking now at example 2, in example 2."},{"Start":"05:11.605 ","End":"05:17.650","Text":"Inventory is purchased on credit for 2,000 currency units."},{"Start":"05:17.650 ","End":"05:21.890","Text":"You\u0027re told the opening balance in both accounts is in fact 0."},{"Start":"05:21.890 ","End":"05:23.900","Text":"But that again, we will only need,"},{"Start":"05:23.900 ","End":"05:25.835","Text":"when we will look at the ledger accounts."},{"Start":"05:25.835 ","End":"05:28.640","Text":"Let\u0027s focus now on the journal entry."},{"Start":"05:28.640 ","End":"05:31.565","Text":"Let us now focus on the journal entry."},{"Start":"05:31.565 ","End":"05:37.580","Text":"Again, we will draw up part of the table that we saw in the previous slides."},{"Start":"05:37.580 ","End":"05:42.565","Text":"Assets equals liabilities plus owner\u0027s equity."},{"Start":"05:42.565 ","End":"05:49.175","Text":"You\u0027ll recall, looking at the assets is the debit side and a credit side."},{"Start":"05:49.175 ","End":"05:54.010","Text":"Looking at liabilities, a debit side and a credit side."},{"Start":"05:54.010 ","End":"05:58.929","Text":"Now, remember, because assets are on the left side of the equation,"},{"Start":"05:58.929 ","End":"06:02.110","Text":"to increase an asset requires a debit."},{"Start":"06:02.110 ","End":"06:04.945","Text":"To decrease an asset requires a credit."},{"Start":"06:04.945 ","End":"06:09.310","Text":"Because liabilities are on the right side of the equation."},{"Start":"06:09.310 ","End":"06:14.720","Text":"To increase a liability requires a lift entry or a credit."},{"Start":"06:14.720 ","End":"06:20.410","Text":"To decrease liability requires a right lift entry or a debit."},{"Start":"06:20.410 ","End":"06:22.690","Text":"Looking then at the journal entry,"},{"Start":"06:22.690 ","End":"06:25.810","Text":"we want to increase the inventory account."},{"Start":"06:25.810 ","End":"06:32.920","Text":"Therefore to increase the inventory account requires a lift entry or a debit."},{"Start":"06:32.920 ","End":"06:36.475","Text":"We debit inventory with 2,000."},{"Start":"06:36.475 ","End":"06:39.995","Text":"We want to increase an account called accounts payable."},{"Start":"06:39.995 ","End":"06:41.990","Text":"Accounts payable is liability."},{"Start":"06:41.990 ","End":"06:44.435","Text":"Therefore, to increase a liability,"},{"Start":"06:44.435 ","End":"06:51.580","Text":"accounts payable requires a credit entry and we credit accounts payable for 2,000."},{"Start":"06:51.580 ","End":"06:55.355","Text":"This slide now shows the ledger accounts."},{"Start":"06:55.355 ","End":"07:02.465","Text":"We have a ledger account for the inventory and a ledger account for the accounts payable."},{"Start":"07:02.465 ","End":"07:06.235","Text":"Again, remember inventory being an asset,"},{"Start":"07:06.235 ","End":"07:11.180","Text":"increases are recorded as debits and decreases as credits."},{"Start":"07:11.180 ","End":"07:15.410","Text":"Whereas accounts payable being an ability, increases,"},{"Start":"07:15.410 ","End":"07:20.665","Text":"are recorded as credits and decreases are recorded as debits."},{"Start":"07:20.665 ","End":"07:26.630","Text":"We know the journal entry needs to be posted as a debit inventory."},{"Start":"07:26.630 ","End":"07:33.335","Text":"To increase inventory, we therefore record the increase in inventory with a debit,"},{"Start":"07:33.335 ","End":"07:37.310","Text":"2,000, the debit side of the inventory account."},{"Start":"07:37.310 ","End":"07:42.079","Text":"Remember the contra account is the name of the other account affected."},{"Start":"07:42.079 ","End":"07:47.855","Text":"Therefore, the contrary account here must be the accounts payable."},{"Start":"07:47.855 ","End":"07:53.510","Text":"We then go to the accounts payable account that needs to be credited to increase it."},{"Start":"07:53.510 ","End":"07:57.710","Text":"We, therefore, credit accounts payable with 2,000."},{"Start":"07:57.710 ","End":"08:00.275","Text":"We enter the name of the contra account."},{"Start":"08:00.275 ","End":"08:04.325","Text":"In other words, where did the debit side of this entry go?"},{"Start":"08:04.325 ","End":"08:07.790","Text":"The debit side went to inventory."},{"Start":"08:07.790 ","End":"08:14.265","Text":"The balance in inventory account is now 2,000 as a debit balance."},{"Start":"08:14.265 ","End":"08:22.120","Text":"The balance in the accounts payable account is now 2,000 as a credit balance."}],"ID":28513},{"Watched":false,"Name":"Comprehensive example (Journal entries) PART 1","Duration":"13m 31s","ChapterTopicVideoID":26484,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:02.565","Text":"My name is Dave Kolitz."},{"Start":"00:02.565 ","End":"00:07.110","Text":"In this video, we will focus on a comprehensive example,"},{"Start":"00:07.110 ","End":"00:10.395","Text":"looking here at the journal entries."},{"Start":"00:10.395 ","End":"00:17.100","Text":"Subsequent video presentations will look at the ledger and then the tri-balance."},{"Start":"00:17.100 ","End":"00:25.165","Text":"You are given a balance sheet at the 31st of December of the 20X0 year."},{"Start":"00:25.165 ","End":"00:31.085","Text":"This is the end of a financial year and you will see in the transactions that follow,"},{"Start":"00:31.085 ","End":"00:37.960","Text":"we will be processing transactions for the month of January, 20X1."},{"Start":"00:37.960 ","End":"00:41.135","Text":"At this point, it\u0027s probably just worthwhile to take"},{"Start":"00:41.135 ","End":"00:44.735","Text":"a brief look at what is on the balance sheet."},{"Start":"00:44.735 ","End":"00:48.200","Text":"Firstly, you\u0027ll notice that the balance sheet balances."},{"Start":"00:48.200 ","End":"00:57.210","Text":"The total assets of 118,000 equal the total liabilities of 21,000 and"},{"Start":"00:57.210 ","End":"01:01.770","Text":"the total equity of 97,000 giving us the"},{"Start":"01:01.770 ","End":"01:08.250","Text":"118,000 liabilities plus equity equaling total assets."},{"Start":"01:08.250 ","End":"01:13.895","Text":"Take a look at the individual items on the balance sheet."},{"Start":"01:13.895 ","End":"01:16.560","Text":"There is 1 non-current asset;"},{"Start":"01:16.560 ","End":"01:18.585","Text":"the property, plant, and equipment,"},{"Start":"01:18.585 ","End":"01:21.030","Text":"and there are 3 current assets;"},{"Start":"01:21.030 ","End":"01:24.250","Text":"cash at bank, inventory, and accounts receivable."},{"Start":"01:24.250 ","End":"01:28.050","Text":"There are no non-current liabilities and there\u0027s"},{"Start":"01:28.050 ","End":"01:31.940","Text":"1 current liability which is accounts payable."},{"Start":"01:31.940 ","End":"01:36.975","Text":"Within equity, there share capital of 100,000."},{"Start":"01:36.975 ","End":"01:43.140","Text":"Note the retained profit has a negative number indicating in fact in"},{"Start":"01:43.140 ","End":"01:51.340","Text":"this case that this is a retained loss brought forward from previous years."},{"Start":"01:51.340 ","End":"01:54.190","Text":"You are now presented with a list of"},{"Start":"01:54.190 ","End":"02:00.910","Text":"10 transactions that occurred during the month of January of 20X1."},{"Start":"02:00.910 ","End":"02:05.170","Text":"Now we need to analyze these transactions prior to"},{"Start":"02:05.170 ","End":"02:09.235","Text":"entering them into the journal and then following that,"},{"Start":"02:09.235 ","End":"02:14.110","Text":"the journal entries will be posted into a ledger."},{"Start":"02:14.110 ","End":"02:17.560","Text":"In order to analyze the transactions,"},{"Start":"02:17.560 ","End":"02:23.255","Text":"we\u0027re going to go back to the accounting equation which you are familiar with."},{"Start":"02:23.255 ","End":"02:26.145","Text":"I\u0027ll write the accounting equation over here."},{"Start":"02:26.145 ","End":"02:33.380","Text":"Assets equals liabilities plus owner\u0027s equity."},{"Start":"02:33.380 ","End":"02:39.455","Text":"Remember as well that when we looked at double entries and debits and credits,"},{"Start":"02:39.455 ","End":"02:44.315","Text":"we had to consider our income and also"},{"Start":"02:44.315 ","End":"02:51.695","Text":"our expenses because we know that income increases equity."},{"Start":"02:51.695 ","End":"02:55.915","Text":"We know that expenses decrease equity."},{"Start":"02:55.915 ","End":"03:00.110","Text":"Let us now look at each transaction simply trying to"},{"Start":"03:00.110 ","End":"03:05.900","Text":"understand the double-entry involved by identifying whether"},{"Start":"03:05.900 ","End":"03:12.510","Text":"the transaction affects either an asset or"},{"Start":"03:12.510 ","End":"03:16.350","Text":"liability or equity or"},{"Start":"03:16.350 ","End":"03:22.000","Text":"income or expense and bearing in mind as you\u0027ve learned previously,"},{"Start":"03:22.000 ","End":"03:25.360","Text":"every transaction must have 2 sides."},{"Start":"03:25.360 ","End":"03:32.004","Text":"Therefore, every transaction will affect 1 or more of the assets,"},{"Start":"03:32.004 ","End":"03:35.995","Text":"liabilities, equity, income, or expense."},{"Start":"03:35.995 ","End":"03:39.020","Text":"Turning to transaction number 1,"},{"Start":"03:39.020 ","End":"03:42.390","Text":"ABC which is the company,"},{"Start":"03:42.390 ","End":"03:47.820","Text":"borrowed 10,000 currency units from the bank and this will"},{"Start":"03:47.820 ","End":"03:53.020","Text":"be repaid on 31 December of the X2 year."},{"Start":"03:53.020 ","End":"03:58.525","Text":"In other words, indicating it is a non-current liability."},{"Start":"03:58.525 ","End":"04:00.900","Text":"To analyze the transaction,"},{"Start":"04:00.900 ","End":"04:03.895","Text":"all I\u0027m going to do now is have a look"},{"Start":"04:03.895 ","End":"04:07.600","Text":"at which elements of the equation are being affected."},{"Start":"04:07.600 ","End":"04:09.850","Text":"In other words, just to repeat myself,"},{"Start":"04:09.850 ","End":"04:14.725","Text":"will the transaction, remember they have to be 2 sides always,"},{"Start":"04:14.725 ","End":"04:16.900","Text":"at least 2 sides affected,"},{"Start":"04:16.900 ","End":"04:18.925","Text":"which of the assets,"},{"Start":"04:18.925 ","End":"04:20.650","Text":"liabilities, equity, income,"},{"Start":"04:20.650 ","End":"04:23.845","Text":"and expenses are going to be affected?"},{"Start":"04:23.845 ","End":"04:30.259","Text":"When the company borrows 10,000 starting with the elements, the asset,"},{"Start":"04:30.259 ","End":"04:38.750","Text":"cash, or bank will increase and liability alone will increase as well."},{"Start":"04:38.750 ","End":"04:42.690","Text":"Note the accounting equation balances."},{"Start":"04:42.690 ","End":"04:46.270","Text":"There\u0027s an increase in assets on"},{"Start":"04:46.270 ","End":"04:51.420","Text":"the left side and an increase in liabilities on the right side."},{"Start":"04:51.420 ","End":"04:56.760","Text":"Transaction 2, the company collects 3,000 from"},{"Start":"04:56.760 ","End":"05:04.160","Text":"customers that had bought from it on credit in the previous year, 20X0."},{"Start":"05:04.160 ","End":"05:08.340","Text":"Now cash is being received from customers."},{"Start":"05:08.340 ","End":"05:12.115","Text":"To analyze the transaction, if you think about it,"},{"Start":"05:12.115 ","End":"05:17.710","Text":"an asset called cash is going to increase but"},{"Start":"05:17.710 ","End":"05:23.615","Text":"another asset called accounts receivable or debtors is going to decrease."},{"Start":"05:23.615 ","End":"05:27.410","Text":"Note again, the accounting equation balances because we have"},{"Start":"05:27.410 ","End":"05:33.775","Text":"an increase and a decrease both on the left-hand side of the equation."},{"Start":"05:33.775 ","End":"05:36.195","Text":"In transaction 4,"},{"Start":"05:36.195 ","End":"05:40.575","Text":"the company paid 2,000 for"},{"Start":"05:40.575 ","End":"05:43.040","Text":"office supplies and you\u0027re told these are"},{"Start":"05:43.040 ","End":"05:46.600","Text":"consumed by the end of January of the current year."},{"Start":"05:46.600 ","End":"05:49.560","Text":"Therefore, the expense is being incurred"},{"Start":"05:49.560 ","End":"05:53.795","Text":"because the supplies are being used in the current month."},{"Start":"05:53.795 ","End":"05:56.660","Text":"The company has paid for these."},{"Start":"05:56.660 ","End":"06:02.040","Text":"Paid always indicates there\u0027s going to be some cash outflow."},{"Start":"06:02.040 ","End":"06:07.875","Text":"Therefore again, an asset called cash will decrease."},{"Start":"06:07.875 ","End":"06:12.050","Text":"Now, remember, expenses are increasing but"},{"Start":"06:12.050 ","End":"06:16.535","Text":"an increase in an expense leads to a decrease in equity."},{"Start":"06:16.535 ","End":"06:19.445","Text":"I\u0027ll just note here so that you don\u0027t forget,"},{"Start":"06:19.445 ","End":"06:25.145","Text":"expenses are increasing but in terms of analyzing a transaction,"},{"Start":"06:25.145 ","End":"06:32.410","Text":"we have a decrease on the left side and a decrease in equity on the right side."},{"Start":"06:32.410 ","End":"06:35.945","Text":"Remember, expenses decrease equity."},{"Start":"06:35.945 ","End":"06:38.235","Text":"Looking at transaction number 4,"},{"Start":"06:38.235 ","End":"06:41.880","Text":"the company sold inventory for 15,000."},{"Start":"06:41.880 ","End":"06:48.295","Text":"Therefore, 15,000 is the selling price of the inventory."},{"Start":"06:48.295 ","End":"06:50.925","Text":"Now this inventory you\u0027re told,"},{"Start":"06:50.925 ","End":"06:54.090","Text":"had a cost of 11,000."},{"Start":"06:54.090 ","End":"06:56.805","Text":"Further looking at the selling price,"},{"Start":"06:56.805 ","End":"07:03.320","Text":"half was received in cash and the rest was on credit."},{"Start":"07:03.320 ","End":"07:07.685","Text":"Now, as you should remember from previous transactions,"},{"Start":"07:07.685 ","End":"07:10.130","Text":"when we sell inventory,"},{"Start":"07:10.130 ","End":"07:14.720","Text":"there\u0027s always going to be an income side of"},{"Start":"07:14.720 ","End":"07:20.285","Text":"the transaction and an expense side of the transaction."},{"Start":"07:20.285 ","End":"07:24.515","Text":"Look at the income side first and I\u0027ll start with an equity."},{"Start":"07:24.515 ","End":"07:27.200","Text":"Because we have sold inventory,"},{"Start":"07:27.200 ","End":"07:29.190","Text":"there is a measure of accomplishment."},{"Start":"07:29.190 ","End":"07:31.400","Text":"We, therefore, need to recognize the income in"},{"Start":"07:31.400 ","End":"07:34.820","Text":"the current period according to the accrual basis of accounting."},{"Start":"07:34.820 ","End":"07:41.000","Text":"Therefore, equity increases with an increase in income,"},{"Start":"07:41.000 ","End":"07:49.180","Text":"so we will increase equity there which we\u0027ll note it down as being income increasing."},{"Start":"07:49.180 ","End":"07:52.355","Text":"Then to make the accounting equation balance,"},{"Start":"07:52.355 ","End":"07:59.154","Text":"we have an increase both in cash and an increase in accounts receivable,"},{"Start":"07:59.154 ","End":"08:02.880","Text":"7,500 each in this case as it happens."},{"Start":"08:02.880 ","End":"08:06.910","Text":"The accounting equation balances because the increases on"},{"Start":"08:06.910 ","End":"08:11.290","Text":"the left will equal the increases on the right."},{"Start":"08:11.290 ","End":"08:14.095","Text":"The accounting equation balances."},{"Start":"08:14.095 ","End":"08:16.695","Text":"In transaction number 5,"},{"Start":"08:16.695 ","End":"08:25.930","Text":"the company paid 16,000 to settle or partially settle in this case, accounts payable."},{"Start":"08:25.930 ","End":"08:28.990","Text":"The company is now paying to suppliers."},{"Start":"08:28.990 ","End":"08:34.375","Text":"Again, paying indicates that there will be a cash outflow."},{"Start":"08:34.375 ","End":"08:38.370","Text":"Therefore, an asset called cash will"},{"Start":"08:38.370 ","End":"08:45.560","Text":"decrease and also a liability called accounts payable will decrease as well."},{"Start":"08:45.560 ","End":"08:51.530","Text":"Note the accounting equation does balance because we have a decrease on"},{"Start":"08:51.530 ","End":"08:57.455","Text":"the left side of the equation and a decrease on the right side of the equation."},{"Start":"08:57.455 ","End":"08:59.975","Text":"In transaction number 6,"},{"Start":"08:59.975 ","End":"09:08.705","Text":"a local newspaper printed an advertisement for our products and we were charged 1,500."},{"Start":"09:08.705 ","End":"09:12.485","Text":"This note will be paid in February."},{"Start":"09:12.485 ","End":"09:16.624","Text":"Now again, you have to think about the accrual basis of accounting."},{"Start":"09:16.624 ","End":"09:19.820","Text":"The expense is being incurred in January."},{"Start":"09:19.820 ","End":"09:22.640","Text":"The advertisement will be printed in"},{"Start":"09:22.640 ","End":"09:27.440","Text":"January but we\u0027re only going to pay for it in February."},{"Start":"09:27.440 ","End":"09:33.910","Text":"Therefore, we know that we need to recognize an expense in the current period."},{"Start":"09:33.910 ","End":"09:38.330","Text":"Expenses we know decrease equity but again,"},{"Start":"09:38.330 ","End":"09:40.790","Text":"we\u0027ll just note over here to remind ourselves,"},{"Start":"09:40.790 ","End":"09:45.695","Text":"remember the expense is in fact increasing."},{"Start":"09:45.695 ","End":"09:48.195","Text":"On the other side of the transaction,"},{"Start":"09:48.195 ","End":"09:50.255","Text":"cash is not paid out."},{"Start":"09:50.255 ","End":"09:52.760","Text":"Therefore, there is no impact on"},{"Start":"09:52.760 ","End":"09:57.380","Text":"the assets but as you\u0027ve learned in previous presentations,"},{"Start":"09:57.380 ","End":"10:01.715","Text":"we now have to recognize an increase in the liability,"},{"Start":"10:01.715 ","End":"10:05.485","Text":"the amount owing to the newspaper."},{"Start":"10:05.485 ","End":"10:08.055","Text":"Note the accounting equation balances."},{"Start":"10:08.055 ","End":"10:13.565","Text":"There\u0027s an increase and a decrease both on the right side of the equation."},{"Start":"10:13.565 ","End":"10:15.950","Text":"In transaction number 7,"},{"Start":"10:15.950 ","End":"10:23.360","Text":"the company sold further inventory this time for 30 and this inventory had cost 20."},{"Start":"10:23.360 ","End":"10:29.345","Text":"Now you should realize that this transaction is identical to transaction number 4."},{"Start":"10:29.345 ","End":"10:32.165","Text":"I\u0027m not going to repeat the analysis here."},{"Start":"10:32.165 ","End":"10:35.735","Text":"We will look at the journal entries on a later slide."},{"Start":"10:35.735 ","End":"10:41.135","Text":"I\u0027ll just put here that this is the same analysis as transaction number 4."},{"Start":"10:41.135 ","End":"10:43.460","Text":"In transaction number 8,"},{"Start":"10:43.460 ","End":"10:51.080","Text":"the company purchased inventory costing 25,000 and note it was purchased on credit."},{"Start":"10:51.080 ","End":"10:54.830","Text":"In other words, it will be paid for in a later period."},{"Start":"10:54.830 ","End":"11:00.180","Text":"Therefore, an asset called inventory will"},{"Start":"11:00.180 ","End":"11:07.970","Text":"increase and a liability called accounts payable or creditors will increase as well."},{"Start":"11:07.970 ","End":"11:10.310","Text":"The accounting equation balances."},{"Start":"11:10.310 ","End":"11:13.745","Text":"An increase on the left side of the equation"},{"Start":"11:13.745 ","End":"11:18.009","Text":"and an increase on the right side of the equation."},{"Start":"11:18.009 ","End":"11:20.835","Text":"In transaction number 9,"},{"Start":"11:20.835 ","End":"11:28.420","Text":"the company paid 13,000 to the supplier of its inventory."},{"Start":"11:35.930 ","End":"11:40.820","Text":"This you will realize is a similar transaction to number"},{"Start":"11:40.820 ","End":"11:45.590","Text":"5 so I will not analyze it again over here."},{"Start":"11:45.590 ","End":"11:48.810","Text":"Finally, in transaction number 10,"},{"Start":"11:48.810 ","End":"11:56.360","Text":"the lending bank charged us 100 for interest on the loan."},{"Start":"11:56.360 ","End":"12:01.175","Text":"This was taken from our bank account via a direct debit."},{"Start":"12:01.175 ","End":"12:08.080","Text":"A direct debit means that the amount was automatically taken out of our bank account."},{"Start":"12:08.080 ","End":"12:10.200","Text":"Again, if you think about it,"},{"Start":"12:10.200 ","End":"12:14.795","Text":"there is an expense being incurred in the current period."},{"Start":"12:14.795 ","End":"12:22.550","Text":"Expenses are increasing and remember for an expense to increase, equity is decreasing."},{"Start":"12:22.550 ","End":"12:27.570","Text":"Again, we\u0027ll note to remind ourselves, expenses are increasing."},{"Start":"12:28.610 ","End":"12:32.780","Text":"Because this has effectively been paid in cash,"},{"Start":"12:32.780 ","End":"12:37.450","Text":"an asset called cash is decreasing."},{"Start":"12:37.450 ","End":"12:42.470","Text":"Note the accounting equation is balancing because we"},{"Start":"12:42.470 ","End":"12:48.150","Text":"have a decrease on the left side and a decrease on the right side."},{"Start":"12:48.340 ","End":"12:55.605","Text":"Before we move on and look at the journal entries coming from these transactions,"},{"Start":"12:55.605 ","End":"13:01.100","Text":"I\u0027ll just like you to please note again and focus on"},{"Start":"13:01.100 ","End":"13:10.630","Text":"the expenses and the important point I made that for each expense which decreases equity."},{"Start":"13:10.630 ","End":"13:17.480","Text":"The expense is in fact increasing and that we will need to"},{"Start":"13:17.480 ","End":"13:20.855","Text":"understand and use that information and knowledge when"},{"Start":"13:20.855 ","End":"13:24.350","Text":"we start processing the journal entries,"},{"Start":"13:24.350 ","End":"13:30.330","Text":"the debits and credits to understand the logic of the debit and the credit."}],"ID":28514},{"Watched":false,"Name":"Comprehensive example (Journal entries) PART 2","Duration":"19m 48s","ChapterTopicVideoID":26474,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:03.870","Text":"Having become familiar with the transactions,"},{"Start":"00:03.870 ","End":"00:08.475","Text":"we can look at the required for this example."},{"Start":"00:08.475 ","End":"00:10.455","Text":"As I mentioned before,"},{"Start":"00:10.455 ","End":"00:12.450","Text":"the first part of the required,"},{"Start":"00:12.450 ","End":"00:16.410","Text":"will be to record the transactions in a journal."},{"Start":"00:16.410 ","End":"00:19.860","Text":"This will be shown in the current presentation."},{"Start":"00:19.860 ","End":"00:22.260","Text":"In the following presentation,"},{"Start":"00:22.260 ","End":"00:28.665","Text":"we will show how those journal entries are recorded or posted to the ledger."},{"Start":"00:28.665 ","End":"00:31.500","Text":"In the presentation after that,"},{"Start":"00:31.500 ","End":"00:38.399","Text":"we will balance each ledger account and prepare a trial balance."},{"Start":"00:38.399 ","End":"00:41.960","Text":"We will now start the process of recording"},{"Start":"00:41.960 ","End":"00:46.070","Text":"each of those 10 transactions into the journal."},{"Start":"00:46.070 ","End":"00:49.580","Text":"Now we have already analyzed the transaction,"},{"Start":"00:49.580 ","End":"00:55.864","Text":"identifying whether the transaction effected an asset ability or equity,"},{"Start":"00:55.864 ","End":"01:00.085","Text":"and then also if it affected an income or expense item."},{"Start":"01:00.085 ","End":"01:02.295","Text":"Bearing that in mind,"},{"Start":"01:02.295 ","End":"01:07.010","Text":"and also bearing in mind the principles of double entry,"},{"Start":"01:07.010 ","End":"01:08.820","Text":"bookkeeping and dividend credit,"},{"Start":"01:08.820 ","End":"01:12.815","Text":"we will now go and process the journal entries."},{"Start":"01:12.815 ","End":"01:16.805","Text":"Just looking at the format of the journal as a starting point,"},{"Start":"01:16.805 ","End":"01:23.360","Text":"the journal has a column for the date."},{"Start":"01:23.360 ","End":"01:29.345","Text":"In this case, the transaction number is also included just for clarity."},{"Start":"01:29.345 ","End":"01:34.670","Text":"The space you will see in the next wide column,"},{"Start":"01:34.670 ","End":"01:40.385","Text":"to enter the name of the accounts being debited,"},{"Start":"01:40.385 ","End":"01:43.580","Text":"and the name of the account being credited."},{"Start":"01:43.580 ","End":"01:46.270","Text":"There are then 2 columns,"},{"Start":"01:46.270 ","End":"01:53.510","Text":"1 column which will show the debit side of the transaction,"},{"Start":"01:53.510 ","End":"01:58.445","Text":"and 1 column which will show the credit side of the transaction."},{"Start":"01:58.445 ","End":"02:04.795","Text":"Further, each journal entry has what is called a narration."},{"Start":"02:04.795 ","End":"02:09.080","Text":"A narration which is pre-populated in these journals,"},{"Start":"02:09.080 ","End":"02:10.730","Text":"just to save time,"},{"Start":"02:10.730 ","End":"02:16.390","Text":"is a simple description of the transaction in your own words."},{"Start":"02:16.390 ","End":"02:19.640","Text":"Let\u0027s now go and prepare the journal entry for"},{"Start":"02:19.640 ","End":"02:25.000","Text":"this first transaction where the company borrowed 10,000 from Alfa Bank."},{"Start":"02:25.000 ","End":"02:28.400","Text":"We saw that an asset increases,"},{"Start":"02:28.400 ","End":"02:30.940","Text":"which means it\u0027s a debit to the assets,"},{"Start":"02:30.940 ","End":"02:36.030","Text":"and liability increases, which means it\u0027s a credit to the liabilities."},{"Start":"02:36.030 ","End":"02:39.039","Text":"We therefore debit, Bank,"},{"Start":"02:39.039 ","End":"02:40.975","Text":"which is asset,"},{"Start":"02:40.975 ","End":"02:43.885","Text":"and the amount is 10,000."},{"Start":"02:43.885 ","End":"02:48.965","Text":"We credit, loan from the bank,"},{"Start":"02:48.965 ","End":"02:56.045","Text":"which is liability, and we put that in the credit\u0027s column of 10,000."},{"Start":"02:56.045 ","End":"03:00.575","Text":"Then as I said, the narration is entered beneath that,"},{"Start":"03:00.575 ","End":"03:04.925","Text":"in this case, borrowing of funds from Alfa Bank."},{"Start":"03:04.925 ","End":"03:11.750","Text":"That is then how we record and analyze transaction in the journal."},{"Start":"03:11.750 ","End":"03:14.315","Text":"In transaction number 2,"},{"Start":"03:14.315 ","End":"03:21.140","Text":"we know that we collected that 3,000 currency units from customers."},{"Start":"03:21.140 ","End":"03:23.660","Text":"When we analyze the transaction,"},{"Start":"03:23.660 ","End":"03:26.390","Text":"we saw that an asset called,"},{"Start":"03:26.390 ","End":"03:28.355","Text":"cash, would increase."},{"Start":"03:28.355 ","End":"03:29.870","Text":"An asset called,"},{"Start":"03:29.870 ","End":"03:32.389","Text":"accounts receivable, would decrease."},{"Start":"03:32.389 ","End":"03:36.330","Text":"Therefore, the increase in asset cash will require a debit,"},{"Start":"03:36.330 ","End":"03:43.235","Text":"and the decrease in the asset accounts receivable will require a credit."},{"Start":"03:43.235 ","End":"03:46.135","Text":"We will therefore debit, Bank,"},{"Start":"03:46.135 ","End":"03:49.350","Text":"increase it, it\u0027s an asset,"},{"Start":"03:49.350 ","End":"03:52.065","Text":"and the amount is 3,000."},{"Start":"03:52.065 ","End":"03:57.275","Text":"We need to decrease the asset called accounts receivable."},{"Start":"03:57.275 ","End":"04:00.260","Text":"I\u0027ll abbreviate it here, account receivable,"},{"Start":"04:00.260 ","End":"04:02.195","Text":"also an asset,"},{"Start":"04:02.195 ","End":"04:05.545","Text":"and that is decreased by 3,000."},{"Start":"04:05.545 ","End":"04:08.655","Text":"Remember, this is the debit column,"},{"Start":"04:08.655 ","End":"04:10.455","Text":"that is the credit column,"},{"Start":"04:10.455 ","End":"04:13.970","Text":"and the narration sits at the bottom."},{"Start":"04:13.970 ","End":"04:18.185","Text":"Something simple like, collection from customers."},{"Start":"04:18.185 ","End":"04:21.230","Text":"In transaction number 4,"},{"Start":"04:21.230 ","End":"04:23.270","Text":"we spent, in other words,"},{"Start":"04:23.270 ","End":"04:28.280","Text":"we paid 2,000 for office supplies."},{"Start":"04:28.280 ","End":"04:29.720","Text":"We are told, remember,"},{"Start":"04:29.720 ","End":"04:33.065","Text":"these were consumed by the end of January."},{"Start":"04:33.065 ","End":"04:35.750","Text":"When we analyze the transaction,"},{"Start":"04:35.750 ","End":"04:42.180","Text":"we saw that expense office suppliers was increasing,"},{"Start":"04:42.180 ","End":"04:49.385","Text":"and remember the increase in expense had the same effect as the decrease in equity."},{"Start":"04:49.385 ","End":"04:54.390","Text":"Therefore, the debit and the amount is paid for in cash,"},{"Start":"04:54.390 ","End":"04:58.400","Text":"and therefore an asset called cash was decreasing."},{"Start":"04:58.400 ","End":"05:03.125","Text":"The debit therefore goes to an account which we\u0027re going to call here,"},{"Start":"05:03.125 ","End":"05:08.020","Text":"office suppliers or consumables,"},{"Start":"05:09.820 ","End":"05:15.845","Text":"which is an expense here because it\u0027s all being used in the current period."},{"Start":"05:15.845 ","End":"05:20.440","Text":"The debit in the amount of 2,000."},{"Start":"05:20.630 ","End":"05:24.885","Text":"The credit goes to bank,"},{"Start":"05:24.885 ","End":"05:28.995","Text":"the asset by 2,000."},{"Start":"05:28.995 ","End":"05:33.450","Text":"Again, remember, that is the debit, and that is the credit."},{"Start":"05:33.450 ","End":"05:35.440","Text":"I emphasize again,"},{"Start":"05:35.440 ","End":"05:41.180","Text":"that the debit to expenses, expenses are increasing,"},{"Start":"05:41.180 ","End":"05:46.160","Text":"but the increase in expenses leads to the decrease in equity,"},{"Start":"05:46.160 ","End":"05:50.245","Text":"hence the increase in expenses is a debit."},{"Start":"05:50.245 ","End":"05:53.875","Text":"Looking at transaction number 4,"},{"Start":"05:53.875 ","End":"05:59.015","Text":"the company sold inventory with a cost of 11,000,"},{"Start":"05:59.015 ","End":"06:02.590","Text":"and it\u0027s sold it for 15,000."},{"Start":"06:02.590 ","End":"06:05.525","Text":"1/2 was paid in cash,"},{"Start":"06:05.525 ","End":"06:07.535","Text":"and the other 1/2,"},{"Start":"06:07.535 ","End":"06:10.585","Text":"the rest, was sold on credit."},{"Start":"06:10.585 ","End":"06:18.215","Text":"We recall we have both an income side of the transaction to have a look at."},{"Start":"06:18.215 ","End":"06:20.135","Text":"Here, it\u0027ll be the income side,"},{"Start":"06:20.135 ","End":"06:22.495","Text":"4a and 4b,"},{"Start":"06:22.495 ","End":"06:25.670","Text":"will be the expense side of the transaction."},{"Start":"06:25.670 ","End":"06:29.510","Text":"Looking at the income side of the transaction first,"},{"Start":"06:29.510 ","End":"06:33.750","Text":"we saw that there will be 2 assets increasing,"},{"Start":"06:33.750 ","End":"06:36.300","Text":"cash and accounts receivable."},{"Start":"06:36.300 ","End":"06:41.135","Text":"Also because the inventory has been sold in the current period,"},{"Start":"06:41.135 ","End":"06:44.915","Text":"it must be recognized as income which is earned."},{"Start":"06:44.915 ","End":"06:48.575","Text":"Therefore income increases with a credit,"},{"Start":"06:48.575 ","End":"06:53.495","Text":"because the increase in income will increase equity."},{"Start":"06:53.495 ","End":"06:55.565","Text":"Therefore increase in income,"},{"Start":"06:55.565 ","End":"06:59.735","Text":"take the same side or right side or credit,"},{"Start":"06:59.735 ","End":"07:03.260","Text":"as does the increase in equity."},{"Start":"07:03.260 ","End":"07:06.515","Text":"Therefore, when we record the journal entry,"},{"Start":"07:06.515 ","End":"07:09.350","Text":"we want to increase the asset,"},{"Start":"07:09.350 ","End":"07:11.240","Text":"bank, as an asset,"},{"Start":"07:11.240 ","End":"07:16.840","Text":"because cash is being received in the amount of 7,500."},{"Start":"07:16.840 ","End":"07:19.920","Text":"Also increase the asset,"},{"Start":"07:19.920 ","End":"07:23.595","Text":"account receivable, also an asset,"},{"Start":"07:23.595 ","End":"07:27.465","Text":"by an amount of 7,500."},{"Start":"07:27.465 ","End":"07:32.620","Text":"The credit goes to sales,"},{"Start":"07:32.620 ","End":"07:39.005","Text":"which is an income item for the full amount of 15,000."},{"Start":"07:39.005 ","End":"07:41.175","Text":"Now what you\u0027re seeing here,"},{"Start":"07:41.175 ","End":"07:46.550","Text":"is that there are 2 debits, and 1 credit,"},{"Start":"07:46.550 ","End":"07:53.825","Text":"which is fine because we have achieved our objective of effecting at least,"},{"Start":"07:53.825 ","End":"07:58.615","Text":"now I said before, at least 1 debit and 1 credit."},{"Start":"07:58.615 ","End":"08:00.060","Text":"Here you\u0027ll see [inaudible] effect,"},{"Start":"08:00.060 ","End":"08:04.640","Text":"2 debits totaling the same as the 1 credit."},{"Start":"08:04.640 ","End":"08:08.950","Text":"Again, the narration simply describes the transaction,"},{"Start":"08:08.950 ","End":"08:11.010","Text":"sale of inventory at 15,"},{"Start":"08:11.010 ","End":"08:13.440","Text":"1/2 cash, 1/2 credit."},{"Start":"08:13.440 ","End":"08:18.045","Text":"The expense side of this transaction,"},{"Start":"08:18.045 ","End":"08:21.065","Text":"we\u0027ll have to use a different color to indicate it here."},{"Start":"08:21.065 ","End":"08:26.510","Text":"The expense side of the transaction needs to record the expense,"},{"Start":"08:26.510 ","End":"08:29.675","Text":"which is the cost of the goods sold."},{"Start":"08:29.675 ","End":"08:31.670","Text":"In this case, 11,000."},{"Start":"08:31.670 ","End":"08:35.060","Text":"Expenses are increasing,"},{"Start":"08:35.060 ","End":"08:40.325","Text":"and therefore there needs to be a debit to expenses."},{"Start":"08:40.325 ","End":"08:44.180","Text":"Also, assets are decreasing,"},{"Start":"08:44.180 ","End":"08:49.370","Text":"because the inventory is leaving the premises or the store."},{"Start":"08:49.370 ","End":"08:53.770","Text":"To record the increase in expenses,"},{"Start":"08:53.770 ","End":"08:55.610","Text":"expense here we call,"},{"Start":"08:55.610 ","End":"08:57.170","Text":"as you\u0027ve seen before,"},{"Start":"08:57.170 ","End":"09:00.145","Text":"it\u0027s a cost of sales abbreviated,"},{"Start":"09:00.145 ","End":"09:06.115","Text":"cost of sales as an expense to debit it with 11,000."},{"Start":"09:06.115 ","End":"09:10.320","Text":"Debit cost of sales to increase the cost of sales expense,"},{"Start":"09:10.320 ","End":"09:16.305","Text":"and to decrease the asset inventory, we credit inventory."},{"Start":"09:16.305 ","End":"09:22.295","Text":"That\u0027s the asset being decreased with a credit of 11,000."},{"Start":"09:22.295 ","End":"09:25.490","Text":"Again, the narration, a simple description,"},{"Start":"09:25.490 ","End":"09:28.820","Text":"recognizing the cost of sales."},{"Start":"09:28.820 ","End":"09:31.925","Text":"In transaction number 5,"},{"Start":"09:31.925 ","End":"09:37.360","Text":"the company paid 16,000 to settle,"},{"Start":"09:37.360 ","End":"09:41.780","Text":"in this case, partially settled the accounts payable."},{"Start":"09:41.780 ","End":"09:44.595","Text":"When we analyze the transaction,"},{"Start":"09:44.595 ","End":"09:47.765","Text":"because there\u0027s a cash being paid,"},{"Start":"09:47.765 ","End":"09:51.350","Text":"an asset called cash is decreasing,"},{"Start":"09:51.350 ","End":"09:54.830","Text":"so there\u0027ll be a credit to the assets,"},{"Start":"09:54.830 ","End":"09:58.835","Text":"and the liabilities are also decreasing."},{"Start":"09:58.835 ","End":"10:02.405","Text":"There\u0027ll be a debit liabilities."},{"Start":"10:02.405 ","End":"10:05.965","Text":"Then you\u0027ll see when I\u0027ve looked at the journal entry,"},{"Start":"10:05.965 ","End":"10:10.360","Text":"it didn\u0027t matter if I focused on the credit side"},{"Start":"10:10.360 ","End":"10:15.010","Text":"first and then I focused on the debit side second."},{"Start":"10:15.010 ","End":"10:17.650","Text":"Often when analyzing transactions,"},{"Start":"10:17.650 ","End":"10:20.845","Text":"one side becomes more apparent to you."},{"Start":"10:20.845 ","End":"10:23.620","Text":"It\u0027s therefore useful to bed that side"},{"Start":"10:23.620 ","End":"10:27.820","Text":"down and then think of the other side if that might be a bit more,"},{"Start":"10:27.820 ","End":"10:30.340","Text":"maybe difficult or confusing."},{"Start":"10:30.340 ","End":"10:32.065","Text":"But when we write it down,"},{"Start":"10:32.065 ","End":"10:35.364","Text":"we need to record the debits first, always."},{"Start":"10:35.364 ","End":"10:41.365","Text":"Therefore here we need to debit accounts payable and they get out, we\u0027ll abbreviate it,"},{"Start":"10:41.365 ","End":"10:48.580","Text":"debit accounts payable as liability to decrease it with the amount"},{"Start":"10:48.580 ","End":"10:56.125","Text":"of 16,000 and I credit the asset bank."},{"Start":"10:56.125 ","End":"11:02.950","Text":"We credit bank to decrease the asset was 16,000."},{"Start":"11:02.950 ","End":"11:04.600","Text":"Again it\u0027s to remind you,"},{"Start":"11:04.600 ","End":"11:08.180","Text":"that\u0027s the debit column and that\u0027s the credit column."},{"Start":"11:08.180 ","End":"11:10.109","Text":"Here is the narration,"},{"Start":"11:10.109 ","End":"11:13.080","Text":"simple payments to suppliers."},{"Start":"11:13.080 ","End":"11:16.530","Text":"In Transaction number 6,"},{"Start":"11:16.530 ","End":"11:22.030","Text":"a local newspaper printed this advertisement and they charged"},{"Start":"11:22.030 ","End":"11:28.600","Text":"us 1,500 and you recall this will be paid in February."},{"Start":"11:28.600 ","End":"11:32.320","Text":"The expense occurs in the current period in"},{"Start":"11:32.320 ","End":"11:36.610","Text":"January because advertisement will feature in January,"},{"Start":"11:36.610 ","End":"11:40.885","Text":"but we will only pay for this in the following period."},{"Start":"11:40.885 ","End":"11:47.290","Text":"Now here it may be easier for you to think about the expense side first,"},{"Start":"11:47.290 ","End":"11:52.240","Text":"expenses are increasing because we have an expense for advertising,"},{"Start":"11:52.240 ","End":"11:55.495","Text":"so we have an increase in expenses, which is a debit."},{"Start":"11:55.495 ","End":"11:59.065","Text":"Therefore, the other side must be a credit."},{"Start":"11:59.065 ","End":"12:02.410","Text":"In this case, because we have not paid,"},{"Start":"12:02.410 ","End":"12:07.885","Text":"we clearly have a liability to owe the amount to the supply of the advert,"},{"Start":"12:07.885 ","End":"12:11.980","Text":"the newspaper, so liabilities will increase with a credit."},{"Start":"12:11.980 ","End":"12:19.705","Text":"Therefore, we will debit advertising as an expense,"},{"Start":"12:19.705 ","End":"12:26.365","Text":"debit it with the amount of 1,500 and we will credit"},{"Start":"12:26.365 ","End":"12:34.705","Text":"accounts payable as a liability for 1,500 as well."},{"Start":"12:34.705 ","End":"12:43.135","Text":"This account\u0027s payable credit could also maybe have been called expenses payable."},{"Start":"12:43.135 ","End":"12:46.510","Text":"The narration, simple description advertisement in"},{"Start":"12:46.510 ","End":"12:50.200","Text":"the local newspaper to be paid in February."},{"Start":"12:50.200 ","End":"12:57.505","Text":"Again, the debit column and the credit column."},{"Start":"12:57.505 ","End":"13:00.865","Text":"In Transaction number 7,"},{"Start":"13:00.865 ","End":"13:04.180","Text":"the company sold further inventory,"},{"Start":"13:04.180 ","End":"13:07.240","Text":"the cost of inventory was 20,000,"},{"Start":"13:07.240 ","End":"13:12.520","Text":"and the selling price was 30,000 all in cash this time."},{"Start":"13:12.520 ","End":"13:15.880","Text":"This is similar to a previous transaction,"},{"Start":"13:15.880 ","End":"13:18.340","Text":"but we will analyze it in full here."},{"Start":"13:18.340 ","End":"13:23.290","Text":"Remember, I need to look at the income side of the transaction when there\u0027s"},{"Start":"13:23.290 ","End":"13:28.720","Text":"a sale of goods and also the expense side of the transaction."},{"Start":"13:28.720 ","End":"13:31.570","Text":"Looking at the income side first,"},{"Start":"13:31.570 ","End":"13:34.720","Text":"the goods are sold for cash."},{"Start":"13:34.720 ","End":"13:38.200","Text":"It\u0027s an asset, we\u0027ll increase cash with"},{"Start":"13:38.200 ","End":"13:42.250","Text":"a debit and because we need to recognize income,"},{"Start":"13:42.250 ","End":"13:45.010","Text":"the inventory has been sold and"},{"Start":"13:45.010 ","End":"13:48.640","Text":"therefore there is a measure of accomplishments in the current period,"},{"Start":"13:48.640 ","End":"13:52.030","Text":"income needs to increase with a credit."},{"Start":"13:52.030 ","End":"13:55.915","Text":"We, therefore, debit increase bank,"},{"Start":"13:55.915 ","End":"14:05.770","Text":"which is an asset with the amount of 30,000 and we credit sales,"},{"Start":"14:05.770 ","End":"14:12.295","Text":"which is an income account for the amounts of 30,000."},{"Start":"14:12.295 ","End":"14:15.970","Text":"I\u0027ll put in here again the debit and the credit."},{"Start":"14:15.970 ","End":"14:18.010","Text":"This is a simple description,"},{"Start":"14:18.010 ","End":"14:21.175","Text":"sale of inventory for cash."},{"Start":"14:21.175 ","End":"14:24.355","Text":"With income to the expense side, again,"},{"Start":"14:24.355 ","End":"14:29.230","Text":"of the transaction and the expense side is the cost of sales."},{"Start":"14:29.230 ","End":"14:36.910","Text":"The cost of sales, expenses are increasing and the asset inventory is decreasing."},{"Start":"14:36.910 ","End":"14:41.440","Text":"Therefore, a debit increases the cost of sales expense over"},{"Start":"14:41.440 ","End":"14:48.150","Text":"here and the credit decreases the asset inventory over there."},{"Start":"14:48.150 ","End":"14:51.335","Text":"Let\u0027s record that. Debit,"},{"Start":"14:51.335 ","End":"14:55.825","Text":"increase cost of sales and expense,"},{"Start":"14:55.825 ","End":"15:06.115","Text":"increasing by 20,000 and the credit to decrease the asset inventory,"},{"Start":"15:06.115 ","End":"15:13.225","Text":"which is an asset that decreases with a credit of 20,000."},{"Start":"15:13.225 ","End":"15:15.955","Text":"In Transaction number 8,"},{"Start":"15:15.955 ","End":"15:23.110","Text":"the company purchased further inventory and this inventory cost 25,000."},{"Start":"15:23.110 ","End":"15:26.059","Text":"When we analyze the transaction,"},{"Start":"15:26.059 ","End":"15:30.040","Text":"you will recall inventory is increasing."},{"Start":"15:30.040 ","End":"15:36.310","Text":"Therefore a debit to the asset inventory and accounts payable,"},{"Start":"15:36.310 ","End":"15:38.335","Text":"the amount owed to the supplier."},{"Start":"15:38.335 ","End":"15:41.830","Text":"Liability is increasing, therefore credit,"},{"Start":"15:41.830 ","End":"15:45.617","Text":"the liability accounts payable."},{"Start":"15:45.617 ","End":"15:47.680","Text":"Let\u0027s record the transaction."},{"Start":"15:47.680 ","End":"15:57.715","Text":"Debit goes to inventory as an asset with the amount of 25,000."},{"Start":"15:57.715 ","End":"16:03.430","Text":"The credit goes to the accounts payable liability"},{"Start":"16:03.430 ","End":"16:10.300","Text":"also for 25,000 debit side and credit side."},{"Start":"16:10.300 ","End":"16:13.030","Text":"As always a simple description,"},{"Start":"16:13.030 ","End":"16:16.420","Text":"purchase of inventory on credit."},{"Start":"16:16.420 ","End":"16:18.790","Text":"In Transaction number 9,"},{"Start":"16:18.790 ","End":"16:23.245","Text":"the company pays 13,000 to that supplier."},{"Start":"16:23.245 ","End":"16:26.140","Text":"In other words, it is paying part of"},{"Start":"16:26.140 ","End":"16:30.385","Text":"the amount owing to the creditors or the accounts payable."},{"Start":"16:30.385 ","End":"16:33.445","Text":"Now when you see an amount paid,"},{"Start":"16:33.445 ","End":"16:37.915","Text":"it\u0027s often easier to think of that side of the transaction first."},{"Start":"16:37.915 ","End":"16:41.305","Text":"Clearly, an asset cash is decreasing."},{"Start":"16:41.305 ","End":"16:43.780","Text":"To decrease an asset requires a credit,"},{"Start":"16:43.780 ","End":"16:48.625","Text":"which tells you the other side of the transaction must be a debit."},{"Start":"16:48.625 ","End":"16:56.410","Text":"Here the debit, it can\u0027t be an expense because paying a supplier is not using anything."},{"Start":"16:56.410 ","End":"16:59.440","Text":"The debit came when we actually sold the goods,"},{"Start":"16:59.440 ","End":"17:05.665","Text":"paying a supplier, that\u0027s simply decrease in a liability called accounts payable."},{"Start":"17:05.665 ","End":"17:09.010","Text":"Even though we identified the credit side first,"},{"Start":"17:09.010 ","End":"17:11.680","Text":"we need to record the debit initially,"},{"Start":"17:11.680 ","End":"17:16.030","Text":"and here I will put the debit in and the credit in first,"},{"Start":"17:16.030 ","End":"17:20.785","Text":"and we go and debit accounts payable to decrease it."},{"Start":"17:20.785 ","End":"17:26.860","Text":"We debit the accounts payable liability with the amount of"},{"Start":"17:26.860 ","End":"17:32.395","Text":"13,000 and we credit"},{"Start":"17:32.395 ","End":"17:38.650","Text":"the asset bank with the same amounts of 13,000."},{"Start":"17:38.650 ","End":"17:41.290","Text":"As always, the description,"},{"Start":"17:41.290 ","End":"17:45.340","Text":"payment to the supplier of the inventory."},{"Start":"17:45.340 ","End":"17:48.835","Text":"Finally, in Transaction number 10,"},{"Start":"17:48.835 ","End":"17:55.210","Text":"the bank charged us 100 currency units for interest."},{"Start":"17:55.210 ","End":"17:57.955","Text":"As you saw earlier,"},{"Start":"17:57.955 ","End":"18:01.930","Text":"this was taken from our bank account via direct debit."},{"Start":"18:01.930 ","End":"18:05.890","Text":"The amount was paid out in cash effectively."},{"Start":"18:05.890 ","End":"18:09.280","Text":"When we analyze that transaction and maybe not,"},{"Start":"18:09.280 ","End":"18:10.720","Text":"again, as I said before,"},{"Start":"18:10.720 ","End":"18:13.164","Text":"it might be easier to think about the payment."},{"Start":"18:13.164 ","End":"18:15.340","Text":"An asset called bank is decreasing,"},{"Start":"18:15.340 ","End":"18:18.715","Text":"it must therefore be a credit to the asset bank,"},{"Start":"18:18.715 ","End":"18:22.720","Text":"which tells you the other side of the entry has to be a debit."},{"Start":"18:22.720 ","End":"18:24.685","Text":"This is interest."},{"Start":"18:24.685 ","End":"18:26.275","Text":"Presumably interest,"},{"Start":"18:26.275 ","End":"18:32.440","Text":"you should understand is an expense and it makes sense expenses are increasing"},{"Start":"18:32.440 ","End":"18:39.460","Text":"because remember the increase in expenses leads to the decrease in equity."},{"Start":"18:39.460 ","End":"18:41.515","Text":"Journal entry, therefore,"},{"Start":"18:41.515 ","End":"18:49.605","Text":"there\u0027s a debit to interest as an expense with the amount of"},{"Start":"18:49.605 ","End":"18:59.015","Text":"100 and a credit to decrease the asset bank with the amount of 100."},{"Start":"18:59.015 ","End":"19:06.190","Text":"Again, simple description, this case interest charge on loan via direct debit."},{"Start":"19:06.190 ","End":"19:14.315","Text":"We have now completed the recording of all 10 transactions into the journal."},{"Start":"19:14.315 ","End":"19:19.720","Text":"These have been done on separate slides for illustration purposes."},{"Start":"19:19.720 ","End":"19:26.020","Text":"In practice, this would be done in a manual accounting system on one journal"},{"Start":"19:26.020 ","End":"19:32.560","Text":"page on a computerized accounting system as a list of 10 transactions."},{"Start":"19:32.560 ","End":"19:36.055","Text":"Once the transactions have been recorded in a journal,"},{"Start":"19:36.055 ","End":"19:39.400","Text":"the next step in the accounting process is to"},{"Start":"19:39.400 ","End":"19:43.405","Text":"post or record these transactions into the ledger."},{"Start":"19:43.405 ","End":"19:48.260","Text":"This comes about in the second part of this example."}],"ID":28515},{"Watched":false,"Name":"Comprehensive example PART 1","Duration":"15m 21s","ChapterTopicVideoID":26475,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.650 ","End":"00:05.265","Text":"Just as a brief recap and I will not spend much time on this."},{"Start":"00:05.265 ","End":"00:09.960","Text":"This was the balance sheet at 31 December 20X0,"},{"Start":"00:09.960 ","End":"00:13.725","Text":"which you saw in the previous video presentation."},{"Start":"00:13.725 ","End":"00:21.210","Text":"After that, we processed the journal entries for the month of January of 20X1."},{"Start":"00:21.210 ","End":"00:26.070","Text":"To follow on from the balance sheet at 31 December 20X0,"},{"Start":"00:26.070 ","End":"00:31.785","Text":"this is a list of the transactions that we journalized"},{"Start":"00:31.785 ","End":"00:37.440","Text":"during the month of January 20X1 in the previous video presentation."},{"Start":"00:37.440 ","End":"00:40.160","Text":"The required, as you will recall,"},{"Start":"00:40.160 ","End":"00:43.550","Text":"is to record the transactions in a journal,"},{"Start":"00:43.550 ","End":"00:46.895","Text":"and this we did in the previous video, now,"},{"Start":"00:46.895 ","End":"00:48.620","Text":"in this current video,"},{"Start":"00:48.620 ","End":"00:51.080","Text":"we\u0027re going to record, in other words,"},{"Start":"00:51.080 ","End":"00:54.675","Text":"post these journal entries into the ledger"},{"Start":"00:54.675 ","End":"00:59.645","Text":"before we get to the final video of this comprehensive example,"},{"Start":"00:59.645 ","End":"01:06.950","Text":"where we will calculate the balance of each ledger account and prepare a trial balance."},{"Start":"01:06.950 ","End":"01:09.005","Text":"In most modern businesses,"},{"Start":"01:09.005 ","End":"01:12.200","Text":"computers and software are used to record"},{"Start":"01:12.200 ","End":"01:17.825","Text":"both the journal entries and also to post those entries into a ledger."},{"Start":"01:17.825 ","End":"01:23.390","Text":"However, irrespective of whether a computerized or manual system is being used,"},{"Start":"01:23.390 ","End":"01:26.315","Text":"the underlying process is the same."},{"Start":"01:26.315 ","End":"01:30.950","Text":"The transaction has to be analyzed to identify"},{"Start":"01:30.950 ","End":"01:36.605","Text":"the accounts to debit and credit in each journal entry and from there,"},{"Start":"01:36.605 ","End":"01:40.010","Text":"those entries need to be posted to a ledger."},{"Start":"01:40.010 ","End":"01:45.170","Text":"Each ledger account has a name and typically a number as well."},{"Start":"01:45.170 ","End":"01:48.860","Text":"In the example here we will only use names."},{"Start":"01:48.860 ","End":"01:53.135","Text":"You will also notice in the following slides that"},{"Start":"01:53.135 ","End":"01:58.805","Text":"only ledger accounts which had been affected by the 10 transactions are shown."},{"Start":"01:58.805 ","End":"02:00.980","Text":"In other words, ledger accounts,"},{"Start":"02:00.980 ","End":"02:03.545","Text":"for example, for property, plant and equipment,"},{"Start":"02:03.545 ","End":"02:06.890","Text":"and share capital are not shown as there was"},{"Start":"02:06.890 ","End":"02:10.580","Text":"no movement in those accounts during the month of January."},{"Start":"02:10.580 ","End":"02:14.255","Text":"Thus, when we prepare the trial balance at the end of January,"},{"Start":"02:14.255 ","End":"02:20.525","Text":"we can simply pick up the balances on those accounts from the end of December."},{"Start":"02:20.525 ","End":"02:25.400","Text":"We are now going to start the process of posting,"},{"Start":"02:25.400 ","End":"02:31.405","Text":"in other words, recording the transactions from the journal into the ledger."},{"Start":"02:31.405 ","End":"02:37.010","Text":"Transaction 1 requires us to debit the bank account with"},{"Start":"02:37.010 ","End":"02:42.775","Text":"10,000 and credit the loan from the bank with 10,000."},{"Start":"02:42.775 ","End":"02:46.755","Text":"We therefore go to the ledger account for bank,"},{"Start":"02:46.755 ","End":"02:52.070","Text":"here is the ledger account for bank and you\u0027ll see that account has"},{"Start":"02:52.070 ","End":"03:01.475","Text":"an opening balance of 25,000 which was the balance at the end of the 20X0 year,"},{"Start":"03:01.475 ","End":"03:05.735","Text":"and therefore the opening balance on 1 January 20X1."},{"Start":"03:05.735 ","End":"03:10.080","Text":"It is a debit balance because bank is an asset."},{"Start":"03:10.080 ","End":"03:13.235","Text":"We now have to post the transaction."},{"Start":"03:13.235 ","End":"03:16.550","Text":"The journal entry requires a debit of"},{"Start":"03:16.550 ","End":"03:22.070","Text":"10,000 to be recorded or posted in the bank account."},{"Start":"03:22.070 ","End":"03:24.995","Text":"Therefore, on the debit side of the bank account,"},{"Start":"03:24.995 ","End":"03:28.400","Text":"we enter 10,000 and remember"},{"Start":"03:28.400 ","End":"03:34.625","Text":"the contra account is the name of the other account affected in the transaction."},{"Start":"03:34.625 ","End":"03:37.400","Text":"In other words, the account that will be credited."},{"Start":"03:37.400 ","End":"03:41.585","Text":"This account is going to be the loan from the bank,"},{"Start":"03:41.585 ","End":"03:43.850","Text":"which is a liability account."},{"Start":"03:43.850 ","End":"03:49.505","Text":"After we have debited 10,000 to the bank account the balance increases from"},{"Start":"03:49.505 ","End":"03:55.685","Text":"25,000 debit balance to a 35,000 debit balance."},{"Start":"03:55.685 ","End":"03:59.975","Text":"We now have to go and post the credit side of the entry."},{"Start":"03:59.975 ","End":"04:07.850","Text":"What you see here is the ledger account for the loan from the bank as a liability."},{"Start":"04:07.850 ","End":"04:11.965","Text":"There is no opening balance in the account,"},{"Start":"04:11.965 ","End":"04:16.565","Text":"we therefore post the credit side of that first entry,"},{"Start":"04:16.565 ","End":"04:23.780","Text":"which requires a credit of 10,000 to be placed into the loan account."},{"Start":"04:23.780 ","End":"04:30.770","Text":"Again, the contra account is the name of the account of the other side of the entry,"},{"Start":"04:30.770 ","End":"04:32.900","Text":"in other words, the debit side of the entry,"},{"Start":"04:32.900 ","End":"04:34.955","Text":"which you know went to bank,"},{"Start":"04:34.955 ","End":"04:36.740","Text":"bank as an asset."},{"Start":"04:36.740 ","End":"04:44.540","Text":"Therefore, we can look at these accounts and see that on the 1st of January of 20X1,"},{"Start":"04:44.540 ","End":"04:49.670","Text":"the company would have debited bank and"},{"Start":"04:49.670 ","End":"04:55.010","Text":"a credit has gone to this loan account for 10,000 currency units."},{"Start":"04:55.010 ","End":"04:59.210","Text":"That is the way you are able to read a ledger account."},{"Start":"04:59.210 ","End":"05:05.434","Text":"I\u0027m not focusing here on the description in any detail."},{"Start":"05:05.434 ","End":"05:10.370","Text":"The description is the least important part of the ledger account."},{"Start":"05:10.370 ","End":"05:18.096","Text":"Most important parts are posting the amount to the correct side of the ledger account,"},{"Start":"05:18.096 ","End":"05:22.750","Text":"either to a debit or to a credit,"},{"Start":"05:22.750 ","End":"05:28.640","Text":"and to identify the name of the other account in the transaction."},{"Start":"05:28.640 ","End":"05:32.600","Text":"What I see I haven\u0027t done here is insert the balance of"},{"Start":"05:32.600 ","End":"05:39.070","Text":"this transaction and the balance will be clearly 10,000 in credit."},{"Start":"05:39.070 ","End":"05:41.775","Text":"Transaction number 2,"},{"Start":"05:41.775 ","End":"05:46.655","Text":"involved collecting 3,000 from customers."},{"Start":"05:46.655 ","End":"05:51.470","Text":"This required us to put a debit to the bank account of"},{"Start":"05:51.470 ","End":"05:56.780","Text":"3,000 and a credit to accounts receivable of 3,000."},{"Start":"05:56.780 ","End":"06:01.430","Text":"Let us now go and post this journal entry."},{"Start":"06:01.430 ","End":"06:06.200","Text":"You will see how the bank account again that we looked at previously and"},{"Start":"06:06.200 ","End":"06:11.180","Text":"the prior transactions have been put into a lighter gray font."},{"Start":"06:11.180 ","End":"06:14.000","Text":"We therefore, post in Transaction number 2,"},{"Start":"06:14.000 ","End":"06:18.200","Text":"which was the collection of 3,000 from the customers."},{"Start":"06:18.200 ","End":"06:24.043","Text":"There is therefore a debit to the bank account in an amount of 3,000,"},{"Start":"06:24.043 ","End":"06:25.745","Text":"so in the debit column."},{"Start":"06:25.745 ","End":"06:29.900","Text":"To increase the asset bank we record 3,000."},{"Start":"06:29.900 ","End":"06:37.155","Text":"The total bank balance increases to a debit balance now of 38,000."},{"Start":"06:37.155 ","End":"06:39.155","Text":"Again, the contra account,"},{"Start":"06:39.155 ","End":"06:47.780","Text":"whereas the credit side of the entry is going to the accounts receivable,"},{"Start":"06:47.780 ","End":"06:49.790","Text":"which is an asset."},{"Start":"06:49.790 ","End":"06:52.745","Text":"Let us now go to the accounts receivable account."},{"Start":"06:52.745 ","End":"06:57.845","Text":"Here you see the accounts receivable account in the ledger."},{"Start":"06:57.845 ","End":"07:02.225","Text":"This account has a balance on the 1st of January X1,"},{"Start":"07:02.225 ","End":"07:06.970","Text":"again emphasizing that was the balance at 31 December X0"},{"Start":"07:06.970 ","End":"07:13.240","Text":"brought forward into the current year and the balance was 6,000 in debit."},{"Start":"07:13.240 ","End":"07:15.480","Text":"This transaction, as we know,"},{"Start":"07:15.480 ","End":"07:22.400","Text":"is a receipt from the customers in an amount of 3,000."},{"Start":"07:22.400 ","End":"07:28.670","Text":"We therefore have to credit because we need to reduce the accounts receivable account."},{"Start":"07:28.670 ","End":"07:31.235","Text":"We credit the account with 3,000."},{"Start":"07:31.235 ","End":"07:34.460","Text":"Note the balance was 6,000 debit,"},{"Start":"07:34.460 ","End":"07:41.235","Text":"with a credit of 6,000 the balanced reduces to 3,000, also a debit."},{"Start":"07:41.235 ","End":"07:45.920","Text":"The contra account, where is the other side of the entry and we"},{"Start":"07:45.920 ","End":"07:50.660","Text":"know the other side of the entry was the debit to bank."},{"Start":"07:50.660 ","End":"07:56.555","Text":"Therefore, we put the contra account as bank, which is an asset."},{"Start":"07:56.555 ","End":"08:01.835","Text":"We have now successfully posted the second journal entry."},{"Start":"08:01.835 ","End":"08:04.715","Text":"In Transaction number 3,"},{"Start":"08:04.715 ","End":"08:09.064","Text":"the company purchased 2,000 office supplies."},{"Start":"08:09.064 ","End":"08:14.210","Text":"You\u0027ll recall this required a debit to increase the office consumables or"},{"Start":"08:14.210 ","End":"08:22.070","Text":"supplies and expense by 2,000 and to credit the bank about 2,000."},{"Start":"08:22.070 ","End":"08:27.560","Text":"We therefore need to go to the office consumables, the expense account."},{"Start":"08:27.560 ","End":"08:32.330","Text":"Here it is, the office consumables account in the ledger."},{"Start":"08:32.330 ","End":"08:35.360","Text":"There is no opening balance."},{"Start":"08:35.360 ","End":"08:38.240","Text":"As mentioned before, there cannot be"},{"Start":"08:38.240 ","End":"08:42.470","Text":"any opening balances for any income or expense accounts."},{"Start":"08:42.470 ","End":"08:47.420","Text":"These accounts will always be closed down to 0 at the end"},{"Start":"08:47.420 ","End":"08:52.685","Text":"of each period with the relevant amounts transferred into profit or loss."},{"Start":"08:52.685 ","End":"08:57.470","Text":"Transaction number 3 is the purchase of consumables,"},{"Start":"08:57.470 ","End":"09:03.710","Text":"which requires us to debit this account by the amount of 2,000."},{"Start":"09:03.710 ","End":"09:06.665","Text":"Therefore to increase it at an expense,"},{"Start":"09:06.665 ","End":"09:08.705","Text":"therefore to increase it with a debit."},{"Start":"09:08.705 ","End":"09:13.730","Text":"Debit the office consumables expense for 2,000."},{"Start":"09:13.730 ","End":"09:18.560","Text":"The balance goes from 0 up to 2,000."},{"Start":"09:18.560 ","End":"09:20.705","Text":"The other side of the entry,"},{"Start":"09:20.705 ","End":"09:23.750","Text":"the credit side of this entry,"},{"Start":"09:23.750 ","End":"09:28.910","Text":"we know has to go to the bank account as an asset."},{"Start":"09:28.910 ","End":"09:35.285","Text":"Let\u0027s now go to the bank account and process the credit side of the entry."},{"Start":"09:35.285 ","End":"09:37.249","Text":"On the 4th of January."},{"Start":"09:37.249 ","End":"09:39.725","Text":"We have to credit the bank, we\u0027re reducing,"},{"Start":"09:39.725 ","End":"09:45.215","Text":"we are paying out cash in the bank account of 2,000."},{"Start":"09:45.215 ","End":"09:55.415","Text":"The balance then reduces from a 38,000 debit balance to a 36,000 debit balance."},{"Start":"09:55.415 ","End":"09:58.670","Text":"Again, remember to put it in the contra accounts."},{"Start":"09:58.670 ","End":"10:02.480","Text":"What was the debit side of this entry?"},{"Start":"10:02.480 ","End":"10:04.625","Text":"The debit side of this entry,"},{"Start":"10:04.625 ","End":"10:06.870","Text":"we know when 2 office consumables,"},{"Start":"10:07.060 ","End":"10:13.505","Text":"abbreviate it here office consumables as an expense."},{"Start":"10:13.505 ","End":"10:19.175","Text":"Transaction 4, you will recall was the sale of inventory parts"},{"Start":"10:19.175 ","End":"10:25.160","Text":"for cash and part on credit and recognizing the corresponding cost of sales."},{"Start":"10:25.160 ","End":"10:26.975","Text":"There were 2 parts,"},{"Start":"10:26.975 ","End":"10:30.740","Text":"we\u0027d have to do both; 4a and also 4b."},{"Start":"10:30.740 ","End":"10:36.719","Text":"4a required us to debit bank for the cash received as 7,500,"},{"Start":"10:36.719 ","End":"10:41.180","Text":"debit the accounts receivable for parts sold on credit,"},{"Start":"10:41.180 ","End":"10:47.990","Text":"also 7,500 and to credit increase the sales revenue by 15."},{"Start":"10:47.990 ","End":"10:51.800","Text":"Then we had to recognize the expense side of the transaction,"},{"Start":"10:51.800 ","End":"10:58.310","Text":"we\u0027re to debit a cost of sales expense and credit the inventory."},{"Start":"10:58.310 ","End":"11:02.525","Text":"Let\u0027s now go and post these 2 transactions."},{"Start":"11:02.525 ","End":"11:04.460","Text":"Starting with the bank,"},{"Start":"11:04.460 ","End":"11:09.005","Text":"we are required to post a debit of 7,500"},{"Start":"11:09.005 ","End":"11:14.975","Text":"into the bank account because of the sales of 15,000,"},{"Start":"11:14.975 ","End":"11:18.605","Text":"7,500 was for cash."},{"Start":"11:18.605 ","End":"11:22.190","Text":"Therefore, I need to increase debit the bank account,"},{"Start":"11:22.190 ","End":"11:24.995","Text":"post the debit 7,500,"},{"Start":"11:24.995 ","End":"11:31.290","Text":"which means the balance increases to debit balance of 43,500."},{"Start":"11:32.680 ","End":"11:36.305","Text":"Whereas the other side of the entry game,"},{"Start":"11:36.305 ","End":"11:41.585","Text":"the credit side of the entry is going to the sales account,"},{"Start":"11:41.585 ","End":"11:45.559","Text":"which we know is an income account."},{"Start":"11:45.559 ","End":"11:48.950","Text":"But now I\u0027ll also need to post the debit side of"},{"Start":"11:48.950 ","End":"11:52.655","Text":"the entry to the accounts receivable account as well."},{"Start":"11:52.655 ","End":"11:56.060","Text":"In the accounts receivable account,"},{"Start":"11:56.060 ","End":"11:59.608","Text":"the ledger account for accounts receivable,"},{"Start":"11:59.608 ","End":"12:05.855","Text":"we have had some previous entries which you see there in a great typeface."},{"Start":"12:05.855 ","End":"12:11.585","Text":"This current entry requires a further debit to the accounts receivable."},{"Start":"12:11.585 ","End":"12:13.685","Text":"This current entry,"},{"Start":"12:13.685 ","End":"12:22.050","Text":"number 4a requires a further debit to the accounts receivable account of 7,500."},{"Start":"12:22.150 ","End":"12:28.490","Text":"Therefore, debit 7,500 into the accounts receivable account."},{"Start":"12:28.490 ","End":"12:34.400","Text":"The balance therefore increases to a debit balance of 10,500."},{"Start":"12:34.400 ","End":"12:40.130","Text":"Now, both the debit to the bank and this debit to accounts receivable,"},{"Start":"12:40.130 ","End":"12:46.790","Text":"the contra account is going to the sales account as the income account."},{"Start":"12:46.790 ","End":"12:50.705","Text":"Let\u0027s now go and put the credit into sales."},{"Start":"12:50.705 ","End":"12:55.910","Text":"The sales account as an income account has a 0 balance."},{"Start":"12:55.910 ","End":"13:01.505","Text":"We now need to post both of the credits into these sales accounts."},{"Start":"13:01.505 ","End":"13:03.950","Text":"We know in Transaction 4a,"},{"Start":"13:03.950 ","End":"13:12.550","Text":"there was a debit to bank and therefore credit to sales of 7,500 and in Transaction 4b,"},{"Start":"13:12.550 ","End":"13:18.550","Text":"a debit to accounts receivable and a credit to bank for 7,500."},{"Start":"13:18.550 ","End":"13:24.850","Text":"I can insert the balances from 0 to 7,500 is 7,500 and 7,500"},{"Start":"13:24.850 ","End":"13:31.845","Text":"plus a further credit or 7,500 gives us a balance of 15,000 as credit."},{"Start":"13:31.845 ","End":"13:35.600","Text":"The first transaction, the debit side of the entry,"},{"Start":"13:35.600 ","End":"13:42.965","Text":"the contra entry went to the asset bank and for the second entry 4b,"},{"Start":"13:42.965 ","End":"13:49.610","Text":"the contra entry or debit entry went to the accounts receivable account."},{"Start":"13:49.610 ","End":"13:52.880","Text":"We can now move onto the journal entry"},{"Start":"13:52.880 ","End":"13:58.235","Text":"4b and record the expense side of this transaction."},{"Start":"13:58.235 ","End":"14:01.160","Text":"We therefore go to the cost of sales account and"},{"Start":"14:01.160 ","End":"14:05.350","Text":"expense account and as always as an expense account,"},{"Start":"14:05.350 ","End":"14:07.985","Text":"there is 0 opening balance."},{"Start":"14:07.985 ","End":"14:13.130","Text":"This transaction was a debit to increase the cost of sales."},{"Start":"14:13.130 ","End":"14:16.175","Text":"So the debit column of the cost of sales account,"},{"Start":"14:16.175 ","End":"14:20.660","Text":"we record 11,000 and the contra account,"},{"Start":"14:20.660 ","End":"14:22.745","Text":"ie what account will be credited,"},{"Start":"14:22.745 ","End":"14:28.565","Text":"we know is going to the inventory account as an asset."},{"Start":"14:28.565 ","End":"14:31.625","Text":"Let\u0027s now go to the inventory account."},{"Start":"14:31.625 ","End":"14:36.440","Text":"An inventory account, being an asset account,"},{"Start":"14:36.440 ","End":"14:45.280","Text":"there in fact was or is an opening balance of 60,000 in the account."},{"Start":"14:45.280 ","End":"14:49.775","Text":"We have now sold some inventory for 11,000."},{"Start":"14:49.775 ","End":"14:54.680","Text":"The journal entry we know requires us to credit the inventory account."},{"Start":"14:54.680 ","End":"14:57.320","Text":"The credit side of the account,"},{"Start":"14:57.320 ","End":"14:59.420","Text":"we write 11,000,"},{"Start":"14:59.420 ","End":"15:03.440","Text":"which brings the debit balance of 60 with a credit of"},{"Start":"15:03.440 ","End":"15:09.485","Text":"11,000 down to a debit balance of 49,000."},{"Start":"15:09.485 ","End":"15:12.950","Text":"We know that the contra account, in other words,"},{"Start":"15:12.950 ","End":"15:21.269","Text":"the account debited in this transaction was the cost of sales as an expense account."}],"ID":28516},{"Watched":false,"Name":"Comprehensive example PART 2","Duration":"14m 38s","ChapterTopicVideoID":26476,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.320 ","End":"00:03.840","Text":"Transaction number 5,"},{"Start":"00:03.840 ","End":"00:10.005","Text":"the company paid 16,000 to partially settle accounts payable."},{"Start":"00:10.005 ","End":"00:13.890","Text":"This we know requires us to debit the accounts payable,"},{"Start":"00:13.890 ","End":"00:19.555","Text":"to reduce it, and to credit the bank account to reduce the bank account as well."},{"Start":"00:19.555 ","End":"00:23.285","Text":"Let\u0027s now go and post this journal entry to ledger accounts."},{"Start":"00:23.285 ","End":"00:38.550","Text":"Here"},{"Start":"00:38.550 ","End":"00:38.730","Text":"we"},{"Start":"00:38.730 ","End":"00:41.150","Text":"see the accounts payable account,"},{"Start":"00:41.150 ","End":"00:45.860","Text":"accounts payable to suppliers of the inventory as a liability."},{"Start":"00:45.860 ","End":"00:48.155","Text":"It has an opening balance,"},{"Start":"00:48.155 ","End":"00:52.460","Text":"according to the balance sheet at 31 December 20 X0,"},{"Start":"00:52.460 ","End":"00:55.948","Text":"and therefore a balance at 1 January 20X1,"},{"Start":"00:55.948 ","End":"00:58.285","Text":"we are told 21,000."},{"Start":"00:58.285 ","End":"01:02.210","Text":"The current entry requires us to post a debit to"},{"Start":"01:02.210 ","End":"01:06.605","Text":"this account of the 16,000 we are paying to the suppliers."},{"Start":"01:06.605 ","End":"01:08.540","Text":"Therefore, in the debit column,"},{"Start":"01:08.540 ","End":"01:11.955","Text":"we insert the amount of 16,000."},{"Start":"01:11.955 ","End":"01:17.345","Text":"Note the balance obviously was as liability a credit of 21,000."},{"Start":"01:17.345 ","End":"01:19.985","Text":"By posting a debit of 16,000,"},{"Start":"01:19.985 ","End":"01:26.150","Text":"the balance reduces to 5,000 and clearly store a credit balance."},{"Start":"01:26.150 ","End":"01:31.625","Text":"The contra account, the credit side in this entry,"},{"Start":"01:31.625 ","End":"01:39.130","Text":"we are paying out of our bank account and we will need to credit bank with 16,000."},{"Start":"01:39.130 ","End":"01:41.805","Text":"We therefore go to the bank account,"},{"Start":"01:41.805 ","End":"01:44.130","Text":"and in this bank account,"},{"Start":"01:44.130 ","End":"01:52.170","Text":"we insert a 16,000 into the credit column to post the credit side of the entry,"},{"Start":"01:52.170 ","End":"02:00.945","Text":"and the balance therefore reduces from a 43,500 debit down to a 27,500,"},{"Start":"02:00.945 ","End":"02:03.920","Text":"also a debit balance."},{"Start":"02:03.920 ","End":"02:05.690","Text":"Remember, the contra account,"},{"Start":"02:05.690 ","End":"02:07.490","Text":"the other side of the entry."},{"Start":"02:07.490 ","End":"02:11.540","Text":"We know that the credit side of the entry went to"},{"Start":"02:11.540 ","End":"02:16.270","Text":"accounts payable as the liability account."},{"Start":"02:16.270 ","End":"02:18.490","Text":"In Transaction number 6,"},{"Start":"02:18.490 ","End":"02:22.010","Text":"you will recall that a advertisement appeared in"},{"Start":"02:22.010 ","End":"02:24.950","Text":"a newspaper and we were only going to"},{"Start":"02:24.950 ","End":"02:28.690","Text":"pay for this advertisement in the following month in February."},{"Start":"02:28.690 ","End":"02:31.490","Text":"The journal entry required a debit to"},{"Start":"02:31.490 ","End":"02:38.870","Text":"the advertising expense account in the current period and a credit to accounts payable,"},{"Start":"02:38.870 ","End":"02:41.930","Text":"a liability, or as I said to you earlier on,"},{"Start":"02:41.930 ","End":"02:48.890","Text":"this could\u0027ve gone to an account called expenses payable or even advertising payable."},{"Start":"02:48.890 ","End":"02:52.355","Text":"We go to the advertising expense account."},{"Start":"02:52.355 ","End":"02:54.560","Text":"Again, there\u0027s a 0 balance."},{"Start":"02:54.560 ","End":"02:57.785","Text":"To post this Transaction number 6,"},{"Start":"02:57.785 ","End":"03:06.080","Text":"we need to debit the advertising expense account with the amount of 1,500,"},{"Start":"03:06.080 ","End":"03:12.115","Text":"which takes the balance from 0 to a debit balance of 1,500."},{"Start":"03:12.115 ","End":"03:16.095","Text":"Because we have not yet paid for the advertising,"},{"Start":"03:16.095 ","End":"03:19.670","Text":"we know the credit account in this case is going to"},{"Start":"03:19.670 ","End":"03:26.090","Text":"an accounts payable account specifically for the advertising."},{"Start":"03:26.090 ","End":"03:29.120","Text":"As I said, you could call it a expenses"},{"Start":"03:29.120 ","End":"03:33.850","Text":"payable or a advertising expenses payable account."},{"Start":"03:33.850 ","End":"03:39.680","Text":"Here there is this accounts payable account for the advertising."},{"Start":"03:39.680 ","End":"03:43.455","Text":"On this case it\u0027s headed up for the local newspaper."},{"Start":"03:43.455 ","End":"03:48.170","Text":"We need to credit it because we need to post the credit side of the entry,"},{"Start":"03:48.170 ","End":"03:54.215","Text":"and we post a credit into this account for the same 1,500."},{"Start":"03:54.215 ","End":"03:59.830","Text":"The balance goes from 0 up to 1,500."},{"Start":"03:59.830 ","End":"04:04.225","Text":"The contra account we know is the advertising,"},{"Start":"04:04.225 ","End":"04:08.135","Text":"abbreviated advertising expense account."},{"Start":"04:08.135 ","End":"04:13.535","Text":"Note that although this is a liability account,"},{"Start":"04:13.535 ","End":"04:20.495","Text":"it has a 0 opening balance because in fact there was no accounts payable or amount"},{"Start":"04:20.495 ","End":"04:24.320","Text":"owing a expense payable in relation"},{"Start":"04:24.320 ","End":"04:28.865","Text":"to newspaper advertising at the end of the previous period."},{"Start":"04:28.865 ","End":"04:33.305","Text":"We now move on to Transaction number 7."},{"Start":"04:33.305 ","End":"04:35.420","Text":"In Transaction number 7,"},{"Start":"04:35.420 ","End":"04:41.195","Text":"this involved a further sale of inventory with the corresponding cost of sales."},{"Start":"04:41.195 ","End":"04:44.255","Text":"This time all the sales were for cash,"},{"Start":"04:44.255 ","End":"04:48.230","Text":"so there are no accounts receivable involved."},{"Start":"04:48.230 ","End":"04:52.295","Text":"Therefore, the income side of the transaction, you will recall,"},{"Start":"04:52.295 ","End":"04:59.705","Text":"is a debit to bank for 30,000 and a credit to sales for 30,000."},{"Start":"04:59.705 ","End":"05:02.225","Text":"The expense side of the transaction,"},{"Start":"05:02.225 ","End":"05:06.365","Text":"a debit to cost of sales for 20,000,"},{"Start":"05:06.365 ","End":"05:10.185","Text":"and a credit to inventory for 20,000."},{"Start":"05:10.185 ","End":"05:13.355","Text":"Let us now go and post these 2 transactions,"},{"Start":"05:13.355 ","End":"05:16.970","Text":"starting with the income transaction first."},{"Start":"05:16.970 ","End":"05:20.405","Text":"We go, again, to the bank account,"},{"Start":"05:20.405 ","End":"05:29.955","Text":"and the journal entry requires us to debit the bank account with an amount of 30,000."},{"Start":"05:29.955 ","End":"05:38.675","Text":"We therefore enter a 30,000 into the debit column of the bank account,"},{"Start":"05:38.675 ","End":"05:43.585","Text":"which brings the total from the 27,500 debit"},{"Start":"05:43.585 ","End":"05:49.530","Text":"up to a 57,500 debit."},{"Start":"05:49.530 ","End":"05:51.360","Text":"The contra accounts,"},{"Start":"05:51.360 ","End":"05:52.990","Text":"in other words as you know already,"},{"Start":"05:52.990 ","End":"05:54.725","Text":"the credit side of the entry,"},{"Start":"05:54.725 ","End":"06:00.139","Text":"is going to sales as an income account."},{"Start":"06:00.139 ","End":"06:02.945","Text":"We now go to the sales,"},{"Start":"06:02.945 ","End":"06:06.740","Text":"the income account, which we see over here."},{"Start":"06:06.740 ","End":"06:16.070","Text":"We are required to post a credit of 30,000 to the sales account."},{"Start":"06:16.070 ","End":"06:20.090","Text":"We go to the credit column of the sales account and we"},{"Start":"06:20.090 ","End":"06:24.020","Text":"enter the amount of 30,000 in the credit column,"},{"Start":"06:24.020 ","End":"06:28.430","Text":"which increases the credit balance from a 15,000"},{"Start":"06:28.430 ","End":"06:33.000","Text":"credit balance up to a 45,000 credit balance."},{"Start":"06:33.000 ","End":"06:36.695","Text":"Contra account, what was the debit side of this entry?"},{"Start":"06:36.695 ","End":"06:38.360","Text":"This was a cash sale,"},{"Start":"06:38.360 ","End":"06:45.185","Text":"so therefore the debit side of the entry was a debit to bank, the bank asset."},{"Start":"06:45.185 ","End":"06:48.470","Text":"Now, for the expense side of the transaction,"},{"Start":"06:48.470 ","End":"06:54.785","Text":"this clearly is similar to Transaction number 4b from the earlier sale of goods."},{"Start":"06:54.785 ","End":"06:58.895","Text":"We need to recognize the cost of the sales."},{"Start":"06:58.895 ","End":"07:02.559","Text":"The goods that were sold cost 20,000,"},{"Start":"07:02.559 ","End":"07:06.380","Text":"we therefore have to increase the cost of sales in the journal entry as"},{"Start":"07:06.380 ","End":"07:12.395","Text":"a debit to the cost of sales account of 20,000,"},{"Start":"07:12.395 ","End":"07:16.775","Text":"which therefore increases the debit balance on the cost of sales account,"},{"Start":"07:16.775 ","End":"07:22.662","Text":"the expense account, from 11,000 up to 31,000."},{"Start":"07:22.662 ","End":"07:25.885","Text":"We know the journal entry as before,"},{"Start":"07:25.885 ","End":"07:29.500","Text":"is a credit to the inventory account,"},{"Start":"07:29.500 ","End":"07:31.630","Text":"so therefore is the contra account."},{"Start":"07:31.630 ","End":"07:35.575","Text":"We record the inventory account as the asset."},{"Start":"07:35.575 ","End":"07:40.600","Text":"We now need to record the credit side of this journal entry."},{"Start":"07:40.600 ","End":"07:47.080","Text":"The credit is a credit to the inventory asset account to reduce the account."},{"Start":"07:47.080 ","End":"07:50.995","Text":"The amount you know, is 20,000."},{"Start":"07:50.995 ","End":"07:54.820","Text":"Therefore on the credit side of the inventory account,"},{"Start":"07:54.820 ","End":"07:57.540","Text":"we record 20,000,"},{"Start":"07:57.540 ","End":"08:05.775","Text":"which brings the balance from a 49,000 debit down to a 29,000,"},{"Start":"08:05.775 ","End":"08:07.230","Text":"clearly also a debit."},{"Start":"08:07.230 ","End":"08:10.805","Text":"The contra account, the other side of the entry,"},{"Start":"08:10.805 ","End":"08:18.610","Text":"the debit side of this entry went to the cost of sales, the expense accounts."},{"Start":"08:18.610 ","End":"08:20.905","Text":"In Transaction number 8,"},{"Start":"08:20.905 ","End":"08:27.490","Text":"the company you will recall purchased further inventory for 25,000 on credit,"},{"Start":"08:27.490 ","End":"08:32.920","Text":"which required us to debit the inventory asset accounts, to increase it,"},{"Start":"08:32.920 ","End":"08:35.725","Text":"and to credit the accounts payable,"},{"Start":"08:35.725 ","End":"08:39.145","Text":"liability account to increase it as well."},{"Start":"08:39.145 ","End":"08:42.400","Text":"We look now to post this journal entry"},{"Start":"08:42.400 ","End":"08:46.270","Text":"starting off with the inventory as the asset account,"},{"Start":"08:46.270 ","End":"08:53.080","Text":"the journal entry requires us to process a purchase of inventory and therefore to"},{"Start":"08:53.080 ","End":"09:00.355","Text":"debit the inventory account with the cost of the inventory purchased."},{"Start":"09:00.355 ","End":"09:04.210","Text":"The amount is 25,000,"},{"Start":"09:04.210 ","End":"09:09.730","Text":"which brings the debit balance from 29,000 debit up to"},{"Start":"09:09.730 ","End":"09:15.730","Text":"an amount of 54,000 debit balance in the inventory account."},{"Start":"09:15.730 ","End":"09:21.895","Text":"The other side of the transaction records the credit,"},{"Start":"09:21.895 ","End":"09:24.820","Text":"and the credit here is going to accounts"},{"Start":"09:24.820 ","End":"09:28.270","Text":"payable because the inventory was purchased on credit."},{"Start":"09:28.270 ","End":"09:35.710","Text":"The accounts payable account needs to be credited with 25,000 as well."},{"Start":"09:35.710 ","End":"09:39.325","Text":"Now let\u0027s go to the accounts payable account."},{"Start":"09:39.325 ","End":"09:45.700","Text":"Here\u0027s the accounts payable account for the suppliers of inventory as a liability."},{"Start":"09:45.700 ","End":"09:48.850","Text":"In the transaction,"},{"Start":"09:48.850 ","End":"09:54.670","Text":"we will record the credit of 25,000 into the account."},{"Start":"09:54.670 ","End":"09:57.190","Text":"Therefore, we go to the credit side of the account,"},{"Start":"09:57.190 ","End":"10:00.310","Text":"and we record 25,000,"},{"Start":"10:00.310 ","End":"10:03.742","Text":"which therefore increases the credit balance."},{"Start":"10:03.742 ","End":"10:11.065","Text":"Further 25,000 credit brings a credit balance up to 30,000."},{"Start":"10:11.065 ","End":"10:13.210","Text":"We know the debit side,"},{"Start":"10:13.210 ","End":"10:14.665","Text":"we had posted to"},{"Start":"10:14.665 ","End":"10:19.915","Text":"the inventory accounts and therefore we write in the contra account column,"},{"Start":"10:19.915 ","End":"10:23.815","Text":"inventory as an asset."},{"Start":"10:23.815 ","End":"10:26.935","Text":"In Transaction number 9,"},{"Start":"10:26.935 ","End":"10:32.740","Text":"we are paying 13,000 to the supplier of the inventory."},{"Start":"10:32.740 ","End":"10:36.400","Text":"This you recall required a debit to decrease the accounts"},{"Start":"10:36.400 ","End":"10:41.140","Text":"payable and a credit to decrease the bank accounts."},{"Start":"10:41.140 ","End":"10:44.185","Text":"Let\u0027s now post this journal entry."},{"Start":"10:44.185 ","End":"10:48.235","Text":"Firstly, we will go to the accounts payable accounts."},{"Start":"10:48.235 ","End":"10:56.395","Text":"Here then is your account payable account and we need to post a debit to this account."},{"Start":"10:56.395 ","End":"11:01.285","Text":"The amount of the debit is 13,000 and therefore,"},{"Start":"11:01.285 ","End":"11:03.100","Text":"in the debit column,"},{"Start":"11:03.100 ","End":"11:07.345","Text":"we enter the amount of 13,000,"},{"Start":"11:07.345 ","End":"11:09.610","Text":"which brings the balance,"},{"Start":"11:09.610 ","End":"11:14.140","Text":"remember it was a credit balance of 30,000 so by posting a debit"},{"Start":"11:14.140 ","End":"11:18.952","Text":"of 33,000 credit balance reduces,"},{"Start":"11:18.952 ","End":"11:20.500","Text":"it remains a credit balance,"},{"Start":"11:20.500 ","End":"11:25.195","Text":"but it reduces to an amount of 17,000."},{"Start":"11:25.195 ","End":"11:28.285","Text":"The credit side of the entry,"},{"Start":"11:28.285 ","End":"11:30.835","Text":"we will have to post to the bank account."},{"Start":"11:30.835 ","End":"11:34.585","Text":"We\u0027ll write here the bank account as an asset,"},{"Start":"11:34.585 ","End":"11:37.255","Text":"and we now go to the bank account."},{"Start":"11:37.255 ","End":"11:39.430","Text":"In this bank accounts,"},{"Start":"11:39.430 ","End":"11:42.010","Text":"which we have seen before as"},{"Start":"11:42.010 ","End":"11:47.815","Text":"always the previous transactions has been shown in a gray font,"},{"Start":"11:47.815 ","End":"11:50.590","Text":"becomes the current transaction."},{"Start":"11:50.590 ","End":"11:55.150","Text":"We need to post the credit to the bank account."},{"Start":"11:55.150 ","End":"11:58.750","Text":"We therefore go to the credit column and we enter"},{"Start":"11:58.750 ","End":"12:02.345","Text":"the amount of 13,000 in the credit column."},{"Start":"12:02.345 ","End":"12:05.670","Text":"Now again, remember this account had a balance of"},{"Start":"12:05.670 ","End":"12:11.040","Text":"57,500 debit because we are paying out of the bank account."},{"Start":"12:11.040 ","End":"12:15.510","Text":"We are reducing the account by 13,000 with the credit and therefore"},{"Start":"12:15.510 ","End":"12:22.250","Text":"the debit balance now reduces to 44,500."},{"Start":"12:22.710 ","End":"12:27.670","Text":"We know that the debit side of the entry,"},{"Start":"12:27.670 ","End":"12:34.855","Text":"we had posted to the accounts payable accounts, as a liability."},{"Start":"12:34.855 ","End":"12:38.965","Text":"The last transaction, Transaction number 10,"},{"Start":"12:38.965 ","End":"12:46.435","Text":"involved the interest cost of a 100 for the period which was taken by direct debit."},{"Start":"12:46.435 ","End":"12:48.010","Text":"Therefore, as we said before,"},{"Start":"12:48.010 ","End":"12:50.545","Text":"effectively paid by cash."},{"Start":"12:50.545 ","End":"12:57.070","Text":"This required a debit to the interest expense account and a credit to the bank account."},{"Start":"12:57.070 ","End":"13:00.460","Text":"Let us now post this journal entry."},{"Start":"13:00.460 ","End":"13:04.165","Text":"We go to the interest expense account as always,"},{"Start":"13:04.165 ","End":"13:06.475","Text":"because it is an expense account,"},{"Start":"13:06.475 ","End":"13:09.100","Text":"there is no opening balance."},{"Start":"13:09.100 ","End":"13:12.010","Text":"We come to this Transaction number 10,"},{"Start":"13:12.010 ","End":"13:18.580","Text":"and we have to process a debit entry to interest expense in the amount of 100,"},{"Start":"13:18.580 ","End":"13:22.450","Text":"which therefore clearly makes the balance 100 as well."},{"Start":"13:22.450 ","End":"13:26.065","Text":"The contra account, whereas the credit is going to go to"},{"Start":"13:26.065 ","End":"13:31.255","Text":"the bank account, which is the asset."},{"Start":"13:31.255 ","End":"13:34.075","Text":"We now come back to the bank account,"},{"Start":"13:34.075 ","End":"13:38.575","Text":"to post the credit side of this Transaction number 10,"},{"Start":"13:38.575 ","End":"13:41.635","Text":"we have to credit the bank with 100."},{"Start":"13:41.635 ","End":"13:43.195","Text":"Therefore in the credit column,"},{"Start":"13:43.195 ","End":"13:45.310","Text":"we insert the amount of 100,"},{"Start":"13:45.310 ","End":"13:50.350","Text":"which brings the debit balance, which was 44,500."},{"Start":"13:50.350 ","End":"13:56.960","Text":"It reduces the debit balance to also a debit balance of 44,400."},{"Start":"13:57.600 ","End":"14:04.045","Text":"We know the contra account where the debit has been posted to,"},{"Start":"14:04.045 ","End":"14:08.965","Text":"this was to the interest expense account."},{"Start":"14:08.965 ","End":"14:12.835","Text":"Now this stage we have completed the posting of"},{"Start":"14:12.835 ","End":"14:17.605","Text":"all 10 journal entries to all the ledger accounts."},{"Start":"14:17.605 ","End":"14:21.880","Text":"I advise you to go back and look at these accounts again,"},{"Start":"14:21.880 ","End":"14:23.725","Text":"make sure you understand"},{"Start":"14:23.725 ","End":"14:29.380","Text":"the posting process and also take note of the balances on each account,"},{"Start":"14:29.380 ","End":"14:32.410","Text":"because we will be using the balances in"},{"Start":"14:32.410 ","End":"14:37.549","Text":"the next video presentation to prepare the trial balance."}],"ID":28517},{"Watched":false,"Name":"Comprehensive example (Trial balance)","Duration":"11m 7s","ChapterTopicVideoID":26477,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:02.550","Text":"My name is Dave Kolitz."},{"Start":"00:02.550 ","End":"00:07.650","Text":"In this video, we will continue looking at the comprehensive example."},{"Start":"00:07.650 ","End":"00:10.485","Text":"This time focusing on part c,"},{"Start":"00:10.485 ","End":"00:13.890","Text":"the preparation of the trial balance."},{"Start":"00:13.890 ","End":"00:19.305","Text":"Again a brief recap, we started off this example with"},{"Start":"00:19.305 ","End":"00:24.765","Text":"a balance sheet at 31 December of the 20X0 year."},{"Start":"00:24.765 ","End":"00:28.790","Text":"We then processed 10 transactions,"},{"Start":"00:28.790 ","End":"00:33.790","Text":"which took place during the January of the 20X1 year."},{"Start":"00:33.790 ","End":"00:41.000","Text":"The requirements for this example was firstly to record the transactions into a journal,"},{"Start":"00:41.000 ","End":"00:44.780","Text":"which we have done in a previous video presentation."},{"Start":"00:44.780 ","End":"00:49.790","Text":"Number 2 to post or record those journal entries in"},{"Start":"00:49.790 ","End":"00:55.250","Text":"the ledger which we\u0027ve done in the immediately preceding video presentation."},{"Start":"00:55.250 ","End":"00:57.755","Text":"In this current presentation,"},{"Start":"00:57.755 ","End":"01:04.985","Text":"we will look at the balance of each ledger accounts and then prepare a trial balance."},{"Start":"01:04.985 ","End":"01:08.959","Text":"This takes us to the next stage of the accounting process."},{"Start":"01:08.959 ","End":"01:11.840","Text":"Because once the trial balance is prepared,"},{"Start":"01:11.840 ","End":"01:15.830","Text":"the entity can look to processing"},{"Start":"01:15.830 ","End":"01:21.260","Text":"any adjusting entries prior to preparing financial statements for the period."},{"Start":"01:21.260 ","End":"01:23.600","Text":"What I\u0027m going to show you now,"},{"Start":"01:23.600 ","End":"01:28.655","Text":"and I will flip through each ledger account 1 by 1 very briefly,"},{"Start":"01:28.655 ","End":"01:31.880","Text":"is the complete ledger accounts that was"},{"Start":"01:31.880 ","End":"01:36.765","Text":"prepared in the second part of the required to this example."},{"Start":"01:36.765 ","End":"01:43.100","Text":"All I want you to do at this point is to take notes of the balance in each account."},{"Start":"01:43.100 ","End":"01:52.340","Text":"The bank account as an asset has a debit balance of 44,400 at the end of January."},{"Start":"01:52.340 ","End":"01:56.300","Text":"The inventory account, also as an asset account,"},{"Start":"01:56.300 ","End":"02:02.374","Text":"has a debit balance of 54,000 at the end of January."},{"Start":"02:02.374 ","End":"02:06.380","Text":"The accounts receivable account, an asset,"},{"Start":"02:06.380 ","End":"02:12.484","Text":"has a debit balance of 10,500 at the end of January."},{"Start":"02:12.484 ","End":"02:14.840","Text":"The loan from the bank,"},{"Start":"02:14.840 ","End":"02:22.384","Text":"liability has a credit balance of 10,000 at the end of January."},{"Start":"02:22.384 ","End":"02:28.010","Text":"The accounts payable for the suppliers of inventory as a liability,"},{"Start":"02:28.010 ","End":"02:33.060","Text":"has a credit balance of 17,000 at the end of January."},{"Start":"02:33.060 ","End":"02:38.240","Text":"The accounts payable for the amount owing to the newspaper also"},{"Start":"02:38.240 ","End":"02:43.495","Text":"has a credit balance of 1,500 at the end of January."},{"Start":"02:43.495 ","End":"02:46.430","Text":"Turning now to the income and expense accounts,"},{"Start":"02:46.430 ","End":"02:49.235","Text":"the sales revenue or the sales account,"},{"Start":"02:49.235 ","End":"02:55.895","Text":"an income account has a credit balance of 45,000 at the end of January."},{"Start":"02:55.895 ","End":"02:57.995","Text":"Looking at the expense accounts,"},{"Start":"02:57.995 ","End":"03:00.970","Text":"the cost of sales or cost of goods sold,"},{"Start":"03:00.970 ","End":"03:04.430","Text":"expense account has a debit balance."},{"Start":"03:04.430 ","End":"03:11.215","Text":"Remember, because it is an expense a debit balance of 31,000."},{"Start":"03:11.215 ","End":"03:18.590","Text":"The office consumables as an expense has a debit balance of 2,000."},{"Start":"03:18.590 ","End":"03:25.400","Text":"The advertising expense has a debit balance of 1,500."},{"Start":"03:25.400 ","End":"03:31.280","Text":"The interest expense has a debit balance of 100."},{"Start":"03:31.280 ","End":"03:35.240","Text":"Those are all the ledger accounts that were"},{"Start":"03:35.240 ","End":"03:39.515","Text":"effected by the transactions during the period."},{"Start":"03:39.515 ","End":"03:42.170","Text":"When we come to look at the trial balance,"},{"Start":"03:42.170 ","End":"03:47.675","Text":"you will see that there are 3 ledger accounts: the property, plant and equipment,"},{"Start":"03:47.675 ","End":"03:51.065","Text":"the share capital, and retained earnings,"},{"Start":"03:51.065 ","End":"03:55.040","Text":"which were not affected by January transactions."},{"Start":"03:55.040 ","End":"03:57.445","Text":"Therefore have not been shown here."},{"Start":"03:57.445 ","End":"04:02.150","Text":"Let us firstly take a look at the structure of a trial balance"},{"Start":"04:02.150 ","End":"04:07.519","Text":"before we go ahead and prepare a trial balance from our ledger accounts."},{"Start":"04:07.519 ","End":"04:11.615","Text":"A trial balance is simply a representation"},{"Start":"04:11.615 ","End":"04:16.220","Text":"of all the ledger accounts that appear in the ledger."},{"Start":"04:16.220 ","End":"04:22.985","Text":"As you see, the trial balance has a debit side and it has a credit side."},{"Start":"04:22.985 ","End":"04:29.050","Text":"How do you know what accounts to enter on the debit side"},{"Start":"04:29.050 ","End":"04:35.260","Text":"and record on the debit side and what accounts to enter and record on the credit side."},{"Start":"04:35.260 ","End":"04:38.140","Text":"We\u0027ll go back to this accounting equation worksheet,"},{"Start":"04:38.140 ","End":"04:40.840","Text":"which we have seen so many times before."},{"Start":"04:40.840 ","End":"04:46.170","Text":"Assets equals liabilities plus owner\u0027s equity."},{"Start":"04:46.170 ","End":"04:51.020","Text":"Importantly, here\u0027s the equal sign."},{"Start":"04:51.020 ","End":"04:57.850","Text":"Now we learned earlier on that assets increase with"},{"Start":"04:57.850 ","End":"05:04.915","Text":"a debit balances and expenses also increase with debit balances."},{"Start":"05:04.915 ","End":"05:09.060","Text":"We learned that liabilities increase with"},{"Start":"05:09.060 ","End":"05:14.580","Text":"credit balances as does equity increases with a credit balance."},{"Start":"05:14.580 ","End":"05:18.490","Text":"Income increases with a credit balance."},{"Start":"05:18.490 ","End":"05:22.600","Text":"We therefore can call asset accounts,"},{"Start":"05:22.600 ","End":"05:30.370","Text":"debit type accounts and also expense accounts, debit type accounts."},{"Start":"05:30.370 ","End":"05:32.515","Text":"In a same way,"},{"Start":"05:32.515 ","End":"05:36.775","Text":"we can call liabilities credit type accounts,"},{"Start":"05:36.775 ","End":"05:39.790","Text":"equity credit type accounts,"},{"Start":"05:39.790 ","End":"05:43.180","Text":"and income credit type accounts."},{"Start":"05:43.180 ","End":"05:45.655","Text":"Just to repeat and summarize that,"},{"Start":"05:45.655 ","End":"05:50.025","Text":"because assets and expenses increase with a debit,"},{"Start":"05:50.025 ","End":"05:53.990","Text":"we expect to have debit balances on those accounts."},{"Start":"05:53.990 ","End":"06:00.320","Text":"If we look at this trial balance or the structure of a trial balance shown here,"},{"Start":"06:00.320 ","End":"06:06.005","Text":"you will see that the assets and they\u0027re just 3 hypothetical asset shown,"},{"Start":"06:06.005 ","End":"06:11.030","Text":"all have debit balances from their respective ledger accounts,"},{"Start":"06:11.030 ","End":"06:16.055","Text":"as do the 2 hypothetical expense accounts"},{"Start":"06:16.055 ","End":"06:21.295","Text":"also have debit balances from their respective ledger accounts."},{"Start":"06:21.295 ","End":"06:24.780","Text":"You should realize the liabilities,"},{"Start":"06:24.780 ","End":"06:27.830","Text":"this case 2 liabilities would have"},{"Start":"06:27.830 ","End":"06:32.580","Text":"a credit balance from their respective ledger accounts."},{"Start":"06:32.580 ","End":"06:35.365","Text":"As with the equity account,"},{"Start":"06:35.365 ","End":"06:37.485","Text":"have a credit balance."},{"Start":"06:37.485 ","End":"06:42.520","Text":"Any income accounts would also have a credit balance."},{"Start":"06:42.520 ","End":"06:46.195","Text":"Note, the trial balance balances."},{"Start":"06:46.195 ","End":"06:54.040","Text":"It balances because for every transaction that we recorded in the accounting process,"},{"Start":"06:54.040 ","End":"06:58.120","Text":"we had an equal and opposite debit and credit."},{"Start":"06:58.120 ","End":"07:02.755","Text":"For every transaction that we processed, remember,"},{"Start":"07:02.755 ","End":"07:07.590","Text":"all the debits equaled all the credits."},{"Start":"07:07.590 ","End":"07:11.440","Text":"The total of the debit entries typically only 1 entry."},{"Start":"07:11.440 ","End":"07:13.390","Text":"Sometimes you saw more than 1,"},{"Start":"07:13.390 ","End":"07:17.030","Text":"but the debit entry always equal to credit entry."},{"Start":"07:17.030 ","End":"07:24.440","Text":"Therefore, once we\u0027ve posted those equal and opposite debits and credits from"},{"Start":"07:24.440 ","End":"07:27.275","Text":"the journal entries into the ledger accounts"},{"Start":"07:27.275 ","End":"07:33.335","Text":"correctly and we\u0027ve extracted the balances from the ledger accounts,"},{"Start":"07:33.335 ","End":"07:36.440","Text":"it should make sense that"},{"Start":"07:36.440 ","End":"07:44.565","Text":"the ultimate net balances should also equal debits and credits."},{"Start":"07:44.565 ","End":"07:53.795","Text":"It\u0027s important to realize that this 27,000 total debits and 27,000 total credits,"},{"Start":"07:53.795 ","End":"07:57.140","Text":"the number in itself is not relevant."},{"Start":"07:57.140 ","End":"08:02.090","Text":"What is relevant is that these 2 amounts are in fact equal."},{"Start":"08:02.090 ","End":"08:07.150","Text":"Which goes a long way to proving there may be some other errors."},{"Start":"08:07.150 ","End":"08:11.390","Text":"But it goes a long way to proving that the equality of"},{"Start":"08:11.390 ","End":"08:18.005","Text":"the accounting equation has been maintained when processing the journal entries."},{"Start":"08:18.005 ","End":"08:21.185","Text":"Ultimately posting to the ledger accounts."},{"Start":"08:21.185 ","End":"08:26.075","Text":"We can now prepare a trial balance from the ledger accounts."},{"Start":"08:26.075 ","End":"08:33.050","Text":"In our example, the ledger accounts that we prepared in stage Number 2."},{"Start":"08:33.050 ","End":"08:36.440","Text":"What you see over here is"},{"Start":"08:36.440 ","End":"08:41.915","Text":"the debit side of the trial balance and the credit side of the trial balance."},{"Start":"08:41.915 ","End":"08:44.660","Text":"The balances I\u0027m going to highlight now or"},{"Start":"08:44.660 ","End":"08:48.740","Text":"the balances in the ledger accounts as we have seen them."},{"Start":"08:48.740 ","End":"08:52.980","Text":"The bank, the debit balance of 44,400."},{"Start":"08:52.980 ","End":"08:56.835","Text":"The inventory debit balance 54,000."},{"Start":"08:56.835 ","End":"09:00.865","Text":"The accounts receivable, debit balance 10,500."},{"Start":"09:00.865 ","End":"09:04.490","Text":"Looking at liabilities, the loan from the bank,"},{"Start":"09:04.490 ","End":"09:06.680","Text":"credit balance of 10,000."},{"Start":"09:06.680 ","End":"09:09.170","Text":"The 2 accounts payable,"},{"Start":"09:09.170 ","End":"09:12.665","Text":"credit balance of 17,000 and 1,500."},{"Start":"09:12.665 ","End":"09:15.575","Text":"Turning to the income and expense accounts,"},{"Start":"09:15.575 ","End":"09:19.675","Text":"the sales, the credit balance of 45,000."},{"Start":"09:19.675 ","End":"09:24.350","Text":"Expense accounts, the cost of sales 31,000,"},{"Start":"09:24.350 ","End":"09:27.725","Text":"the office consumables, 2,000."},{"Start":"09:27.725 ","End":"09:34.775","Text":"The advertising expense, 1,500 and interest expense, 100."},{"Start":"09:34.775 ","End":"09:38.255","Text":"As I mentioned a few moments ago,"},{"Start":"09:38.255 ","End":"09:42.140","Text":"the property plant and equipment account had"},{"Start":"09:42.140 ","End":"09:47.400","Text":"no transactions posted to it during the month of January."},{"Start":"09:47.400 ","End":"09:49.620","Text":"Therefore, the balance you see of"},{"Start":"09:49.620 ","End":"09:54.995","Text":"27,000 is the balance unchanged from the end of December."},{"Start":"09:54.995 ","End":"09:59.655","Text":"The same applies to the equity, the share capital."},{"Start":"09:59.655 ","End":"10:01.800","Text":"There were no movements in equity."},{"Start":"10:01.800 ","End":"10:07.930","Text":"Therefore, the balance of a 100,000 is the same balance as at the end of December."},{"Start":"10:07.930 ","End":"10:12.930","Text":"Now, because we have not yet posted any closing entries,"},{"Start":"10:12.930 ","End":"10:17.690","Text":"a further step in the accounting process when we close off"},{"Start":"10:17.690 ","End":"10:22.610","Text":"the income and expense accounts to profit that has not taken place yet."},{"Start":"10:22.610 ","End":"10:24.560","Text":"The balance in the retained earnings,"},{"Start":"10:24.560 ","End":"10:29.240","Text":"you\u0027ll see is the balance at the end of December 20X0."},{"Start":"10:29.240 ","End":"10:33.150","Text":"This was in fact a retained loss,"},{"Start":"10:33.150 ","End":"10:35.830","Text":"a debit of 3,000."},{"Start":"10:35.830 ","End":"10:42.645","Text":"This trial balance balances the totals of 170,500 equal each other."},{"Start":"10:42.645 ","End":"10:46.100","Text":"As I mentioned before, the total itself,"},{"Start":"10:46.100 ","End":"10:50.040","Text":"the 170,500 is of no consequence."},{"Start":"10:50.040 ","End":"10:54.385","Text":"What is of importance is the fact that the 2 amounts are equal."},{"Start":"10:54.385 ","End":"10:58.430","Text":"Emphasizing again that the equality of"},{"Start":"10:58.430 ","End":"11:01.670","Text":"the accounting equation and the equality of debits and"},{"Start":"11:01.670 ","End":"11:06.120","Text":"credits has been maintained throughout the process."}],"ID":28518},{"Watched":false,"Name":"Comprehensive Example 1","Duration":"15m 21s","ChapterTopicVideoID":26328,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.650 ","End":"00:05.265","Text":"Just as a brief recap and I will not spend much time on this."},{"Start":"00:05.265 ","End":"00:09.960","Text":"This was the balance sheet at 31 December 20X0,"},{"Start":"00:09.960 ","End":"00:13.710","Text":"which you saw in the previous video presentation."},{"Start":"00:13.710 ","End":"00:21.210","Text":"After that, we process the journal entries for the month of January of 20X1."},{"Start":"00:21.210 ","End":"00:28.380","Text":"To follow on from the balance sheet at 31 December 20X0 this is a list of"},{"Start":"00:28.380 ","End":"00:32.100","Text":"the transactions that we journalized during"},{"Start":"00:32.100 ","End":"00:37.440","Text":"the month of January 20X1 in the previous video presentation."},{"Start":"00:37.440 ","End":"00:40.160","Text":"The required, as you will recall,"},{"Start":"00:40.160 ","End":"00:43.550","Text":"is to record the transactions in a journal,"},{"Start":"00:43.550 ","End":"00:46.160","Text":"and this we did in the previous video."},{"Start":"00:46.160 ","End":"00:48.620","Text":"Now, in this current video,"},{"Start":"00:48.620 ","End":"00:51.080","Text":"we\u0027re going to record, in other words,"},{"Start":"00:51.080 ","End":"00:54.680","Text":"post these journal entries into the ledger."},{"Start":"00:54.680 ","End":"00:59.645","Text":"Before we get to the final video of this comprehensive example,"},{"Start":"00:59.645 ","End":"01:06.950","Text":"where we will calculate the balance of each ledger account and prepare a trial balance."},{"Start":"01:06.950 ","End":"01:09.005","Text":"In most modern businesses,"},{"Start":"01:09.005 ","End":"01:12.200","Text":"computers and software are used to record"},{"Start":"01:12.200 ","End":"01:17.825","Text":"both the journal entries and also to post these entries into a ledger."},{"Start":"01:17.825 ","End":"01:23.390","Text":"However, irrespective of whether a computerized or manual system is being used,"},{"Start":"01:23.390 ","End":"01:26.315","Text":"the underlying process is the same."},{"Start":"01:26.315 ","End":"01:29.810","Text":"The transaction has to be analyzed to"},{"Start":"01:29.810 ","End":"01:35.450","Text":"identify the accounts to debit and credit in each journal entry,"},{"Start":"01:35.450 ","End":"01:40.010","Text":"and from there, those entries need to be posted to the ledger."},{"Start":"01:40.010 ","End":"01:42.540","Text":"Each ledger account has a name,"},{"Start":"01:42.540 ","End":"01:45.170","Text":"and typically a number as well."},{"Start":"01:45.170 ","End":"01:48.860","Text":"The example here we will only use names."},{"Start":"01:48.860 ","End":"01:53.660","Text":"You will also notice in the following slides that only"},{"Start":"01:53.660 ","End":"01:58.790","Text":"ledger accounts which had been affected by the 10 transactions shown."},{"Start":"01:58.790 ","End":"02:00.980","Text":"In other words, ledger accounts,"},{"Start":"02:00.980 ","End":"02:03.545","Text":"for example, for property, plant and equipment,"},{"Start":"02:03.545 ","End":"02:06.890","Text":"and share capital are not shown as there was"},{"Start":"02:06.890 ","End":"02:10.580","Text":"no movement in those accounts during the month of January."},{"Start":"02:10.580 ","End":"02:14.255","Text":"Thus, when we prepare the trial balance at the end of January,"},{"Start":"02:14.255 ","End":"02:20.525","Text":"we can simply pick up the balances on those accounts from the end of December."},{"Start":"02:20.525 ","End":"02:25.385","Text":"We are now going to start the process of posting."},{"Start":"02:25.385 ","End":"02:31.405","Text":"In other words, recording the transactions from the journal into the ledger."},{"Start":"02:31.405 ","End":"02:37.010","Text":"Transaction 1 requires us to debit the bank account with"},{"Start":"02:37.010 ","End":"02:42.845","Text":"10,000 and credit the loan from the bank with 10,000."},{"Start":"02:42.845 ","End":"02:46.750","Text":"We, therefore, go to the ledger account for bank."},{"Start":"02:46.750 ","End":"02:49.640","Text":"Here is ledger account for bank."},{"Start":"02:49.640 ","End":"02:56.725","Text":"You will see that account has an opening balance of 25,000,"},{"Start":"02:56.725 ","End":"03:01.475","Text":"which was the balance at the end of the 20X0 year,"},{"Start":"03:01.475 ","End":"03:05.735","Text":"and therefore the opening balance on 1 January 20X1."},{"Start":"03:05.735 ","End":"03:10.080","Text":"It is a debit balance because bank is an asset."},{"Start":"03:10.080 ","End":"03:13.235","Text":"We now have to post the transaction."},{"Start":"03:13.235 ","End":"03:16.550","Text":"The journal entry requires a debit of"},{"Start":"03:16.550 ","End":"03:22.070","Text":"10,000 to be recorded or posted in the bank account."},{"Start":"03:22.070 ","End":"03:24.995","Text":"Therefore, on the debit side of the bank account,"},{"Start":"03:24.995 ","End":"03:28.400","Text":"we enter 10,000 and remember"},{"Start":"03:28.400 ","End":"03:34.625","Text":"the contra account is the name of the other account affected in the transaction."},{"Start":"03:34.625 ","End":"03:37.400","Text":"In other words, the count there will be credited."},{"Start":"03:37.400 ","End":"03:41.585","Text":"This account is going to be the loan from the bank,"},{"Start":"03:41.585 ","End":"03:43.850","Text":"which is a liability account."},{"Start":"03:43.850 ","End":"03:47.495","Text":"After we have debited 10,000 to the bank, account,"},{"Start":"03:47.495 ","End":"03:55.685","Text":"balance increases from 25,000 debit balance to a 35,000 debit balance."},{"Start":"03:55.685 ","End":"03:59.975","Text":"We now have to go and post the credit side of the entry."},{"Start":"03:59.975 ","End":"04:07.850","Text":"What do you see here is the ledger account for the loan from the bank as a liability."},{"Start":"04:07.850 ","End":"04:11.960","Text":"There is no opening balance in the account."},{"Start":"04:11.960 ","End":"04:16.565","Text":"We therefore post the credit side of that first entry,"},{"Start":"04:16.565 ","End":"04:23.780","Text":"which requires a credit of 10,000 to be placed into the loan account."},{"Start":"04:23.780 ","End":"04:30.770","Text":"Again, the contra account is the name of the account of the other side of the entry."},{"Start":"04:30.770 ","End":"04:32.900","Text":"In other words, the debit side of the entry,"},{"Start":"04:32.900 ","End":"04:34.955","Text":"which you know, went to bank,"},{"Start":"04:34.955 ","End":"04:36.740","Text":"bank as an asset."},{"Start":"04:36.740 ","End":"04:44.540","Text":"Therefore, we can look at this account and see that on the 1st of January of 20X1,"},{"Start":"04:44.540 ","End":"04:48.815","Text":"the company would have debited bank"},{"Start":"04:48.815 ","End":"04:55.010","Text":"and a credit has gone to this loan account for 10,000 currency units."},{"Start":"04:55.010 ","End":"04:59.210","Text":"That is the way you are able to read a ledger account."},{"Start":"04:59.210 ","End":"05:05.434","Text":"I\u0027m not focusing here on the description in any detail."},{"Start":"05:05.434 ","End":"05:10.370","Text":"The description is the least important part of the ledger account."},{"Start":"05:10.370 ","End":"05:16.235","Text":"Most important parts are posting the amount to the correct side"},{"Start":"05:16.235 ","End":"05:22.745","Text":"of the ledger account either to a debit or to credit,"},{"Start":"05:22.745 ","End":"05:28.640","Text":"and to identify the name of the other account in the transaction."},{"Start":"05:28.640 ","End":"05:33.875","Text":"What I see I haven\u0027t done here is insert the balance of this transaction,"},{"Start":"05:33.875 ","End":"05:39.070","Text":"and the balance will be clearly 10,000 in credit."},{"Start":"05:39.070 ","End":"05:41.775","Text":"Transaction number 2,"},{"Start":"05:41.775 ","End":"05:46.655","Text":"involved collecting 3,000 from customers."},{"Start":"05:46.655 ","End":"05:52.730","Text":"This required us to put a debit to the bank account of 3,000,"},{"Start":"05:52.730 ","End":"05:56.780","Text":"and a credit to accounts receivable of 3,000."},{"Start":"05:56.780 ","End":"06:01.430","Text":"Let us now go and post this journal entry."},{"Start":"06:01.430 ","End":"06:06.200","Text":"You will see how the bank account again that we looked at previously and"},{"Start":"06:06.200 ","End":"06:11.180","Text":"the prior transactions have been put into a lighter gray font."},{"Start":"06:11.180 ","End":"06:14.000","Text":"We therefore are posting transaction number 2,"},{"Start":"06:14.000 ","End":"06:18.200","Text":"which was the collection of 3,000 from the customers."},{"Start":"06:18.200 ","End":"06:24.065","Text":"There is therefore a debit to the bank account in an amount of 3,000."},{"Start":"06:24.065 ","End":"06:29.900","Text":"Send the debit column to increase the asset bank, we record 3,000."},{"Start":"06:29.900 ","End":"06:37.150","Text":"The total bank balance increases to debit balance now of 38,000."},{"Start":"06:37.150 ","End":"06:39.155","Text":"Again, the contra account,"},{"Start":"06:39.155 ","End":"06:41.855","Text":"where is the credit side of this entry going."},{"Start":"06:41.855 ","End":"06:49.385","Text":"The credit side of the entry is going to the accounts receivable, which is an asset."},{"Start":"06:49.385 ","End":"06:52.745","Text":"Let us now go to the accounts receivable account."},{"Start":"06:52.745 ","End":"06:57.845","Text":"Here you see the accounts receivable account in the ledger."},{"Start":"06:57.845 ","End":"07:02.225","Text":"This account has a balance on the 1st of January X1,"},{"Start":"07:02.225 ","End":"07:06.965","Text":"again emphasizing that was the balance at 31 December X0"},{"Start":"07:06.965 ","End":"07:13.160","Text":"brought forward into the current year and the balance was 6,000 in debits."},{"Start":"07:13.160 ","End":"07:15.485","Text":"This transaction, as we know,"},{"Start":"07:15.485 ","End":"07:22.420","Text":"is a receipt from the customers in an amount of 3,000."},{"Start":"07:22.420 ","End":"07:24.420","Text":"We therefore have to credit,"},{"Start":"07:24.420 ","End":"07:28.670","Text":"because we need to reduce the accounts receivable account."},{"Start":"07:28.670 ","End":"07:31.235","Text":"We credit the account with 3,000,"},{"Start":"07:31.235 ","End":"07:34.460","Text":"note the balance was 6,000 debit."},{"Start":"07:34.460 ","End":"07:36.735","Text":"With a credit of 6,000,"},{"Start":"07:36.735 ","End":"07:41.225","Text":"the balance reduces to 3,000, also a debit."},{"Start":"07:41.225 ","End":"07:45.260","Text":"The contrary account, where is the other side of the entry?"},{"Start":"07:45.260 ","End":"07:50.660","Text":"We know the other side of the entry was the debit to bank."},{"Start":"07:50.660 ","End":"07:56.540","Text":"Therefore, we put the contra account as bank, which is an asset."},{"Start":"07:56.540 ","End":"08:01.835","Text":"We have now successfully posted the second journal entry."},{"Start":"08:01.835 ","End":"08:04.715","Text":"In Transaction number 3,"},{"Start":"08:04.715 ","End":"08:09.064","Text":"the company purchased 2,000 for office supplies."},{"Start":"08:09.064 ","End":"08:14.210","Text":"You recall this required a debit to increase the office consumables or"},{"Start":"08:14.210 ","End":"08:22.070","Text":"supplies and expense by 2,000 and to credit the bank by 2,000."},{"Start":"08:22.070 ","End":"08:27.560","Text":"We therefore need to go to the office consumables, the expense account."},{"Start":"08:27.560 ","End":"08:32.330","Text":"Here it is, the office consumables account in the ledger."},{"Start":"08:32.330 ","End":"08:37.490","Text":"There is no opening balance and as mentioned before there"},{"Start":"08:37.490 ","End":"08:42.470","Text":"cannot be any opening balances for any income or expense accounts."},{"Start":"08:42.470 ","End":"08:47.420","Text":"These accounts will always be closed down to 0 at the end"},{"Start":"08:47.420 ","End":"08:52.685","Text":"of each period with the relevant amounts transferred into profit or loss."},{"Start":"08:52.685 ","End":"08:57.800","Text":"Transaction number 3 is the purchase of consumables which"},{"Start":"08:57.800 ","End":"09:03.710","Text":"requires us to debit this account by the amount of 2,000."},{"Start":"09:03.710 ","End":"09:05.585","Text":"Therefore to increase it,"},{"Start":"09:05.585 ","End":"09:08.705","Text":"it\u0027s an expense therefore the increase was a debit,"},{"Start":"09:08.705 ","End":"09:13.730","Text":"debit the office consumables expense for 2,000,"},{"Start":"09:13.730 ","End":"09:20.705","Text":"the balance goes from 0 up to 2,000 and the other side of the entry,"},{"Start":"09:20.705 ","End":"09:28.925","Text":"the credit side of this entry we know has to go to the bank account as an asset."},{"Start":"09:28.925 ","End":"09:35.285","Text":"Let\u0027s now go to the bank account and process the credit side of the entry."},{"Start":"09:35.285 ","End":"09:39.725","Text":"On the 4th of January we have to credit bank, we\u0027re reducing,"},{"Start":"09:39.725 ","End":"09:45.215","Text":"we are paying out cash in the bank account of 2,000."},{"Start":"09:45.215 ","End":"09:55.415","Text":"The balance then reduces from a 38,000 debit balance to a 36,000 debit balance."},{"Start":"09:55.415 ","End":"09:58.670","Text":"Again, remember to put in the contra account."},{"Start":"09:58.670 ","End":"10:02.480","Text":"What was the debit side of this entry?"},{"Start":"10:02.480 ","End":"10:07.760","Text":"The debit side of this entry we know when 2 offers consumables,"},{"Start":"10:07.760 ","End":"10:13.505","Text":"abbreviated here offers consumables as an expense."},{"Start":"10:13.505 ","End":"10:19.175","Text":"Transaction 4 you will recall was the sale of inventory part"},{"Start":"10:19.175 ","End":"10:25.220","Text":"for cash and part on credit and recognizing the corresponding cost of sales."},{"Start":"10:25.220 ","End":"10:26.975","Text":"There were 2 parts,"},{"Start":"10:26.975 ","End":"10:30.920","Text":"we\u0027d have to do both 4a and also 4b."},{"Start":"10:30.920 ","End":"10:34.730","Text":"4a required us to debit bank for the cash received,"},{"Start":"10:34.730 ","End":"10:41.180","Text":"a 7.5, debit the accounts receivable for parts sold on credit,"},{"Start":"10:41.180 ","End":"10:44.930","Text":"also 7.5 and to credit increase"},{"Start":"10:44.930 ","End":"10:47.915","Text":"the sales revenue by 15"},{"Start":"10:47.915 ","End":"10:51.800","Text":"and then we had to recognize the expense side of the transaction,"},{"Start":"10:51.800 ","End":"10:58.310","Text":"we had to debit a cost of sales expense and credit the inventory."},{"Start":"10:58.310 ","End":"11:02.525","Text":"Let\u0027s now go and post these 2 transactions."},{"Start":"11:02.525 ","End":"11:04.460","Text":"Starting with the bank,"},{"Start":"11:04.460 ","End":"11:09.035","Text":"we are required to post a debit of 7,500"},{"Start":"11:09.035 ","End":"11:14.975","Text":"into the bank account because of the sales of 15,000,"},{"Start":"11:14.975 ","End":"11:18.605","Text":"7500 was for cash."},{"Start":"11:18.605 ","End":"11:23.345","Text":"Therefore I need to increase debit the bank account, post the debit,"},{"Start":"11:23.345 ","End":"11:31.290","Text":"7,500 which means the balance increases to debit balance of 43,500."},{"Start":"11:32.680 ","End":"11:36.305","Text":"Whereas the other side of the entry game,"},{"Start":"11:36.305 ","End":"11:39.560","Text":"the credit side of the entry is going to"},{"Start":"11:39.560 ","End":"11:45.559","Text":"the sales account which we know is an income account."},{"Start":"11:45.559 ","End":"11:48.950","Text":"But now I also need to post the debit side of"},{"Start":"11:48.950 ","End":"11:52.655","Text":"the entry to the accounts receivable account as well."},{"Start":"11:52.655 ","End":"11:56.060","Text":"In the accounts receivable account,"},{"Start":"11:56.060 ","End":"12:03.515","Text":"the ledger accounts receivable we have had some previous entries which you see in"},{"Start":"12:03.515 ","End":"12:11.585","Text":"a gray typeface and this current entry requires a further debit to the accounts receive."},{"Start":"12:11.585 ","End":"12:13.685","Text":"This current entry,"},{"Start":"12:13.685 ","End":"12:22.265","Text":"number 4a requires a further debit to the accounts receivable account of 7,500."},{"Start":"12:22.265 ","End":"12:26.360","Text":"Therefore debit 7,500 into"},{"Start":"12:26.360 ","End":"12:29.945","Text":"the accounts receivable account and the balance therefore"},{"Start":"12:29.945 ","End":"12:34.400","Text":"increases to a debit balance of 10,500."},{"Start":"12:34.400 ","End":"12:40.130","Text":"Now, both the debit to the bank and those debit to account receivable,"},{"Start":"12:40.130 ","End":"12:46.790","Text":"the contra account is going to the sales account as the income account."},{"Start":"12:46.790 ","End":"12:50.705","Text":"Let\u0027s now go and put the credit into sales."},{"Start":"12:50.705 ","End":"12:55.910","Text":"The sales account as an income account has a zero balance."},{"Start":"12:55.910 ","End":"12:59.270","Text":"We now need to post both of the credits"},{"Start":"12:59.270 ","End":"13:04.175","Text":"into the sales account and we know in Transaction 4a"},{"Start":"13:04.175 ","End":"13:12.715","Text":"there was a debit to bank and therefore credited sales of 7.5 and then Transaction 4b,"},{"Start":"13:12.715 ","End":"13:18.550","Text":"a debit to accounts receivable and a credit to bank for 7.5."},{"Start":"13:18.550 ","End":"13:24.850","Text":"I can insert the balances from 0 to 7.5 is 7.5 and 7.5"},{"Start":"13:24.850 ","End":"13:31.845","Text":"plus a further credit to 7.5 gives us a balance of 15,000 as credit."},{"Start":"13:31.845 ","End":"13:35.600","Text":"The first transaction, the debit side of the entry,"},{"Start":"13:35.600 ","End":"13:43.145","Text":"the contra entry went to the asset bank and for the second entry 4b,"},{"Start":"13:43.145 ","End":"13:49.610","Text":"the contra entry or debit entry went to the accounts receivable account."},{"Start":"13:49.610 ","End":"13:53.870","Text":"We can now move on to the journal entry 4b"},{"Start":"13:53.870 ","End":"13:58.235","Text":"and record the expense side of the strong section."},{"Start":"13:58.235 ","End":"14:03.020","Text":"We therefore go to the cost of sales account and expense account and as"},{"Start":"14:03.020 ","End":"14:07.985","Text":"always as an expense account there is 0 opening balance."},{"Start":"14:07.985 ","End":"14:13.130","Text":"This transaction was a debit to increase the cost of sales,"},{"Start":"14:13.130 ","End":"14:16.175","Text":"so the debit column of the cost of sales account,"},{"Start":"14:16.175 ","End":"14:20.765","Text":"we record 11,000 and the contra account,"},{"Start":"14:20.765 ","End":"14:22.745","Text":"your other account will be credited,"},{"Start":"14:22.745 ","End":"14:28.565","Text":"we know is going to the inventory account as an asset."},{"Start":"14:28.565 ","End":"14:33.980","Text":"Let\u0027s now go to the inventory account and in the inventory account,"},{"Start":"14:33.980 ","End":"14:36.650","Text":"being an asset account,"},{"Start":"14:36.650 ","End":"14:44.840","Text":"in fact was or is an opening balance of 60,000 in the account."},{"Start":"14:44.840 ","End":"14:49.775","Text":"We have now sold some inventory for 11,000."},{"Start":"14:49.775 ","End":"14:54.560","Text":"The journal entry we know requires us to credit the inventory account,"},{"Start":"14:54.560 ","End":"14:58.025","Text":"so on the credit side of the account we write"},{"Start":"14:58.025 ","End":"15:03.440","Text":"11,000 which brings the debit balance of 60 with a credit of"},{"Start":"15:03.440 ","End":"15:12.335","Text":"11,000 down to a debit balance of 49,000 and we know that the contra account,"},{"Start":"15:12.335 ","End":"15:16.100","Text":"in other words the account debited in this transaction was"},{"Start":"15:16.100 ","End":"15:21.269","Text":"the cost of sales as an expense account."}],"ID":28521},{"Watched":false,"Name":"Exercise 1 Part a - Introduction","Duration":"14m 16s","ChapterTopicVideoID":26329,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:04.185","Text":"Avant-Garde is a small consultancy specializing in"},{"Start":"00:04.185 ","End":"00:07.980","Text":"providing marketing advice to small and medium business."},{"Start":"00:07.980 ","End":"00:11.550","Text":"Now, this business about providing marketing advice is"},{"Start":"00:11.550 ","End":"00:15.585","Text":"important information in that it\u0027s telling us we are not a retailer,"},{"Start":"00:15.585 ","End":"00:17.955","Text":"in other words, we don\u0027t buy and sell goods."},{"Start":"00:17.955 ","End":"00:20.340","Text":"It\u0027s also telling us we\u0027re not a manufacturer,"},{"Start":"00:20.340 ","End":"00:24.068","Text":"which means we don\u0027t make the goods and then sell them."},{"Start":"00:24.068 ","End":"00:29.030","Text":"The importance of that is that this means we don\u0027t carry inventory,"},{"Start":"00:29.030 ","End":"00:31.109","Text":"in other words, the goods that we have to sell."},{"Start":"00:31.109 ","End":"00:33.470","Text":"We don\u0027t have that asset on our books and we\u0027re also"},{"Start":"00:33.470 ","End":"00:36.455","Text":"not going to have to work out the cost of goods sold."},{"Start":"00:36.455 ","End":"00:40.805","Text":"Basically, what we are then if we\u0027re not a retailer and we\u0027re not a manufacturer,"},{"Start":"00:40.805 ","End":"00:43.135","Text":"is that we are a service provider."},{"Start":"00:43.135 ","End":"00:46.740","Text":"This is the simplest form of business."},{"Start":"00:47.900 ","End":"00:50.175","Text":"It has 2 owners,"},{"Start":"00:50.175 ","End":"00:52.965","Text":"5 employees, and several clients."},{"Start":"00:52.965 ","End":"00:58.240","Text":"It has a 31st of December financial year-end."},{"Start":"00:58.240 ","End":"01:01.625","Text":"Now, let\u0027s have a look at what else we\u0027re given."},{"Start":"01:01.625 ","End":"01:07.055","Text":"We\u0027re given a balance sheet at 31st of December, X1."},{"Start":"01:07.055 ","End":"01:09.965","Text":"Now, X1 denotes the year,"},{"Start":"01:09.965 ","End":"01:13.095","Text":"so X2 will be the next year,"},{"Start":"01:13.095 ","End":"01:16.545","Text":"and X3 the next year after that, and so on."},{"Start":"01:16.545 ","End":"01:20.870","Text":"Now, this balance sheet has been given to us using a horizontal format and I\u0027m"},{"Start":"01:20.870 ","End":"01:25.445","Text":"going to show you the vertical format as well in a moment."},{"Start":"01:25.445 ","End":"01:27.950","Text":"Just bear in mind that your balance sheet can be set out in"},{"Start":"01:27.950 ","End":"01:30.971","Text":"a variety of different ways within certain limits."},{"Start":"01:30.971 ","End":"01:35.054","Text":"You\u0027ve got your horizontal presentation and a vertical presentation."},{"Start":"01:35.054 ","End":"01:37.340","Text":"I\u0027ll show you the difference in a moment."},{"Start":"01:37.340 ","End":"01:43.100","Text":"The next thing I want to show you is when you use a horizontal format,"},{"Start":"01:43.100 ","End":"01:46.770","Text":"we have a left-hand side and a right-hand side,"},{"Start":"01:46.770 ","End":"01:49.865","Text":"or what accountants refer to as the debit and the credit."},{"Start":"01:49.865 ","End":"01:53.270","Text":"The left-hand side is going to have a column headed up with CU and"},{"Start":"01:53.270 ","End":"01:57.020","Text":"the right-hand side will have a column headed up with CU."},{"Start":"01:57.020 ","End":"02:02.405","Text":"CU stands for currency units and that could be dollars, pounds, euros, etc."},{"Start":"02:02.405 ","End":"02:05.225","Text":"Using the horizontal format,"},{"Start":"02:05.225 ","End":"02:09.005","Text":"we would have assets typically on the left-hand side."},{"Start":"02:09.005 ","End":"02:14.374","Text":"Notice that the assets are split between non-current assets and current assets."},{"Start":"02:14.374 ","End":"02:15.965","Text":"On the right-hand side,"},{"Start":"02:15.965 ","End":"02:18.119","Text":"we have our liabilities."},{"Start":"02:18.119 ","End":"02:19.520","Text":"Notice once again,"},{"Start":"02:19.520 ","End":"02:25.695","Text":"the liabilities are split between non-current liabilities and current liabilities."},{"Start":"02:25.695 ","End":"02:30.340","Text":"We then have our shareholders\u0027 equity below the liabilities,"},{"Start":"02:30.340 ","End":"02:33.610","Text":"and here we just have two kinds of equity account,"},{"Start":"02:33.610 ","End":"02:36.295","Text":"we got our share capital and our retained earnings."},{"Start":"02:36.295 ","End":"02:40.560","Text":"Now, if I scroll this balance sheet down a little bit so you can see the end of it,"},{"Start":"02:40.560 ","End":"02:46.345","Text":"you will see that on the left-hand side we total all of the assets."},{"Start":"02:46.345 ","End":"02:48.610","Text":"The total of our non-current assets."},{"Start":"02:48.610 ","End":"02:57.500","Text":"We had non-current assets of 20,000 and we had current assets of 14,750."},{"Start":"02:57.500 ","End":"02:59.590","Text":"On the right-hand side,"},{"Start":"02:59.590 ","End":"03:03.880","Text":"we have total liabilities and equity."},{"Start":"03:03.880 ","End":"03:09.385","Text":"Now, the total liabilities and equity is the total liabilities of"},{"Start":"03:09.385 ","End":"03:15.233","Text":"27,760 and the total equity of 6,990 added together."},{"Start":"03:15.233 ","End":"03:18.810","Text":"The 27,760 was obviously"},{"Start":"03:18.810 ","End":"03:26.610","Text":"12,000 non-current liabilities and the 15,760 current liabilities."},{"Start":"03:26.610 ","End":"03:33.390","Text":"Notice that the left-hand side of"},{"Start":"03:33.390 ","End":"03:40.310","Text":"the balance sheet equals the right-hand side of the balance sheet, 34,750."},{"Start":"03:40.310 ","End":"03:44.270","Text":"The reason for this is that it is following our accounting equation."},{"Start":"03:44.270 ","End":"03:50.975","Text":"Our accounting equation: assets = liabilities + owner\u0027s equity."},{"Start":"03:50.975 ","End":"03:56.460","Text":"Otherwise known as A = L + OE."},{"Start":"03:56.730 ","End":"04:00.835","Text":"I\u0027ll now show you the vertical presentation."},{"Start":"04:00.835 ","End":"04:04.870","Text":"This now is the balance sheet at 31st December X1"},{"Start":"04:04.870 ","End":"04:09.455","Text":"again but this time using the vertical presentation."},{"Start":"04:09.455 ","End":"04:13.260","Text":"Notice that we only have one column now headed up at CU."},{"Start":"04:13.260 ","End":"04:17.392","Text":"That\u0027s what happens when you\u0027re using a vertical presentation."},{"Start":"04:17.392 ","End":"04:20.592","Text":"What we do is we start with our assets."},{"Start":"04:20.592 ","End":"04:25.845","Text":"Notice that we have total assets of 34,750,"},{"Start":"04:25.845 ","End":"04:34.180","Text":"and this is made up of non-current assets and current assets."},{"Start":"04:36.160 ","End":"04:40.250","Text":"We then have liabilities."},{"Start":"04:40.250 ","End":"04:43.400","Text":"The total liabilities of 27,760."},{"Start":"04:43.400 ","End":"04:50.310","Text":"This is made up of the non-current liabilities and the current liabilities."},{"Start":"04:50.840 ","End":"04:54.440","Text":"Now, I want to draw your attention to the fact that"},{"Start":"04:54.440 ","End":"04:58.440","Text":"our assets all have positive balances,"},{"Start":"04:58.440 ","End":"05:00.195","Text":"whereas our liabilities,"},{"Start":"05:00.195 ","End":"05:03.035","Text":"all have negative balances."},{"Start":"05:03.035 ","End":"05:08.830","Text":"The reason for that is because using this particular vertical presentation,"},{"Start":"05:08.830 ","End":"05:11.920","Text":"one of our totals is going to be to show net assets."},{"Start":"05:11.920 ","End":"05:19.723","Text":"In other words, we are going to show the assets less the liabilities."},{"Start":"05:19.723 ","End":"05:24.800","Text":"We\u0027ve taken the total assets of 34,750 and we\u0027ve subtracted"},{"Start":"05:24.800 ","End":"05:31.835","Text":"the total liabilities of 27,760 to give us the 6,990."},{"Start":"05:31.835 ","End":"05:36.120","Text":"That\u0027s the first section of our balance sheet."},{"Start":"05:36.120 ","End":"05:40.775","Text":"I\u0027ll just scroll this balance sheet down so you can see the rest of the balance sheet."},{"Start":"05:40.775 ","End":"05:44.900","Text":"The second part of our balance sheet is the shareholder\u0027s equity or"},{"Start":"05:44.900 ","End":"05:51.020","Text":"the equity section made up of our share capital and our retained earnings."},{"Start":"05:51.020 ","End":"05:54.470","Text":"Our total equity comes to 6,990 which,"},{"Start":"05:54.470 ","End":"05:58.410","Text":"if you notice, equals our net assets."},{"Start":"05:59.480 ","End":"06:03.285","Text":"The figures are identical,"},{"Start":"06:03.285 ","End":"06:06.110","Text":"it\u0027s just that we\u0027ve shuffled things around from"},{"Start":"06:06.110 ","End":"06:10.820","Text":"a horizontal presentation to a vertical presentation."},{"Start":"06:10.820 ","End":"06:13.130","Text":"Something else though that you may have noticed is"},{"Start":"06:13.130 ","End":"06:15.850","Text":"that our accounting equation is normally,"},{"Start":"06:15.850 ","End":"06:20.960","Text":"assets = liabilities + owner\u0027s equity and that is the accounting equation that"},{"Start":"06:20.960 ","End":"06:26.680","Text":"we use for the structure of the horizontal balance sheet that we looked at a moment ago."},{"Start":"06:26.680 ","End":"06:29.325","Text":"But here, what we have done,"},{"Start":"06:29.325 ","End":"06:32.795","Text":"this particular structure using the vertical format,"},{"Start":"06:32.795 ","End":"06:39.493","Text":"we have simply moved the liabilities across to the left-hand side of the equal sign,"},{"Start":"06:39.493 ","End":"06:42.040","Text":"and from a maths perspective,"},{"Start":"06:42.040 ","End":"06:44.870","Text":"when you move something from the one side of"},{"Start":"06:44.870 ","End":"06:47.239","Text":"an equation to the other side of the equation,"},{"Start":"06:47.239 ","End":"06:48.740","Text":"the sign will change."},{"Start":"06:48.740 ","End":"06:52.145","Text":"So we have positive liabilities to negative liabilities."},{"Start":"06:52.145 ","End":"06:53.720","Text":"Our accounting equation is"},{"Start":"06:53.720 ","End":"07:02.595","Text":"therefore assets"},{"Start":"07:02.595 ","End":"07:07.500","Text":"- liabilities = owner\u0027s equity."},{"Start":"07:07.500 ","End":"07:09.030","Text":"As I said previously,"},{"Start":"07:09.030 ","End":"07:13.970","Text":"this is a list of transactions which occurred during January X2."},{"Start":"07:13.970 ","End":"07:18.385","Text":"There are 9 pieces of information that we\u0027re going to work with."},{"Start":"07:18.385 ","End":"07:23.840","Text":"For simplicity, we are to assume all transactions took place on the 31st of January,"},{"Start":"07:23.840 ","End":"07:26.180","Text":"X2, in other words, on the last day of the month,"},{"Start":"07:26.180 ","End":"07:27.700","Text":"unless otherwise stated,"},{"Start":"07:27.700 ","End":"07:29.800","Text":"and that is just to make it easier for us."},{"Start":"07:29.800 ","End":"07:33.850","Text":"Now, we\u0027re going to go through each one separately and I\u0027m going to show you"},{"Start":"07:33.850 ","End":"07:37.535","Text":"how to record the journal entries for each of the transactions that affect January."},{"Start":"07:37.535 ","End":"07:38.890","Text":"But before we do that,"},{"Start":"07:38.890 ","End":"07:40.685","Text":"I want you to have a look again at"},{"Start":"07:40.685 ","End":"07:44.345","Text":"the accounting equation and I want you to familiarize yourself with"},{"Start":"07:44.345 ","End":"07:47.920","Text":"whether an asset gets bigger on the debit side or does it get"},{"Start":"07:47.920 ","End":"07:51.655","Text":"bigger on the credit side and know the same for liabilities,"},{"Start":"07:51.655 ","End":"07:54.625","Text":"equity, and income and expenses."},{"Start":"07:54.625 ","End":"07:58.565","Text":"Let\u0027s do that first before we can do the journal entries together."},{"Start":"07:58.565 ","End":"08:04.404","Text":"Our accounting equation as we know is assets = liabilities + owner\u0027s equity,"},{"Start":"08:04.404 ","End":"08:08.035","Text":"otherwise, just A = L + OE."},{"Start":"08:08.035 ","End":"08:13.210","Text":"What this means is assets get bigger on the left-hand side or"},{"Start":"08:13.210 ","End":"08:17.360","Text":"the debit side and liabilities and"},{"Start":"08:17.360 ","End":"08:19.300","Text":"owner\u0027s equity get bigger on"},{"Start":"08:19.300 ","End":"08:23.120","Text":"the right-hand side or what accountants call the credit side."},{"Start":"08:23.120 ","End":"08:25.245","Text":"Now you might be wondering,"},{"Start":"08:25.245 ","End":"08:28.710","Text":"there are actually five elements and our accounting equation is"},{"Start":"08:28.710 ","End":"08:32.670","Text":"referring only to three. What are they?"},{"Start":"08:32.670 ","End":"08:35.810","Text":"We\u0027ve got our assets, our liabilities, and our equity,"},{"Start":"08:35.810 ","End":"08:40.155","Text":"and there are two more, is income and expenses."},{"Start":"08:40.155 ","End":"08:42.790","Text":"How do income and expenses fit in?"},{"Start":"08:42.790 ","End":"08:45.800","Text":"Well, income and expenses form part of owner\u0027s equity,"},{"Start":"08:45.800 ","End":"08:47.660","Text":"that\u0027s where they ultimately land up."},{"Start":"08:47.660 ","End":"08:55.590","Text":"Income actually increases owner\u0027s equity and expenses decrease owner\u0027s equity."},{"Start":"08:55.590 ","End":"08:59.670","Text":"Therefore, bearing in mind that we know owner\u0027s equity gets bigger on"},{"Start":"08:59.670 ","End":"09:04.705","Text":"the right-hand side or as accountants refer to it as the credit side,"},{"Start":"09:04.705 ","End":"09:08.965","Text":"let\u0027s think how we would increase income and how we would increase expenses."},{"Start":"09:08.965 ","End":"09:11.165","Text":"Let\u0027s start with what we do know."},{"Start":"09:11.165 ","End":"09:18.785","Text":"We do know that owner\u0027s equity gets bigger on the right-hand side, the credit side."},{"Start":"09:18.785 ","End":"09:24.245","Text":"We also now know that income makes owner\u0027s equity bigger,"},{"Start":"09:24.245 ","End":"09:30.335","Text":"so therefore, let\u0027s think how would income get bigger?"},{"Start":"09:30.335 ","End":"09:33.490","Text":"Would it get bigger on the right-hand side,"},{"Start":"09:33.490 ","End":"09:37.570","Text":"credit side, or on the left-hand side, the debit side?"},{"Start":"09:37.570 ","End":"09:39.545","Text":"Well, if owner\u0027s equity is getting bigger on"},{"Start":"09:39.545 ","End":"09:43.355","Text":"the right-hand side and income makes owner\u0027s equity bigger, well,"},{"Start":"09:43.355 ","End":"09:45.970","Text":"then that means that if you look at"},{"Start":"09:45.970 ","End":"09:48.120","Text":"your ledger account with the debits on"},{"Start":"09:48.120 ","End":"09:51.115","Text":"the left-hand side and credits on the right-hand side,"},{"Start":"09:51.115 ","End":"09:54.055","Text":"income would be on the right-hand side because"},{"Start":"09:54.055 ","End":"09:58.205","Text":"income would get bigger on the right-hand side or the credit side."},{"Start":"09:58.205 ","End":"10:01.345","Text":"Now let\u0027s have a look at the expenses."},{"Start":"10:01.345 ","End":"10:06.320","Text":"We know that owner\u0027s equity gets bigger on the right-hand side."},{"Start":"10:06.320 ","End":"10:10.850","Text":"We also know that expenses make owner\u0027s equity smaller."},{"Start":"10:10.980 ","End":"10:16.620","Text":"So would expenses get bigger on the right-hand side or the left-hand side?"},{"Start":"10:16.620 ","End":"10:20.140","Text":"In other words, on the credit side or on the debit side?"},{"Start":"10:20.140 ","End":"10:22.615","Text":"Here is your ledger account,"},{"Start":"10:22.615 ","End":"10:24.605","Text":"the debit on the left-hand side,"},{"Start":"10:24.605 ","End":"10:26.500","Text":"the credit on the right-hand side."},{"Start":"10:26.500 ","End":"10:30.649","Text":"Expenses would obviously get bigger on the left-hand side because"},{"Start":"10:30.649 ","End":"10:32.500","Text":"your owner\u0027s equity gets bigger on"},{"Start":"10:32.500 ","End":"10:36.645","Text":"the right-hand side and we know expenses make owner\u0027s equity smaller."},{"Start":"10:36.645 ","End":"10:40.370","Text":"Thus to summarize how we make income and expenses bigger,"},{"Start":"10:40.370 ","End":"10:45.160","Text":"income gets bigger on the right-hand side or what we refer to as the credit side and"},{"Start":"10:45.160 ","End":"10:50.230","Text":"expenses will get bigger on the left-hand side or what we refer to as the debit side."},{"Start":"10:50.230 ","End":"10:53.410","Text":"Then in conclusion, let\u0027s look at a summary of"},{"Start":"10:53.410 ","End":"10:56.780","Text":"how we make each of the five elements bigger."},{"Start":"10:56.780 ","End":"11:00.730","Text":"Assets and expenses will get bigger on the debit side,"},{"Start":"11:00.730 ","End":"11:02.985","Text":"in other words, the left-hand side,"},{"Start":"11:02.985 ","End":"11:05.090","Text":"and liabilities, equity,"},{"Start":"11:05.090 ","End":"11:09.620","Text":"and income will get bigger on the credit side or the right-hand side."},{"Start":"11:09.620 ","End":"11:11.860","Text":"Now we\u0027re ready to do part A,"},{"Start":"11:11.860 ","End":"11:14.260","Text":"which is our journal entries."},{"Start":"11:14.260 ","End":"11:15.760","Text":"Before we go through them,"},{"Start":"11:15.760 ","End":"11:20.455","Text":"I\u0027m going to show you the structure of our journal entries."},{"Start":"11:20.455 ","End":"11:24.955","Text":"What you\u0027re looking at here is actually the final answer for part A,"},{"Start":"11:24.955 ","End":"11:28.360","Text":"but I want you just to focus not on the amounts in the debits and the credits,"},{"Start":"11:28.360 ","End":"11:29.870","Text":"I want you to focus on the structure."},{"Start":"11:29.870 ","End":"11:31.065","Text":"So journal entries,"},{"Start":"11:31.065 ","End":"11:33.115","Text":"we have when we\u0027re using the general journal,"},{"Start":"11:33.115 ","End":"11:35.695","Text":"we have two columns,"},{"Start":"11:35.695 ","End":"11:36.865","Text":"one is headed up with a debit,"},{"Start":"11:36.865 ","End":"11:38.655","Text":"one is headed up with a credit."},{"Start":"11:38.655 ","End":"11:43.070","Text":"I\u0027m going to start this again because the page jumped for some reason."},{"Start":"11:43.860 ","End":"11:47.470","Text":"Now that we know how"},{"Start":"11:47.470 ","End":"11:51.581","Text":"our five elements get bigger and smaller whether it\u0027s debit or credit,"},{"Start":"11:51.581 ","End":"11:54.450","Text":"we\u0027re now ready to attempt the journal entries."},{"Start":"11:54.450 ","End":"11:59.649","Text":"Now on this page, you can see the actual final answer for part A, the journal entries,"},{"Start":"11:59.649 ","End":"12:03.875","Text":"but I don\u0027t want you to focus at the moment on the amounts on the account names,"},{"Start":"12:03.875 ","End":"12:05.830","Text":"I want you to look at the structure."},{"Start":"12:05.830 ","End":"12:10.000","Text":"When we have journal entries using our general journal,"},{"Start":"12:10.000 ","End":"12:12.265","Text":"we have two columns."},{"Start":"12:12.265 ","End":"12:18.355","Text":"One is headed up debit and the other one is headed up credit."},{"Start":"12:18.355 ","End":"12:22.022","Text":"Journal entries are basically a set of instructions,"},{"Start":"12:22.022 ","End":"12:24.275","Text":"and when we read our journal entries,"},{"Start":"12:24.275 ","End":"12:28.060","Text":"we are going to be following these instructions and posting"},{"Start":"12:28.060 ","End":"12:37.250","Text":"these amounts into the various accounts within the ledger."},{"Start":"12:37.530 ","End":"12:40.660","Text":"We have a debit column and a credit column."},{"Start":"12:40.660 ","End":"12:42.470","Text":"What this is saying, for example,"},{"Start":"12:42.470 ","End":"12:50.870","Text":"is 230 is going to have to be debited to an account called cleaning expenses."},{"Start":"12:50.870 ","End":"12:56.565","Text":"Then we\u0027ve got an amount in the credit column which says 230,"},{"Start":"12:56.565 ","End":"12:59.470","Text":"and so that means we\u0027re going to have to credit an amount of"},{"Start":"12:59.470 ","End":"13:05.255","Text":"230 to an account called cash at bank."},{"Start":"13:05.255 ","End":"13:07.775","Text":"Now, on the left-hand side,"},{"Start":"13:07.775 ","End":"13:09.580","Text":"you will also see numbers."},{"Start":"13:09.580 ","End":"13:12.575","Text":"Now, these are typically not done in real life,"},{"Start":"13:12.575 ","End":"13:14.765","Text":"these just simply correlate with"},{"Start":"13:14.765 ","End":"13:18.325","Text":"the information that was provided to you in the question."},{"Start":"13:18.325 ","End":"13:19.870","Text":"You will notice, however,"},{"Start":"13:19.870 ","End":"13:23.920","Text":"that although we had information 1,"},{"Start":"13:23.920 ","End":"13:26.975","Text":"2, 3 all the way through to 9,"},{"Start":"13:26.975 ","End":"13:33.380","Text":"we have two parts to the information for transaction number 2,"},{"Start":"13:33.380 ","End":"13:37.685","Text":"and that happens in more than one transaction so let\u0027s just scroll down."},{"Start":"13:37.685 ","End":"13:39.770","Text":"You\u0027ll see that happens, for example,"},{"Start":"13:39.770 ","End":"13:41.315","Text":"in transaction number 4,"},{"Start":"13:41.315 ","End":"13:47.800","Text":"there are two parts to the journal entries that need to be processed there,"},{"Start":"13:47.800 ","End":"13:49.640","Text":"and you\u0027ve got 5, 6, 7,"},{"Start":"13:49.640 ","End":"13:53.205","Text":"8 also split into two parts,"},{"Start":"13:53.205 ","End":"13:55.075","Text":"and then finally 9."},{"Start":"13:55.075 ","End":"14:00.350","Text":"We have journal entries for all nine pieces of information."},{"Start":"14:00.350 ","End":"14:03.865","Text":"Something else I want to point out is this."},{"Start":"14:03.865 ","End":"14:08.510","Text":"Here is what we call a journal narration,"},{"Start":"14:08.510 ","End":"14:12.260","Text":"and that is simply describing the transaction in words."},{"Start":"14:12.260 ","End":"14:17.390","Text":"Now we\u0027re ready to actually try to process a journal entry."}],"ID":28522},{"Watched":false,"Name":"Exercise 1 Part a - Parts 1-5","Duration":"22m 13s","ChapterTopicVideoID":26904,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.110 ","End":"00:04.260","Text":"Let\u0027s look at the transaction number 1,"},{"Start":"00:04.260 ","End":"00:08.655","Text":"we\u0027ve got cleaning costs of 230 and these were paid in cash."},{"Start":"00:08.655 ","End":"00:12.370","Text":"Let\u0027s now look at the journal entry."},{"Start":"00:12.890 ","End":"00:21.539","Text":"I pre-populated the journal entry and what we have here are the amounts,"},{"Start":"00:21.539 ","End":"00:25.980","Text":"I\u0027ve put 230 in the debit column and 230 in the credit column."},{"Start":"00:25.980 ","End":"00:28.485","Text":"This here is our journal narration,"},{"Start":"00:28.485 ","End":"00:31.320","Text":"January X2 cleaning expenses paid in cash,"},{"Start":"00:31.320 ","End":"00:33.970","Text":"that\u0027s simply a description of the transaction."},{"Start":"00:33.970 ","End":"00:37.110","Text":"Now, our next job is to decide whether,"},{"Start":"00:37.110 ","End":"00:40.790","Text":"well not whether, but what account to debit and what account to credit."},{"Start":"00:40.790 ","End":"00:44.210","Text":"In order to do that, we need to identify what we\u0027re dealing with."},{"Start":"00:44.210 ","End":"00:46.910","Text":"This is the summary that we looked at earlier."},{"Start":"00:46.910 ","End":"00:50.600","Text":"We\u0027ve got assets and expenses get bigger on the debit side,"},{"Start":"00:50.600 ","End":"00:51.830","Text":"and liabilities, equity,"},{"Start":"00:51.830 ","End":"00:53.690","Text":"and income get bigger on the credit side."},{"Start":"00:53.690 ","End":"00:55.925","Text":"Let\u0027s have a look, cleaning costs,"},{"Start":"00:55.925 ","End":"00:57.700","Text":"that would be an expense,"},{"Start":"00:57.700 ","End":"01:02.750","Text":"so our expense is getting bigger and our cash, that\u0027s an asset."},{"Start":"01:02.750 ","End":"01:04.699","Text":"But now this is a payment of cash,"},{"Start":"01:04.699 ","End":"01:06.440","Text":"that means our asset is getting smaller,"},{"Start":"01:06.440 ","End":"01:11.780","Text":"so we\u0027re looking at expenses and assets in the strong section."},{"Start":"01:11.780 ","End":"01:15.815","Text":"Cleaning cost is an expense and the cash is an asset."},{"Start":"01:15.815 ","End":"01:18.905","Text":"The expense is getting bigger,"},{"Start":"01:18.905 ","End":"01:21.770","Text":"so we\u0027re going to be debiting it because expenses get bigger on"},{"Start":"01:21.770 ","End":"01:24.680","Text":"the debit side, and assets, well,"},{"Start":"01:24.680 ","End":"01:26.825","Text":"that\u0027s the bank, the cash account,"},{"Start":"01:26.825 ","End":"01:28.390","Text":"and that\u0027s getting smaller,"},{"Start":"01:28.390 ","End":"01:31.880","Text":"so we\u0027re going to have to credit that because if we were to debit it,"},{"Start":"01:31.880 ","End":"01:34.835","Text":"it would get bigger, we need to make it smaller."},{"Start":"01:34.835 ","End":"01:37.220","Text":"We need to debit the expense."},{"Start":"01:37.220 ","End":"01:40.280","Text":"Let\u0027s call this I think an appropriate name would be"},{"Start":"01:40.280 ","End":"01:45.015","Text":"cleaning costs and then the asset is getting smaller,"},{"Start":"01:45.015 ","End":"01:46.815","Text":"we could call it cash and bank,"},{"Start":"01:46.815 ","End":"01:50.710","Text":"so you\u0027ll see I\u0027m putting the element in brackets,"},{"Start":"01:50.710 ","End":"01:53.095","Text":"so expense and asset."},{"Start":"01:53.095 ","End":"01:55.685","Text":"Now we\u0027re ready to do the second transaction."},{"Start":"01:55.685 ","End":"01:57.635","Text":"Transaction number 2,"},{"Start":"01:57.635 ","End":"01:59.660","Text":"it\u0027s dealing with salaries."},{"Start":"01:59.660 ","End":"02:03.020","Text":"Salaries are paid in arrears on the 5th of each month."},{"Start":"02:03.020 ","End":"02:04.940","Text":"Now, what does arrears mean?"},{"Start":"02:04.940 ","End":"02:08.900","Text":"Arrears means after the fact, so in this case,"},{"Start":"02:08.900 ","End":"02:12.005","Text":"we\u0027ve got salaries that are being incurred for a particular month,"},{"Start":"02:12.005 ","End":"02:14.960","Text":"but we\u0027re not paying them until the following month."},{"Start":"02:14.960 ","End":"02:19.325","Text":"Let\u0027s carry on reading. Accordingly, total salaries of"},{"Start":"02:19.325 ","End":"02:25.835","Text":"13,200 currency units for January X2 will be paid on the 5th of February."},{"Start":"02:25.835 ","End":"02:29.875","Text":"Guess the payment is happening on the 5th of February X2,"},{"Start":"02:29.875 ","End":"02:35.465","Text":"but we have salaries of 13,200 currency units for January X2."},{"Start":"02:35.465 ","End":"02:37.925","Text":"These will be paid on the 5th of February X2."},{"Start":"02:37.925 ","End":"02:40.810","Text":"Now if you recall, in the required,"},{"Start":"02:40.810 ","End":"02:46.040","Text":"it asked us to prepare the journal entries for the transactions in January."},{"Start":"02:46.040 ","End":"02:50.825","Text":"Now, this here is on the 5th of February,"},{"Start":"02:50.825 ","End":"02:55.730","Text":"that is a payment that\u0027s going to occur in the following months."},{"Start":"02:55.730 ","End":"02:58.790","Text":"It\u0027s not happening. This is not a transaction that happens in January,"},{"Start":"02:58.790 ","End":"03:04.085","Text":"so we\u0027re not going to journalize this payment on the 5th of February."},{"Start":"03:04.085 ","End":"03:11.465","Text":"However, we do know that we do have salaries of 13,200 for January X2,"},{"Start":"03:11.465 ","End":"03:14.285","Text":"so we have incurred those salaries, we just haven\u0027t paid them,"},{"Start":"03:14.285 ","End":"03:19.135","Text":"but that there is indeed a transaction that we need to recognize."},{"Start":"03:19.135 ","End":"03:20.960","Text":"As a result of this payment,"},{"Start":"03:20.960 ","End":"03:25.295","Text":"the bank account was temporarily an overdraft within the allowed limit,"},{"Start":"03:25.295 ","End":"03:27.170","Text":"which does not attract interest charge."},{"Start":"03:27.170 ","End":"03:28.865","Text":"They\u0027re just saying, don\u0027t worry,"},{"Start":"03:28.865 ","End":"03:32.255","Text":"your bank account probably if you were to take the time to work it out,"},{"Start":"03:32.255 ","End":"03:36.620","Text":"we didn\u0027t have enough cash to actually make a payment as large as that,"},{"Start":"03:36.620 ","End":"03:39.650","Text":"and therefore the bank account would have gone into overdraft."},{"Start":"03:39.650 ","End":"03:42.140","Text":"But you don\u0027t have to worry about any fees or charges,"},{"Start":"03:42.140 ","End":"03:46.850","Text":"interest charges, it just can\u0027t go into overdraft."},{"Start":"03:46.850 ","End":"03:48.515","Text":"Now if you look at the timeline,"},{"Start":"03:48.515 ","End":"03:52.100","Text":"we have this section off."},{"Start":"03:52.100 ","End":"03:58.415","Text":"This is December, and this is the date 31st of December, X1."},{"Start":"03:58.415 ","End":"04:01.090","Text":"This is January, this is"},{"Start":"04:01.090 ","End":"04:06.030","Text":"the 31st of January X2 and"},{"Start":"04:06.030 ","End":"04:11.495","Text":"this is the 28th of February X2."},{"Start":"04:11.495 ","End":"04:14.350","Text":"This would therefore be February."},{"Start":"04:14.350 ","End":"04:20.395","Text":"Now the December salaries have already been incurred and they were recorded in December."},{"Start":"04:20.395 ","End":"04:23.890","Text":"At 31st of December X1,"},{"Start":"04:23.890 ","End":"04:27.235","Text":"the December salaries would not have been paid"},{"Start":"04:27.235 ","End":"04:31.825","Text":"because the salaries are paid in arrears on the 5th of each month."},{"Start":"04:31.825 ","End":"04:33.940","Text":"Now, this was a hidden transaction."},{"Start":"04:33.940 ","End":"04:38.680","Text":"They didn\u0027t spell this out, you had to have your eyes wide open."},{"Start":"04:38.680 ","End":"04:42.850","Text":"If you are going to pay the salaries in arrears,"},{"Start":"04:42.850 ","End":"04:47.415","Text":"that meant that on the 5th of January X2,"},{"Start":"04:47.415 ","End":"04:51.875","Text":"we paid the December\u0027s salary payment accrued."},{"Start":"04:51.875 ","End":"04:58.265","Text":"That also then means that on the 5th of February X2,"},{"Start":"04:58.265 ","End":"05:02.750","Text":"the January salary payment occurred."},{"Start":"05:02.750 ","End":"05:09.050","Text":"Now, we also then know that we have the January salaries that we"},{"Start":"05:09.050 ","End":"05:12.215","Text":"need to recognize because although we didn\u0027t pay it"},{"Start":"05:12.215 ","End":"05:15.725","Text":"because the January salary is getting paid in February,"},{"Start":"05:15.725 ","End":"05:18.380","Text":"we do have January salaries as an expense"},{"Start":"05:18.380 ","End":"05:21.845","Text":"that we need to recognize as having been incurred."},{"Start":"05:21.845 ","End":"05:27.100","Text":"But this then means that this entry here,"},{"Start":"05:27.100 ","End":"05:31.595","Text":"this one is the December salary that\u0027s happened in the past,"},{"Start":"05:31.595 ","End":"05:34.985","Text":"this transaction on the 5th of January X2."},{"Start":"05:34.985 ","End":"05:39.470","Text":"This is an entry number 1 that we have to process because that is a payment,"},{"Start":"05:39.470 ","End":"05:41.060","Text":"is one of the transactions that occurred,"},{"Start":"05:41.060 ","End":"05:43.880","Text":"and then the second entry is to"},{"Start":"05:43.880 ","End":"05:48.395","Text":"record the fact that we have January salaries that we have incurred."},{"Start":"05:48.395 ","End":"05:50.500","Text":"The third entry,"},{"Start":"05:50.500 ","End":"05:55.175","Text":"being the January salary payment made in February,"},{"Start":"05:55.175 ","End":"06:01.400","Text":"that does not get recognized in the solution and the reason is because it required,"},{"Start":"06:01.400 ","End":"06:06.230","Text":"asked us to simply provide the Journal entries for the January transactions."},{"Start":"06:06.230 ","End":"06:09.160","Text":"We have two transactions that we need to record,"},{"Start":"06:09.160 ","End":"06:12.320","Text":"the December salaries being paid on the 5th of"},{"Start":"06:12.320 ","End":"06:16.295","Text":"January and the January salaries being incurred,"},{"Start":"06:16.295 ","End":"06:21.950","Text":"and we will recognize that as at the 31st of January X2 because we were"},{"Start":"06:21.950 ","End":"06:23.930","Text":"told to assume that"},{"Start":"06:23.930 ","End":"06:29.130","Text":"all transactions occurred on the 31st of January unless otherwise indicated."},{"Start":"06:29.780 ","End":"06:37.920","Text":"Let\u0027s deal with the December\u0027s salary payment that was made on the 5th of January X2."},{"Start":"06:38.360 ","End":"06:42.160","Text":"To work out how much we paid on the 5th of"},{"Start":"06:42.160 ","End":"06:45.490","Text":"January X2 in respect to the December salaries,"},{"Start":"06:45.490 ","End":"06:49.480","Text":"we need to go back to the balance sheet at the 31st of December X1"},{"Start":"06:49.480 ","End":"06:54.565","Text":"to see how much our salaries payable liability has been recorded at."},{"Start":"06:54.565 ","End":"06:59.515","Text":"If we look at the balance sheet at the 31st of December X1,"},{"Start":"06:59.515 ","End":"07:01.570","Text":"you can see on the right-hand side we\u0027ve got"},{"Start":"07:01.570 ","End":"07:05.049","Text":"our liabilities and if you have a look at your current liabilities,"},{"Start":"07:05.049 ","End":"07:08.830","Text":"you\u0027ll see you\u0027ve got salaries payable of 13,000."},{"Start":"07:08.830 ","End":"07:17.250","Text":"That was the salaries that had been incurred in December but not paid in December,"},{"Start":"07:17.250 ","End":"07:19.300","Text":"so we had to recognize during"},{"Start":"07:19.300 ","End":"07:23.150","Text":"the month of December that we had a liability because obviously,"},{"Start":"07:23.150 ","End":"07:24.920","Text":"we owe this amount."},{"Start":"07:24.920 ","End":"07:30.785","Text":"Just incidentally, what would\u0027ve happened is in December,"},{"Start":"07:30.785 ","End":"07:37.110","Text":"we would have recorded salaries as an expense of"},{"Start":"07:37.110 ","End":"07:42.275","Text":"13,000 and we would have credited salaries"},{"Start":"07:42.275 ","End":"07:48.180","Text":"payable being a liability of 13,000,"},{"Start":"07:48.180 ","End":"07:53.595","Text":"and that\u0027s how we got to this salaries payable of 13,000."},{"Start":"07:53.595 ","End":"08:02.250","Text":"Let\u0027s move on to the 5th of January X2 to record the payment of this liability."},{"Start":"08:02.250 ","End":"08:04.640","Text":"When recording the payment,"},{"Start":"08:04.640 ","End":"08:07.580","Text":"what we\u0027re dealing with is a liability."},{"Start":"08:07.580 ","End":"08:12.340","Text":"The liability is obviously getting smaller, if you pay it,"},{"Start":"08:12.340 ","End":"08:15.365","Text":"it gets smaller and when you make a payment,"},{"Start":"08:15.365 ","End":"08:19.175","Text":"obviously your bank, which is an asset account, also gets smaller."},{"Start":"08:19.175 ","End":"08:26.855","Text":"If our bank gets smaller and bearing in mind that assets get bigger on the debit side,"},{"Start":"08:26.855 ","End":"08:33.320","Text":"it means we are going to have to credit that asset account, the bank account,"},{"Start":"08:33.320 ","End":"08:38.375","Text":"and this liability, the salaries payable that we\u0027re paying off,"},{"Start":"08:38.375 ","End":"08:40.385","Text":"that liability is getting smaller."},{"Start":"08:40.385 ","End":"08:43.415","Text":"Now bearing in mind that liabilities get bigger on the credit side,"},{"Start":"08:43.415 ","End":"08:49.010","Text":"that then means that we\u0027re going to have to debit that liability account,"},{"Start":"08:49.010 ","End":"08:50.990","Text":"the salaries payable account."},{"Start":"08:50.990 ","End":"08:57.295","Text":"Let\u0027s record it. We\u0027re going to debit the salaries payable,"},{"Start":"08:57.295 ","End":"09:00.200","Text":"it\u0027s a liability, the amount that we owed."},{"Start":"09:00.200 ","End":"09:03.470","Text":"We\u0027ve just looked at the balance sheet at 31st December X1"},{"Start":"09:03.470 ","End":"09:07.950","Text":"and we identified that it was 13,000 that was owing."},{"Start":"09:07.960 ","End":"09:13.470","Text":"That\u0027s the debit and the credit is the bank account,"},{"Start":"09:13.470 ","End":"09:16.830","Text":"so credit that, which is an asset."},{"Start":"09:16.830 ","End":"09:21.550","Text":"Notice again, I\u0027m putting the element in brackets behind the account name,"},{"Start":"09:21.550 ","End":"09:28.165","Text":"and this a narration payment on the 5th of January X2 for the December X1 salaries."},{"Start":"09:28.165 ","End":"09:34.435","Text":"That journal entry was to record this journal entry here."},{"Start":"09:34.435 ","End":"09:38.514","Text":"The second part to the entry is to record the January salaries."},{"Start":"09:38.514 ","End":"09:45.270","Text":"We were told that we\u0027ve got salaries of 13,200 currency units for January X2,"},{"Start":"09:45.270 ","End":"09:47.670","Text":"which won\u0027t be paid until the 5th of February,"},{"Start":"09:47.670 ","End":"09:51.505","Text":"but we do need to record the fact that we do have January expenses."},{"Start":"09:51.505 ","End":"09:55.130","Text":"We know we have a salary expense and"},{"Start":"09:55.130 ","End":"09:58.560","Text":"it\u0027s going up and expenses get bigger on the debit side,"},{"Start":"09:58.560 ","End":"10:01.310","Text":"so we\u0027re going to be debiting our expense account,"},{"Start":"10:01.310 ","End":"10:03.520","Text":"our salaries expense,"},{"Start":"10:03.520 ","End":"10:07.185","Text":"so let\u0027s just put that in while we thinking about it."},{"Start":"10:07.185 ","End":"10:12.000","Text":"Salaries and it is an expense."},{"Start":"10:13.120 ","End":"10:17.640","Text":"We\u0027re told that it\u0027s 13,200."},{"Start":"10:18.120 ","End":"10:21.290","Text":"Then the credit side,"},{"Start":"10:21.420 ","End":"10:23.995","Text":"we aren\u0027t paying these salaries,"},{"Start":"10:23.995 ","End":"10:27.040","Text":"so our cash is not going to get smaller,"},{"Start":"10:27.040 ","End":"10:30.280","Text":"but instead our liabilities are going to go up."},{"Start":"10:30.280 ","End":"10:34.780","Text":"So our liabilities again are being affected and it\u0027s going up."},{"Start":"10:34.780 ","End":"10:41.185","Text":"Therefore, we are crediting it because liabilities get bigger on the credit side."},{"Start":"10:41.185 ","End":"10:46.015","Text":"The appropriate account name here is salaries payable."},{"Start":"10:46.015 ","End":"10:52.030","Text":"That\u0027s the recording of the January X2 salaries payable in February X2."},{"Start":"10:52.030 ","End":"10:55.930","Text":"Now we\u0027re ready to move on to transaction number 3."},{"Start":"10:55.930 ","End":"10:57.985","Text":"Transaction number 3,"},{"Start":"10:57.985 ","End":"11:03.190","Text":"the company\u0027s 2 owners contributed 1,500 each and in return,"},{"Start":"11:03.190 ","End":"11:09.430","Text":"the company issued them 3,000 shares in total at 1 currency unit a share."},{"Start":"11:09.430 ","End":"11:11.530","Text":"What are we dealing with here?"},{"Start":"11:11.530 ","End":"11:14.770","Text":"We\u0027re dealing with a contribution,"},{"Start":"11:14.770 ","End":"11:20.710","Text":"so that\u0027s cash and we\u0027re dealing with shares,"},{"Start":"11:20.710 ","End":"11:22.960","Text":"so that\u0027s share capital."},{"Start":"11:22.960 ","End":"11:27.430","Text":"Now, cash, if you have a look at our summary at the bottom,"},{"Start":"11:27.430 ","End":"11:35.450","Text":"cash is an asset and the share capital is equity."},{"Start":"11:35.450 ","End":"11:41.595","Text":"Now, the company\u0027s 2 owners have contributed 1,500 in cash each,"},{"Start":"11:41.595 ","End":"11:44.730","Text":"so that means that our assets are going up."},{"Start":"11:44.730 ","End":"11:47.120","Text":"Assets go up on the debit side."},{"Start":"11:47.120 ","End":"11:54.685","Text":"That means we\u0027re going to debit our bank with the 3,000."},{"Start":"11:54.685 ","End":"11:56.965","Text":"Where do I get 3,000 from?"},{"Start":"11:56.965 ","End":"11:59.965","Text":"That\u0027s the currency units,"},{"Start":"11:59.965 ","End":"12:03.760","Text":"1.5 times 2 owners."},{"Start":"12:03.760 ","End":"12:05.200","Text":"The other side of the entry,"},{"Start":"12:05.200 ","End":"12:07.390","Text":"the share capital that we\u0027ve issued,"},{"Start":"12:07.390 ","End":"12:14.575","Text":"the company issued them 3,000 shares at 1 currency unit a share, that\u0027s share capital."},{"Start":"12:14.575 ","End":"12:19.270","Text":"We know share capital is equity and equity gets bigger on the credit side."},{"Start":"12:19.270 ","End":"12:21.925","Text":"So that means because it\u0027s getting bigger,"},{"Start":"12:21.925 ","End":"12:23.785","Text":"we\u0027re going to be crediting it."},{"Start":"12:23.785 ","End":"12:28.930","Text":"We credit share capital and that\u0027s equity,"},{"Start":"12:28.930 ","End":"12:34.615","Text":"3,000 or you can put an owner\u0027s equity if you like."},{"Start":"12:34.615 ","End":"12:40.015","Text":"I often just use EQ to differentiate equity from expenses because they both start with"},{"Start":"12:40.015 ","End":"12:47.765","Text":"E. Then that\u0027s your narration proceeds from issuing 3,000 shares at 1 currency unit each."},{"Start":"12:47.765 ","End":"12:50.090","Text":"Transaction number 4."},{"Start":"12:50.090 ","End":"12:53.140","Text":"On 31st of January X2,"},{"Start":"12:53.140 ","End":"12:57.070","Text":"an employee who had previously borrowed from the company,"},{"Start":"12:57.070 ","End":"13:03.040","Text":"paid back half of the balance outstanding on the 31st of December X1."},{"Start":"13:03.040 ","End":"13:08.245","Text":"What this is telling us is that we have an employee who had borrowed from us."},{"Start":"13:08.245 ","End":"13:11.770","Text":"He owed us money at the 31st of December X1."},{"Start":"13:11.770 ","End":"13:17.635","Text":"Half of that balance that he owed us on that date has now been paid back to us."},{"Start":"13:17.635 ","End":"13:20.530","Text":"So in order to work out how much he\u0027s just paid us,"},{"Start":"13:20.530 ","End":"13:26.425","Text":"we need to go back to the balance sheet at 31st December X1 to see how much he owed us."},{"Start":"13:26.425 ","End":"13:29.845","Text":"Looking at the balance sheet at 31st December X1,"},{"Start":"13:29.845 ","End":"13:33.490","Text":"we would now look on the asset side because this"},{"Start":"13:33.490 ","End":"13:36.970","Text":"is an amount that was owed to us by an employee,"},{"Start":"13:36.970 ","End":"13:38.590","Text":"so that would be an asset."},{"Start":"13:38.590 ","End":"13:41.589","Text":"Don\u0027t get confused and think it\u0027s a liability."},{"Start":"13:41.589 ","End":"13:43.150","Text":"Under current assets,"},{"Start":"13:43.150 ","End":"13:48.625","Text":"we can see we have a loan to an employee of 4,000."},{"Start":"13:48.625 ","End":"13:52.930","Text":"He owed us 4,000 at the 31st of December X1 and we\u0027ve just been"},{"Start":"13:52.930 ","End":"13:57.325","Text":"told that he paid us half of the balance that he owed us at 31st December X1,"},{"Start":"13:57.325 ","End":"13:59.395","Text":"which means he\u0027s paid us 2,000."},{"Start":"13:59.395 ","End":"14:06.520","Text":"If he owed us 4,000 at the 31st of December X1 and he\u0027s paid us half of that now,"},{"Start":"14:06.520 ","End":"14:09.025","Text":"that means he\u0027s paid us 2,000."},{"Start":"14:09.025 ","End":"14:11.110","Text":"If we receive this money,"},{"Start":"14:11.110 ","End":"14:13.855","Text":"it means our bank has gone up,"},{"Start":"14:13.855 ","End":"14:16.450","Text":"so our bank account has been affected,"},{"Start":"14:16.450 ","End":"14:21.190","Text":"and it also means that the amount that he owed us has gone down."},{"Start":"14:21.190 ","End":"14:29.245","Text":"So we have a loan to the employee and that account has gone down."},{"Start":"14:29.245 ","End":"14:33.055","Text":"The bank goes up and the loan to the employee goes down."},{"Start":"14:33.055 ","End":"14:35.695","Text":"Both of these are asset accounts."},{"Start":"14:35.695 ","End":"14:39.910","Text":"Bank is an asset and the loan to the employee was also an asset."},{"Start":"14:39.910 ","End":"14:42.085","Text":"As you can see at the bottom here,"},{"Start":"14:42.085 ","End":"14:44.830","Text":"assets get bigger on the debit side."},{"Start":"14:44.830 ","End":"14:47.620","Text":"They will therefore get smaller on the credit side."},{"Start":"14:47.620 ","End":"14:50.395","Text":"We\u0027ve got 1 of them, the bank getting bigger,"},{"Start":"14:50.395 ","End":"14:56.070","Text":"so we\u0027re going to debit the bank and we\u0027ve got the loan"},{"Start":"14:56.070 ","End":"15:03.065","Text":"to the employee that\u0027s going down and that is therefore going to be credited."},{"Start":"15:03.065 ","End":"15:05.440","Text":"So let\u0027s record that."},{"Start":"15:05.440 ","End":"15:14.195","Text":"The bank, the asset has been debited with 2,000 and the loan to the employee,"},{"Start":"15:14.195 ","End":"15:16.840","Text":"which was also an asset,"},{"Start":"15:16.840 ","End":"15:18.625","Text":"is going to be credited."},{"Start":"15:18.625 ","End":"15:25.510","Text":"This is the receipt of cash on the 31st of December X2, that should read X2,"},{"Start":"15:25.510 ","End":"15:30.295","Text":"sorry, I\u0027m just going to cross the entire date out,"},{"Start":"15:30.295 ","End":"15:34.450","Text":"that date should read 31st of January X2."},{"Start":"15:34.450 ","End":"15:37.780","Text":"The receipt of cash on the 31st of January X2"},{"Start":"15:37.780 ","End":"15:42.100","Text":"from an employee in part settlement of his loan balance."},{"Start":"15:42.100 ","End":"15:46.600","Text":"Now let\u0027s continue with the transaction information given to us."},{"Start":"15:46.600 ","End":"15:52.790","Text":"The loan to the employee carries 2.1 percent interest charge annually."},{"Start":"15:53.040 ","End":"15:56.755","Text":"Now, we\u0027re looking at interest."},{"Start":"15:56.755 ","End":"16:01.490","Text":"We\u0027re going to have to work out how much interest he owes us."},{"Start":"16:01.950 ","End":"16:06.670","Text":"For that, we\u0027re going to have to work out the balance that he owed us."},{"Start":"16:06.670 ","End":"16:12.700","Text":"Interest is accrued monthly and is paid annually in arrears,"},{"Start":"16:12.700 ","End":"16:15.160","Text":"we\u0027re dealing with areas again,"},{"Start":"16:15.160 ","End":"16:19.060","Text":"and it\u0027s being paid annually in arrears on the 31st of December each year."},{"Start":"16:19.060 ","End":"16:23.170","Text":"We\u0027re not going to have to record the receipt of the interest from this employee,"},{"Start":"16:23.170 ","End":"16:28.240","Text":"but we do have to record the fact that he owes us interest for the month of January."},{"Start":"16:28.240 ","End":"16:31.255","Text":"To work out how much interest he owes us,"},{"Start":"16:31.255 ","End":"16:33.790","Text":"we need to look carefully at the timeline to"},{"Start":"16:33.790 ","End":"16:37.460","Text":"make sure that we\u0027re working with the correct balance."},{"Start":"16:37.710 ","End":"16:44.185","Text":"He owed us at the 31st of December X1 an amount of 4,000."},{"Start":"16:44.185 ","End":"16:48.775","Text":"We\u0027re then told that he made a payment of"},{"Start":"16:48.775 ","End":"16:56.275","Text":"2,000 and we\u0027re assuming this occurs on the 31st of January X2."},{"Start":"16:56.275 ","End":"16:58.510","Text":"So at the 31st of January X2,"},{"Start":"16:58.510 ","End":"17:01.510","Text":"he now owes us only 2,000."},{"Start":"17:01.510 ","End":"17:06.280","Text":"The question is, do we recognize the interest or calculate"},{"Start":"17:06.280 ","End":"17:11.590","Text":"the interest on the balance of 2,000 or in the balance that he owed of 4,000?"},{"Start":"17:11.590 ","End":"17:13.555","Text":"Well, if you look at the timeline,"},{"Start":"17:13.555 ","End":"17:18.115","Text":"you can see that he owed 4,000 for the entire month of January."},{"Start":"17:18.115 ","End":"17:24.685","Text":"He only paid us the 2,000 on the last day of January X2."},{"Start":"17:24.685 ","End":"17:28.825","Text":"So he owed 4,000 for the entire month of January,"},{"Start":"17:28.825 ","End":"17:34.015","Text":"so therefore, he owes us interest on a balance of 4,000."},{"Start":"17:34.015 ","End":"17:37.405","Text":"4,000 multiplied by 2.1 percent,"},{"Start":"17:37.405 ","End":"17:40.810","Text":"but remember that is 2.1 percent for an entire year."},{"Start":"17:40.810 ","End":"17:42.250","Text":"This is just for 1 month,"},{"Start":"17:42.250 ","End":"17:44.590","Text":"so we\u0027ll divide that by 12."},{"Start":"17:44.590 ","End":"17:47.980","Text":"If you work that out, you get to 7."},{"Start":"17:47.980 ","End":"17:53.770","Text":"This then means that he owes us interest of 7."},{"Start":"17:53.770 ","End":"17:57.310","Text":"That is interest income to us."},{"Start":"17:57.310 ","End":"17:58.705","Text":"It\u0027s an expense to him,"},{"Start":"17:58.705 ","End":"18:00.595","Text":"but it\u0027s income to us."},{"Start":"18:00.595 ","End":"18:02.770","Text":"Let\u0027s look at this table at the bottom."},{"Start":"18:02.770 ","End":"18:09.865","Text":"The 7 is interest income and we know that income gets bigger on the credit side."},{"Start":"18:09.865 ","End":"18:12.910","Text":"So our interest income is going up,"},{"Start":"18:12.910 ","End":"18:18.790","Text":"so we\u0027re going to credit it and we don\u0027t receive this interest"},{"Start":"18:18.790 ","End":"18:24.505","Text":"because we\u0027re told that he\u0027s only going to pay it on the 31st of December in arrears."},{"Start":"18:24.505 ","End":"18:28.675","Text":"So he\u0027s going to pay this at the end of December X2."},{"Start":"18:28.675 ","End":"18:31.060","Text":"We\u0027re not going to record the receipt,"},{"Start":"18:31.060 ","End":"18:34.915","Text":"but it does mean that he owes this to us."},{"Start":"18:34.915 ","End":"18:40.780","Text":"We have an account called interest receivable that we\u0027re going to have to recognize and"},{"Start":"18:40.780 ","End":"18:47.095","Text":"that interest receivable is an asset because it represents to us a right to receive cash."},{"Start":"18:47.095 ","End":"18:52.000","Text":"A right to receive a benefit in the future is what"},{"Start":"18:52.000 ","End":"18:58.540","Text":"defines an economic resource and an asset is defined as an economic resource."},{"Start":"18:58.540 ","End":"19:02.110","Text":"Because interest receivable represents a right to receive cash,"},{"Start":"19:02.110 ","End":"19:08.335","Text":"we know we\u0027re dealing with an asset and our assets are going to go up."},{"Start":"19:08.335 ","End":"19:13.075","Text":"You\u0027ve got interest income is going to go up and our assets are going to go up."},{"Start":"19:13.075 ","End":"19:15.760","Text":"This is the interest receivable."},{"Start":"19:15.760 ","End":"19:20.440","Text":"So we\u0027re going to have to deal with that as well because if you increase an asset,"},{"Start":"19:20.440 ","End":"19:22.780","Text":"you have to debit it."},{"Start":"19:22.780 ","End":"19:26.665","Text":"This is the interest income that\u0027s been credited."},{"Start":"19:26.665 ","End":"19:29.455","Text":"This is the second transaction that I\u0027m dealing with here."},{"Start":"19:29.455 ","End":"19:31.540","Text":"Sorry, the pen\u0027s not working."},{"Start":"19:31.540 ","End":"19:33.700","Text":"Let\u0027s record this."},{"Start":"19:33.700 ","End":"19:35.950","Text":"Debit the interest receivable,"},{"Start":"19:35.950 ","End":"19:39.760","Text":"it\u0027s an asset and that amount is 7,"},{"Start":"19:39.760 ","End":"19:44.665","Text":"and then we\u0027re going to credit the interest income with 7."},{"Start":"19:44.665 ","End":"19:45.985","Text":"There\u0027s a narration,"},{"Start":"19:45.985 ","End":"19:50.215","Text":"we are accruing the interest income with respect to the loan to the employee."},{"Start":"19:50.215 ","End":"19:53.600","Text":"So we\u0027re not receiving it, we\u0027re simply recording the accrual."},{"Start":"19:53.600 ","End":"19:55.725","Text":"Transaction number 5."},{"Start":"19:55.725 ","End":"19:58.800","Text":"The company billed its clients 15,000"},{"Start":"19:58.800 ","End":"20:03.285","Text":"currency units for services provided during the period."},{"Start":"20:03.285 ","End":"20:09.280","Text":"This is fee income or you can call it service income if you prefer."},{"Start":"20:09.280 ","End":"20:13.360","Text":"70 percent of this amount was received in cash immediately."},{"Start":"20:13.360 ","End":"20:17.275","Text":"So 70 percent was received in cash immediately."},{"Start":"20:17.275 ","End":"20:21.325","Text":"This though therefore means that 30 percent was not received."},{"Start":"20:21.325 ","End":"20:23.620","Text":"70 percent was received in cash,"},{"Start":"20:23.620 ","End":"20:25.735","Text":"30 percent is therefore not received."},{"Start":"20:25.735 ","End":"20:27.550","Text":"If they haven\u0027t paid us,"},{"Start":"20:27.550 ","End":"20:29.080","Text":"it means they owe it to us."},{"Start":"20:29.080 ","End":"20:35.230","Text":"From our perspective, we\u0027re going to call this accounts receivable."},{"Start":"20:35.230 ","End":"20:42.855","Text":"The 15,000 which is service income or fee income, is obviously income."},{"Start":"20:42.855 ","End":"20:46.910","Text":"Our income is getting bigger and if income gets bigger,"},{"Start":"20:46.910 ","End":"20:48.694","Text":"it has to be credited."},{"Start":"20:48.694 ","End":"20:52.100","Text":"So let\u0027s call this fee income."},{"Start":"20:52.100 ","End":"21:01.960","Text":"Then 70 percent of that 15,000 is 10.5,"},{"Start":"21:01.960 ","End":"21:04.865","Text":"that\u0027s going to be received in cash."},{"Start":"21:04.865 ","End":"21:06.280","Text":"Cash is an asset,"},{"Start":"21:06.280 ","End":"21:08.945","Text":"so we\u0027re going to increase our cash."},{"Start":"21:08.945 ","End":"21:11.380","Text":"We\u0027re going to debit that because assets get bigger on"},{"Start":"21:11.380 ","End":"21:13.810","Text":"the debit side and then the remainder,"},{"Start":"21:13.810 ","End":"21:19.780","Text":"the 30 percent of the 15,000 is 4.5,"},{"Start":"21:19.780 ","End":"21:22.255","Text":"and that\u0027s accounts receivable."},{"Start":"21:22.255 ","End":"21:26.270","Text":"So we have 2 entries on the credit side,"},{"Start":"21:26.270 ","End":"21:28.280","Text":"sorry, 2 entries on the debit side."},{"Start":"21:28.280 ","End":"21:34.540","Text":"We\u0027re going to increase the accounts receivable with a debit."},{"Start":"21:34.540 ","End":"21:39.770","Text":"Here is a journal entry where we\u0027ve got 2 debits and 1 credit,"},{"Start":"21:39.770 ","End":"21:41.930","Text":"so let\u0027s record this."},{"Start":"21:41.930 ","End":"21:45.055","Text":"Our cash, which is an asset,"},{"Start":"21:45.055 ","End":"21:52.225","Text":"is going up by 10,500 and accounts receivable going up by"},{"Start":"21:52.225 ","End":"21:57.190","Text":"4,500 and we have"},{"Start":"21:57.190 ","End":"22:03.610","Text":"fee income or you could have called it income from services provided or services income,"},{"Start":"22:03.610 ","End":"22:06.790","Text":"we\u0027re going to credit that with 15,000."},{"Start":"22:06.790 ","End":"22:08.919","Text":"In your narration recording,"},{"Start":"22:08.919 ","End":"22:14.090","Text":"January X2\u0027s fee income of which 70 percent was collected."}],"ID":28523},{"Watched":false,"Name":"Exercise 1 Part a - Parts 6-9","Duration":"16m 9s","ChapterTopicVideoID":26330,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:02.730","Text":"So transaction number 6,"},{"Start":"00:02.730 ","End":"00:07.830","Text":"the company collected 4,000 currency units from customers."},{"Start":"00:07.830 ","End":"00:10.515","Text":"Now, what we\u0027re talking about here,"},{"Start":"00:10.515 ","End":"00:14.010","Text":"when the company collects something from customers,"},{"Start":"00:14.010 ","End":"00:15.765","Text":"we\u0027re talking about cash."},{"Start":"00:15.765 ","End":"00:20.415","Text":"Our cash is increasing by the 4,000 currency units."},{"Start":"00:20.415 ","End":"00:22.335","Text":"Now we know that cash is an asset."},{"Start":"00:22.335 ","End":"00:26.550","Text":"When we collect cash from customers,"},{"Start":"00:26.550 ","End":"00:31.005","Text":"what we\u0027re doing is we\u0027re receiving the cash for services that we\u0027ve provided"},{"Start":"00:31.005 ","End":"00:35.955","Text":"previously to customers who had not paid us at that time."},{"Start":"00:35.955 ","End":"00:40.960","Text":"They were originally what we called accounts receivable."},{"Start":"00:41.150 ","End":"00:43.645","Text":"These accounts receivable,"},{"Start":"00:43.645 ","End":"00:48.095","Text":"often referred to as datas on paying us what they owe us."},{"Start":"00:48.095 ","End":"00:52.080","Text":"Now an accounts receivable is an asset and in this case"},{"Start":"00:52.080 ","End":"00:56.225","Text":"the asset is decreasing because they\u0027re paying off their debts."},{"Start":"00:56.225 ","End":"00:58.790","Text":"They\u0027re paying us what they owed."},{"Start":"00:58.790 ","End":"01:01.505","Text":"Now, let\u0027s look at the journal."},{"Start":"01:01.505 ","End":"01:04.580","Text":"You\u0027ll see I\u0027ve pre-populated with the amount that we were"},{"Start":"01:04.580 ","End":"01:07.625","Text":"receiving and the question is simply,"},{"Start":"01:07.625 ","End":"01:12.960","Text":"what accounts do we debit and what accounts do we credit?"},{"Start":"01:14.560 ","End":"01:18.680","Text":"Remember, what we dealing with here is cash is"},{"Start":"01:18.680 ","End":"01:22.265","Text":"increasing as an asset and accounts receivable,"},{"Start":"01:22.265 ","End":"01:25.350","Text":"also an asset is decreasing."},{"Start":"01:25.540 ","End":"01:35.045","Text":"In both cases, we are dealing with assets one is going up, that\u0027s your cash."},{"Start":"01:35.045 ","End":"01:37.925","Text":"Therefore, we\u0027re going to debit that one,"},{"Start":"01:37.925 ","End":"01:42.185","Text":"and the other one, the accounts receivable that\u0027s going down."},{"Start":"01:42.185 ","End":"01:44.740","Text":"That one we\u0027re going to have to credit,"},{"Start":"01:44.740 ","End":"01:47.840","Text":"so it\u0027s debit to the cash,"},{"Start":"01:47.840 ","End":"01:50.360","Text":"which I\u0027ve been calling the bank account,"},{"Start":"01:50.360 ","End":"01:56.900","Text":"then we credit accounts receivable to show that the accounts receivable balance is"},{"Start":"01:56.900 ","End":"02:01.520","Text":"decreasing and then the iteration is simply cash received in"},{"Start":"02:01.520 ","End":"02:07.010","Text":"respect of the receivables that were outstanding on the 31st of December X1."},{"Start":"02:07.010 ","End":"02:09.005","Text":"Transaction number 7."},{"Start":"02:09.005 ","End":"02:12.665","Text":"Here we\u0027ve got the company repaid"},{"Start":"02:12.665 ","End":"02:20.340","Text":"1,500 of the loan from the bank on the 31st of January 20X2."},{"Start":"02:20.350 ","End":"02:22.970","Text":"When we repay something,"},{"Start":"02:22.970 ","End":"02:25.820","Text":"that means our cash is decreasing,"},{"Start":"02:25.820 ","End":"02:33.545","Text":"we know cash is an asset and we\u0027re repaying 1,500 of the loan from the bank."},{"Start":"02:33.545 ","End":"02:42.695","Text":"Now, the loan from the bank is a liability and that\u0027s also going to be decreased."},{"Start":"02:42.695 ","End":"02:45.890","Text":"Loan from the bank, that\u0027s an amount we\u0027ve borrowed from the bank so that"},{"Start":"02:45.890 ","End":"02:48.785","Text":"is a liability we are obliged to repay that."},{"Start":"02:48.785 ","End":"02:50.825","Text":"That\u0027s what makes it a liability."},{"Start":"02:50.825 ","End":"02:53.345","Text":"Let\u0027s look at the journal entry."},{"Start":"02:53.345 ","End":"02:55.760","Text":"I\u0027ve pre-populated it again with the amount of"},{"Start":"02:55.760 ","End":"02:58.130","Text":"the actual payment and the question is simply,"},{"Start":"02:58.130 ","End":"03:02.190","Text":"which account are we going to debit and which account are we going to credit?"},{"Start":"03:02.650 ","End":"03:05.120","Text":"As you can see up here,"},{"Start":"03:05.120 ","End":"03:07.715","Text":"I have identified that the company,"},{"Start":"03:07.715 ","End":"03:09.635","Text":"because it\u0027s repaying something,"},{"Start":"03:09.635 ","End":"03:12.005","Text":"we\u0027re decreasing its cash,"},{"Start":"03:12.005 ","End":"03:18.605","Text":"so we know that the assets are going to decrease."},{"Start":"03:18.605 ","End":"03:20.900","Text":"In particular, it\u0027s the cash,"},{"Start":"03:20.900 ","End":"03:25.880","Text":"so to decrease the cash because assets go up on the debit side,"},{"Start":"03:25.880 ","End":"03:28.831","Text":"this means we\u0027re going to credit it."},{"Start":"03:28.831 ","End":"03:32.855","Text":"Then the loan from the bank which is an obligation that we have to repay,"},{"Start":"03:32.855 ","End":"03:35.090","Text":"that must be a liability."},{"Start":"03:35.090 ","End":"03:39.260","Text":"We are decreasing this loan from the bank."},{"Start":"03:39.260 ","End":"03:42.830","Text":"As you can see here, if you wanted to increase the liability,"},{"Start":"03:42.830 ","End":"03:44.225","Text":"you would credit it."},{"Start":"03:44.225 ","End":"03:48.590","Text":"The loan from the bank has to be debited."},{"Start":"03:48.590 ","End":"03:50.840","Text":"Remember, when you do your journal entry,"},{"Start":"03:50.840 ","End":"03:52.930","Text":"you put the debit entry in first,"},{"Start":"03:52.930 ","End":"04:02.030","Text":"so loan from the bank and we\u0027re going to decrease our bank which is an asset account."},{"Start":"04:02.030 ","End":"04:06.085","Text":"Then iteration is simply partial repayment of the loan."},{"Start":"04:06.085 ","End":"04:09.290","Text":"Let\u0027s move on to transaction number 8."},{"Start":"04:09.290 ","End":"04:11.275","Text":"Transaction number 8."},{"Start":"04:11.275 ","End":"04:15.050","Text":"The bank loan accrues 1 percent interest annually."},{"Start":"04:15.050 ","End":"04:17.960","Text":"The interest is paid on a monthly basis on"},{"Start":"04:17.960 ","End":"04:20.785","Text":"the 1st of the following month. This is about the payment."},{"Start":"04:20.785 ","End":"04:21.010","Text":"If the interest is paid on monthly basis on the 1st of the following months,"},{"Start":"04:21.010 ","End":"04:28.040","Text":"that\u0027s important"},{"Start":"04:28.040 ","End":"04:29.830","Text":"because what are we seeing here,"},{"Start":"04:29.830 ","End":"04:37.160","Text":"we\u0027re saying that this is a payment in arrears because it\u0027s paid in the following month."},{"Start":"04:37.160 ","End":"04:39.260","Text":"Arrears means after the fact."},{"Start":"04:39.260 ","End":"04:47.950","Text":"In other words, if you have interest expense incurred in January,"},{"Start":"04:52.640 ","End":"04:58.550","Text":"they would only get paid on the 1st of February X2."},{"Start":"04:58.550 ","End":"05:01.910","Text":"Now, remember what we were told is that we need to provide"},{"Start":"05:01.910 ","End":"05:05.750","Text":"the journal entries for the transactions in January,"},{"Start":"05:05.750 ","End":"05:09.230","Text":"so we would process this entry because"},{"Start":"05:09.230 ","End":"05:13.110","Text":"this is the interest expense that was incurred in January."},{"Start":"05:13.110 ","End":"05:17.930","Text":"But this entry here is a payment which happened on the 1st of February."},{"Start":"05:17.930 ","End":"05:20.600","Text":"Yes, it is a transaction and yes, it is related,"},{"Start":"05:20.600 ","End":"05:25.505","Text":"but it happens on the 1st of February so that is not a requirement for this question."},{"Start":"05:25.505 ","End":"05:30.990","Text":"We\u0027re only doing the journal entries for the transactions that actually occur in January."},{"Start":"05:31.050 ","End":"05:36.100","Text":"But what this also tells us and you needed to be awake is"},{"Start":"05:36.100 ","End":"05:41.860","Text":"that if the January interest is being paid on the 1st of February,"},{"Start":"05:41.860 ","End":"05:48.715","Text":"it then also means the December interest expense"},{"Start":"05:48.715 ","End":"05:57.270","Text":"in December we get paid on the 1st of January X2."},{"Start":"05:57.270 ","End":"06:02.800","Text":"This here is another entry that will get processed"},{"Start":"06:02.800 ","End":"06:05.380","Text":"in our journal entries for January because we\u0027ve"},{"Start":"06:05.380 ","End":"06:07.960","Text":"got the interest expenses incurred in January."},{"Start":"06:07.960 ","End":"06:16.634","Text":"That is a transaction that occurs and this here is the payment of the December interest."},{"Start":"06:16.634 ","End":"06:19.470","Text":"Because that happens on the 1st of January,"},{"Start":"06:19.470 ","End":"06:22.450","Text":"we\u0027re going to have to process that as well."},{"Start":"06:22.450 ","End":"06:26.470","Text":"Let\u0027s carry on reading the information that was provided to us."},{"Start":"06:26.470 ","End":"06:32.305","Text":"It tells us that no portion of the principal was repaid during December 20X1."},{"Start":"06:32.305 ","End":"06:35.125","Text":"Now that\u0027s going to be important when we try to work out"},{"Start":"06:35.125 ","End":"06:40.660","Text":"how much interest was actually owing in December."},{"Start":"06:40.660 ","End":"06:44.110","Text":"There is another way to work out how much was owing in December"},{"Start":"06:44.110 ","End":"06:47.050","Text":"though and that is simply going to the balance sheet."},{"Start":"06:47.050 ","End":"06:49.885","Text":"I\u0027ll do in both ways in this case,"},{"Start":"06:49.885 ","End":"06:54.985","Text":"the obvious way you simply go to the balance sheet at 31st December X1,"},{"Start":"06:54.985 ","End":"06:57.380","Text":"and you pick up the interest payable."},{"Start":"06:57.380 ","End":"07:00.335","Text":"But will you not to have been given that information,"},{"Start":"07:00.335 ","End":"07:03.080","Text":"this information within help you to actually work out"},{"Start":"07:03.080 ","End":"07:07.460","Text":"the interests that was payable for the December month."},{"Start":"07:07.460 ","End":"07:11.930","Text":"The balance of the principal is due on the 31st of December X5 and"},{"Start":"07:11.930 ","End":"07:16.475","Text":"that\u0027s simply telling us that no other portion of principle was repaid,"},{"Start":"07:16.475 ","End":"07:20.495","Text":"you don\u0027t have to worry about that the interest is going to be"},{"Start":"07:20.495 ","End":"07:22.520","Text":"a very easy calculation basically"},{"Start":"07:22.520 ","End":"07:25.880","Text":"because no principle would be paid until years from now."},{"Start":"07:25.880 ","End":"07:28.535","Text":"Now let\u0027s have a look at the journal entries."},{"Start":"07:28.535 ","End":"07:34.085","Text":"It\u0027s still with the first one payment of the interest payable at 31st December X1."},{"Start":"07:34.085 ","End":"07:36.650","Text":"Now as I say, there are 2 ways to pick that up."},{"Start":"07:36.650 ","End":"07:38.240","Text":"The 1 is a very easy way."},{"Start":"07:38.240 ","End":"07:39.650","Text":"The obvious way in"},{"Start":"07:39.650 ","End":"07:42.500","Text":"this particular question is simply go to their balance sheet, which will do."},{"Start":"07:42.500 ","End":"07:46.310","Text":"Then I will just show you how we could actually work it out had we not"},{"Start":"07:46.310 ","End":"07:48.140","Text":"been given that interest payable balance"},{"Start":"07:48.140 ","End":"07:50.655","Text":"and we are going to have a look at the balance sheet."},{"Start":"07:50.655 ","End":"07:54.150","Text":"Here is a balance sheet for 31st December X1."},{"Start":"07:54.150 ","End":"07:56.780","Text":"You can have a look on the right-hand side,"},{"Start":"07:56.780 ","End":"07:59.390","Text":"you see you in liabilities and the current liabilities you"},{"Start":"07:59.390 ","End":"08:03.655","Text":"actually see we have interest payable of 10."},{"Start":"08:03.655 ","End":"08:07.850","Text":"That\u0027s the amount that we\u0027re actually going to be paying on the 1st of January 20X2."},{"Start":"08:07.850 ","End":"08:09.260","Text":"That is what will record."},{"Start":"08:09.260 ","End":"08:10.610","Text":"However, before we move on,"},{"Start":"08:10.610 ","End":"08:12.455","Text":"I\u0027ll show you how to calculate that."},{"Start":"08:12.455 ","End":"08:14.210","Text":"However, before we move on,"},{"Start":"08:14.210 ","End":"08:16.750","Text":"I\u0027m going to show you how to calculate that 10,"},{"Start":"08:16.750 ","End":"08:21.875","Text":"so we\u0027ve got a loan from the bank. We have a look here."},{"Start":"08:21.875 ","End":"08:24.965","Text":"We have a loan from the bank of 12,000."},{"Start":"08:24.965 ","End":"08:28.800","Text":"Now that is the amount that was owing."},{"Start":"08:29.240 ","End":"08:32.830","Text":"This is the loan liability."},{"Start":"08:33.720 ","End":"08:41.710","Text":"That was the amount owing at the 31st of December X1,"},{"Start":"08:41.710 ","End":"08:45.235","Text":"but now the interest is going to be worked out on the amount owing"},{"Start":"08:45.235 ","End":"08:49.195","Text":"to our bank for the entire month of December."},{"Start":"08:49.195 ","End":"08:52.900","Text":"We need to know what did we owe them during December?"},{"Start":"08:52.900 ","End":"08:59.215","Text":"Well, we are told that there were no repayments that were made during December."},{"Start":"08:59.215 ","End":"09:02.320","Text":"If there were no repayments made during December,"},{"Start":"09:02.320 ","End":"09:05.995","Text":"it therefore means that we owed"},{"Start":"09:05.995 ","End":"09:11.140","Text":"12,000 at the beginning of December and throughout December."},{"Start":"09:11.140 ","End":"09:14.170","Text":"Our interest is going to be worked out on that balance"},{"Start":"09:14.170 ","End":"09:16.780","Text":"of 12,000 which was outstanding throughout that month,"},{"Start":"09:16.780 ","End":"09:21.910","Text":"and we multiply that by 1 percent because that\u0027s the interest that we are being charged,"},{"Start":"09:21.910 ","End":"09:26.455","Text":"and we divide that by 12 because it\u0027s just 1 month."},{"Start":"09:26.455 ","End":"09:28.435","Text":"That\u0027s where you get the 10 from."},{"Start":"09:28.435 ","End":"09:32.990","Text":"That\u0027s where they got that 10 from here in the balance sheet."},{"Start":"09:33.210 ","End":"09:35.845","Text":"Let\u0027s go and do that general entry,"},{"Start":"09:35.845 ","End":"09:39.290","Text":"because now this 10 has been repaid."},{"Start":"09:40.050 ","End":"09:43.885","Text":"We\u0027re repaying an amount of 10."},{"Start":"09:43.885 ","End":"09:46.210","Text":"We\u0027ve just worked that out and we\u0027ve picked it up from"},{"Start":"09:46.210 ","End":"09:48.730","Text":"the balance sheet at 31st December X1."},{"Start":"09:48.730 ","End":"09:54.055","Text":"This narration here is actually wrong."},{"Start":"09:54.055 ","End":"09:57.445","Text":"Let\u0027s cross this out. This is not accruing January interest,"},{"Start":"09:57.445 ","End":"10:05.680","Text":"this is repayment of the December interest."},{"Start":"10:05.680 ","End":"10:09.580","Text":"Because of this error, and I don\u0027t know if you can see this line has"},{"Start":"10:09.580 ","End":"10:12.850","Text":"jumped up and the writing is very skewed,"},{"Start":"10:12.850 ","End":"10:16.525","Text":"I\u0027m going to do this little part again. I\u0027m coming back."},{"Start":"10:16.525 ","End":"10:21.925","Text":"I\u0027ll talk about the payment of the December interest and the 10 all over again."},{"Start":"10:21.925 ","End":"10:29.590","Text":"Sorry. Now let us process this payment."},{"Start":"10:29.590 ","End":"10:33.355","Text":"We know we are making a payment of 10."},{"Start":"10:33.355 ","End":"10:43.225","Text":"Now this narration says payment of interest payable at 31st of December X1."},{"Start":"10:43.225 ","End":"10:49.695","Text":"What are we dealing with here? We had an interest payable at 31st of December X1."},{"Start":"10:49.695 ","End":"10:53.430","Text":"That\u0027s the liability that we\u0027re paying off at the moment in January."},{"Start":"10:53.430 ","End":"10:57.275","Text":"That interest payable is a liability and that is decreasing."},{"Start":"10:57.275 ","End":"10:59.830","Text":"Then the other thing that the other account is being"},{"Start":"10:59.830 ","End":"11:04.195","Text":"affected is obviously our cash in our bank account."},{"Start":"11:04.195 ","End":"11:08.410","Text":"That is an asset and that asset is being decreased."},{"Start":"11:08.410 ","End":"11:14.185","Text":"I\u0027m just going to move the screen down a little bit so that you can see the summary here."},{"Start":"11:14.185 ","End":"11:18.760","Text":"We have interest payable, it\u0027s a liability."},{"Start":"11:18.760 ","End":"11:21.850","Text":"If you want to decrease a liability,"},{"Start":"11:21.850 ","End":"11:24.010","Text":"well, increasing it you would credit it,"},{"Start":"11:24.010 ","End":"11:26.260","Text":"so therefore to decrease this liability,"},{"Start":"11:26.260 ","End":"11:29.830","Text":"you would debit it. Let\u0027s do that."},{"Start":"11:29.830 ","End":"11:34.600","Text":"Interest payable, it\u0027s a liability of 10."},{"Start":"11:34.600 ","End":"11:37.165","Text":"In the bank it\u0027s an asset,"},{"Start":"11:37.165 ","End":"11:38.755","Text":"and as we know now,"},{"Start":"11:38.755 ","End":"11:41.560","Text":"to increase your asset you debit it,"},{"Start":"11:41.560 ","End":"11:45.110","Text":"so therefore to decrease it you will be crediting it."},{"Start":"11:45.120 ","End":"11:51.650","Text":"That makes sense. Bank asset is being credited."},{"Start":"11:52.710 ","End":"11:58.915","Text":"Now let\u0027s do the accruing of the January interest expense."},{"Start":"11:58.915 ","End":"12:06.100","Text":"We know that on the 31st of December X1,"},{"Start":"12:06.100 ","End":"12:11.620","Text":"we owed 12,000 in terms of our bank loan."},{"Start":"12:11.620 ","End":"12:18.610","Text":"We also know from one of the previous entries that we made a repayment of"},{"Start":"12:18.610 ","End":"12:27.295","Text":"1,500 on the 31st of January X2."},{"Start":"12:27.295 ","End":"12:31.060","Text":"That means that at the 31st of January X2,"},{"Start":"12:31.060 ","End":"12:35.120","Text":"our balance owing has dropped to 10 1/2."},{"Start":"12:35.820 ","End":"12:40.465","Text":"But now how would we calculate the interest?"},{"Start":"12:40.465 ","End":"12:43.900","Text":"Is it on the 12,000 or is it on the 10 1/2?"},{"Start":"12:43.900 ","End":"12:46.690","Text":"Well, obviously because we made the repayment of"},{"Start":"12:46.690 ","End":"12:49.884","Text":"the principle of 1,500 on the 31st of January,"},{"Start":"12:49.884 ","End":"12:54.235","Text":"it means that we owed 12,000 for the entire January."},{"Start":"12:54.235 ","End":"12:57.400","Text":"That means our interest must be calculated based"},{"Start":"12:57.400 ","End":"13:00.130","Text":"on the 12,000 that was owing at the beginning of the month,"},{"Start":"13:00.130 ","End":"13:03.055","Text":"because that remained unchanged for the entire month."},{"Start":"13:03.055 ","End":"13:06.985","Text":"Once again, it\u0027s 12,000 that we owed times 1 percent,"},{"Start":"13:06.985 ","End":"13:10.540","Text":"and we\u0027re going to divide that by 12 because it\u0027s only 1 month."},{"Start":"13:10.540 ","End":"13:11.980","Text":"That is 10 as well."},{"Start":"13:11.980 ","End":"13:14.560","Text":"We\u0027re going to debit 10 and credit 10,"},{"Start":"13:14.560 ","End":"13:16.855","Text":"but what are the accounts?"},{"Start":"13:16.855 ","End":"13:22.825","Text":"Well, what we\u0027re doing here is we\u0027re recognizing the fact that we have interest expense."},{"Start":"13:22.825 ","End":"13:26.740","Text":"Let us change the color so you can see it better."},{"Start":"13:26.740 ","End":"13:31.300","Text":"Our interest expense is increasing our expenses,"},{"Start":"13:31.300 ","End":"13:33.220","Text":"so that means we\u0027re going to be debiting it."},{"Start":"13:33.220 ","End":"13:35.469","Text":"We can pop that in already,"},{"Start":"13:35.469 ","End":"13:40.000","Text":"interest expense, and the contra entry is, well,"},{"Start":"13:40.000 ","End":"13:43.060","Text":"we\u0027re not paying for it because we\u0027re only going to pay the interest at"},{"Start":"13:43.060 ","End":"13:48.145","Text":"the beginning of the next month."},{"Start":"13:48.145 ","End":"13:53.725","Text":"That means our interest payable liability has to be credited."},{"Start":"13:53.725 ","End":"13:55.495","Text":"We have a liability."},{"Start":"13:55.495 ","End":"13:57.715","Text":"This time it\u0027s increasing,"},{"Start":"13:57.715 ","End":"13:59.470","Text":"so we\u0027re crediting it."},{"Start":"13:59.470 ","End":"14:03.580","Text":"Interest payable liability has been credited with 10."},{"Start":"14:03.580 ","End":"14:06.190","Text":"Let\u0027s move on to the last entry."},{"Start":"14:06.190 ","End":"14:07.840","Text":"Transaction Number 9."},{"Start":"14:07.840 ","End":"14:10.930","Text":"We\u0027ve got corporation tax payable at"},{"Start":"14:10.930 ","End":"14:18.160","Text":"31st December X1 is now paid in full during January 20X2,"},{"Start":"14:18.160 ","End":"14:22.610","Text":"and we\u0027ll assume it gets paid on the 31st of January 20X2."},{"Start":"14:22.830 ","End":"14:25.990","Text":"Now we need to go back to"},{"Start":"14:25.990 ","End":"14:29.095","Text":"the 31st of December 20X1\u0027s balance sheet"},{"Start":"14:29.095 ","End":"14:33.130","Text":"to find out what the corporation tax payable balance was."},{"Start":"14:33.130 ","End":"14:36.790","Text":"Here\u0027s our balance sheet at 31st of December X1."},{"Start":"14:36.790 ","End":"14:41.440","Text":"We want to find the corporation tax payable so we\u0027d look under the current liabilities."},{"Start":"14:41.440 ","End":"14:45.925","Text":"There we have it, corporation tax payable, 2,750."},{"Start":"14:45.925 ","End":"14:47.650","Text":"That\u0027s the amount that we\u0027re paying now,"},{"Start":"14:47.650 ","End":"14:53.770","Text":"somewhere during January and we\u0027ll assume it\u0027s paid on the 31st of January X2."},{"Start":"14:53.770 ","End":"14:55.960","Text":"Let\u0027s look at the journals."},{"Start":"14:55.960 ","End":"15:01.765","Text":"Journal Number 9, payment of corporation tax owing at 31st of December X1."},{"Start":"15:01.765 ","End":"15:03.460","Text":"Well, if we look at this here,"},{"Start":"15:03.460 ","End":"15:08.605","Text":"we have corporation tax payable that we are having to repay."},{"Start":"15:08.605 ","End":"15:13.480","Text":"Corporation tax payable is obviously a liability."},{"Start":"15:13.480 ","End":"15:14.905","Text":"When we pay it,"},{"Start":"15:14.905 ","End":"15:17.095","Text":"we\u0027re reducing that liability."},{"Start":"15:17.095 ","End":"15:20.005","Text":"If the corporation tax payable has been reduced,"},{"Start":"15:20.005 ","End":"15:22.180","Text":"if we were to increase it we would credit it,"},{"Start":"15:22.180 ","End":"15:24.910","Text":"that therefore means we\u0027re going to debit it."},{"Start":"15:24.910 ","End":"15:27.385","Text":"Obviously when we make a payment,"},{"Start":"15:27.385 ","End":"15:32.140","Text":"we are reducing our cash which is an asset."},{"Start":"15:32.140 ","End":"15:33.865","Text":"Our assets are going down,"},{"Start":"15:33.865 ","End":"15:35.598","Text":"and if your assets go down,"},{"Start":"15:35.598 ","End":"15:38.155","Text":"you have to credit them."},{"Start":"15:38.155 ","End":"15:40.615","Text":"Process the debit first."},{"Start":"15:40.615 ","End":"15:45.085","Text":"It\u0027s corporate tax payable,"},{"Start":"15:45.085 ","End":"15:49.630","Text":"it\u0027s a liability and it was 2,750,"},{"Start":"15:49.630 ","End":"15:52.630","Text":"and the contra entry is to reduce"},{"Start":"15:52.630 ","End":"15:57.775","Text":"our cash in the bank account and that\u0027s our asset, 2,750."},{"Start":"15:57.775 ","End":"16:02.199","Text":"Well done, you\u0027ve done all 9 transactions,"},{"Start":"16:02.199 ","End":"16:03.685","Text":"you\u0027ve journalized all 9."},{"Start":"16:03.685 ","End":"16:10.520","Text":"The next step is to now post those journals into the ledger account."}],"ID":28524},{"Watched":false,"Name":"Exercise 1 - Part b - Introduction","Duration":"5m 10s","ChapterTopicVideoID":27422,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.680 ","End":"00:05.400","Text":"Part B, which is posting the journal entries to the ledger."},{"Start":"00:05.400 ","End":"00:07.890","Text":"Now, when we go through part B,"},{"Start":"00:07.890 ","End":"00:11.280","Text":"notice that we\u0027re only going to deal with those ledger accounts that were"},{"Start":"00:11.280 ","End":"00:14.952","Text":"affected by the journals that we recorded in January X2,"},{"Start":"00:14.952 ","End":"00:17.340","Text":"in other words, it\u0027s part of part A."},{"Start":"00:17.340 ","End":"00:20.160","Text":"We\u0027re not going to bother looking at all the ledger accounts,"},{"Start":"00:20.160 ","End":"00:25.485","Text":"only those accounts that were affected by the journals recorded in January X2."},{"Start":"00:25.485 ","End":"00:30.600","Text":"For example, if you go back to the balance sheet that was given to you,"},{"Start":"00:30.600 ","End":"00:32.220","Text":"you\u0027ll notice that in the balance sheet,"},{"Start":"00:32.220 ","End":"00:35.635","Text":"it has a line item for property plant and equipment."},{"Start":"00:35.635 ","End":"00:41.450","Text":"Now we\u0027re not going to see any of the property plant and equipment ledger accounts"},{"Start":"00:41.450 ","End":"00:44.465","Text":"because none of the journal entries recorded in"},{"Start":"00:44.465 ","End":"00:47.960","Text":"January X2 affected property plant and equipment."},{"Start":"00:47.960 ","End":"00:50.585","Text":"Now, before we continue with part B,"},{"Start":"00:50.585 ","End":"00:52.730","Text":"I would like us to first have a look at the structure"},{"Start":"00:52.730 ","End":"00:55.070","Text":"of a finished ledger account and after"},{"Start":"00:55.070 ","End":"00:59.630","Text":"you have familiarized yourself with the structure of a finished ledger account,"},{"Start":"00:59.630 ","End":"01:03.335","Text":"we\u0027ll then continue and post each of the journals to the ledger."},{"Start":"01:03.335 ","End":"01:08.240","Text":"Now, I have chosen the cash at bank ledger account,"},{"Start":"01:08.240 ","End":"01:10.115","Text":"purely by way of example."},{"Start":"01:10.115 ","End":"01:13.160","Text":"Now the purpose of me showing you this is for us to look at"},{"Start":"01:13.160 ","End":"01:16.460","Text":"the columns that we have used in our ledger."},{"Start":"01:16.460 ","End":"01:19.520","Text":"First of all, we have a date column."},{"Start":"01:19.520 ","End":"01:24.560","Text":"The very first date that we have here is the 1st of January X2."},{"Start":"01:24.560 ","End":"01:27.800","Text":"That date refers to the opening balance."},{"Start":"01:27.800 ","End":"01:30.200","Text":"Now, that opening balance is not a transaction,"},{"Start":"01:30.200 ","End":"01:33.200","Text":"it\u0027s just the opening balance that was already"},{"Start":"01:33.200 ","End":"01:36.740","Text":"in that account at the beginning of January."},{"Start":"01:36.740 ","End":"01:42.445","Text":"That amount of 2,250 actually comes from the balance sheet."},{"Start":"01:42.445 ","End":"01:48.430","Text":"At the end of 31st of December X1,"},{"Start":"01:48.430 ","End":"01:52.745","Text":"you were given all the balances that were in the ledger accounts"},{"Start":"01:52.745 ","End":"01:59.845","Text":"and that was presented to you as part of the balance sheet at 31st December, X1."},{"Start":"01:59.845 ","End":"02:05.390","Text":"Now the next date is the 31st of January, 20X2."},{"Start":"02:05.390 ","End":"02:08.600","Text":"Now this stage refers to a transaction,"},{"Start":"02:08.600 ","End":"02:12.860","Text":"and this transaction refers to the cleaning cost for January."},{"Start":"02:12.860 ","End":"02:16.985","Text":"You\u0027ll see there\u0027s an amount of 230 in the credit column."},{"Start":"02:16.985 ","End":"02:24.180","Text":"Now, that brings me to the second column, contra account."},{"Start":"02:24.180 ","End":"02:27.940","Text":"That transaction on the 31st of January X2,"},{"Start":"02:27.940 ","End":"02:31.722","Text":"an amount of 230 in the credit column,"},{"Start":"02:31.722 ","End":"02:35.180","Text":"what 1 would want to know as an accountant looking at"},{"Start":"02:35.180 ","End":"02:39.440","Text":"this ledger account is where the other side of the entry went."},{"Start":"02:39.440 ","End":"02:40.955","Text":"Now what do I mean by the other side?"},{"Start":"02:40.955 ","End":"02:45.605","Text":"Well, for every debit there is a corresponding credit or vice versa."},{"Start":"02:45.605 ","End":"02:48.140","Text":"So here we have the credit and the question is,"},{"Start":"02:48.140 ","End":"02:49.385","Text":"where did the debit go?"},{"Start":"02:49.385 ","End":"02:53.660","Text":"Well, you find that up by simply looking in the contra account column and you know"},{"Start":"02:53.660 ","End":"02:59.030","Text":"that the debit entry will be found in the cleaning cost ledger account."},{"Start":"02:59.030 ","End":"03:02.690","Text":"Then we have the description column."},{"Start":"03:02.690 ","End":"03:04.730","Text":"In this description column,"},{"Start":"03:04.730 ","End":"03:07.180","Text":"you have exactly what it says,"},{"Start":"03:07.180 ","End":"03:10.945","Text":"the description of the transaction or the description of the line."},{"Start":"03:10.945 ","End":"03:13.310","Text":"The very first description is opening balance,"},{"Start":"03:13.310 ","End":"03:15.140","Text":"so that is not a transaction,"},{"Start":"03:15.140 ","End":"03:18.155","Text":"but it describes what that amount refers to."},{"Start":"03:18.155 ","End":"03:22.760","Text":"Then the second line is January cleaning cost so that is"},{"Start":"03:22.760 ","End":"03:27.620","Text":"what the 230 is described as, and so on."},{"Start":"03:27.620 ","End":"03:31.640","Text":"Then we have a debit column and a credit column."},{"Start":"03:31.640 ","End":"03:35.090","Text":"You debit a ledger account if"},{"Start":"03:35.090 ","End":"03:39.230","Text":"the journal entry instructs you to debit the ledger account,"},{"Start":"03:39.230 ","End":"03:41.180","Text":"and you would credit an account if"},{"Start":"03:41.180 ","End":"03:45.095","Text":"the journal entry instructed you to credit that ledger account."},{"Start":"03:45.095 ","End":"03:48.710","Text":"Remember, journal entries are simply a series of instructions"},{"Start":"03:48.710 ","End":"03:52.680","Text":"telling you where to post different amounts."},{"Start":"03:52.680 ","End":"03:54.810","Text":"Which accounts to post it into and whether"},{"Start":"03:54.810 ","End":"03:57.380","Text":"to post it in the debit column or a credit column."},{"Start":"03:57.380 ","End":"04:00.980","Text":"Then we have the final column,"},{"Start":"04:00.980 ","End":"04:02.840","Text":"which is called the balance column."},{"Start":"04:02.840 ","End":"04:07.430","Text":"In this case, the balance is dated the 31st of January, X2."},{"Start":"04:07.430 ","End":"04:10.220","Text":"Now we could create a balance at the end of"},{"Start":"04:10.220 ","End":"04:13.850","Text":"every single day or after every single transaction if you like."},{"Start":"04:13.850 ","End":"04:18.410","Text":"But in this example, all we\u0027ve done is we\u0027ve shown the balance at the end of the month."},{"Start":"04:18.410 ","End":"04:26.930","Text":"Now that 4,260 is the total of all the debits minus the total of all the credits."},{"Start":"04:26.930 ","End":"04:28.715","Text":"Now the total of all the debits,"},{"Start":"04:28.715 ","End":"04:31.080","Text":"by the way, includes the opening balances,"},{"Start":"04:31.080 ","End":"04:33.890","Text":"the opening balance plus all of the amounts relating to"},{"Start":"04:33.890 ","End":"04:37.655","Text":"transactions that were processed in January."},{"Start":"04:37.655 ","End":"04:42.355","Text":"Then you subtract all of the credits which came to 17,490."},{"Start":"04:42.355 ","End":"04:43.760","Text":"Now to work out the balance,"},{"Start":"04:43.760 ","End":"04:48.695","Text":"you simply take the total debits and you subtract the total credits and you get 4,260."},{"Start":"04:48.695 ","End":"04:52.445","Text":"Now you\u0027ll notice that the debits are bigger than the credits,"},{"Start":"04:52.445 ","End":"04:54.740","Text":"and that is why in the balance column,"},{"Start":"04:54.740 ","End":"04:58.230","Text":"you indicate that we have a debit balance."},{"Start":"04:58.230 ","End":"05:01.280","Text":"That\u0027s all I wanted to say about your ledger accounts and"},{"Start":"05:01.280 ","End":"05:04.490","Text":"the structures to use and how it works."},{"Start":"05:04.490 ","End":"05:10.380","Text":"I think we\u0027re now ready to post those journal entries to the ledger accounts."}],"ID":28525},{"Watched":false,"Name":"Exercise 1 Part b - Part 1","Duration":"2m 35s","ChapterTopicVideoID":26331,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.950 ","End":"00:05.440","Text":"Now let\u0027s look at each one of those journal entries that we"},{"Start":"00:05.440 ","End":"00:09.190","Text":"recorded in part A and post them to"},{"Start":"00:09.190 ","End":"00:12.610","Text":"the ledger now that we\u0027re doing part B. I\u0027m going"},{"Start":"00:12.610 ","End":"00:17.680","Text":"to show the journal entry that we did in part A up here."},{"Start":"00:17.680 ","End":"00:20.350","Text":"This is the very first journal that we processed."},{"Start":"00:20.350 ","End":"00:26.500","Text":"We debited cleaning expenses6 and said we must credit cash at bank with 230."},{"Start":"00:26.500 ","End":"00:28.615","Text":"Then underneath this here,"},{"Start":"00:28.615 ","End":"00:34.360","Text":"I\u0027m going to show you as posting that generally entry into the ledger accounts."},{"Start":"00:34.360 ","End":"00:40.280","Text":"Now, I want you to remember that journal entries are instructions."},{"Start":"00:40.280 ","End":"00:43.065","Text":"They are simply a set of instructions."},{"Start":"00:43.065 ","End":"00:45.470","Text":"What is this journal entry telling us to do?"},{"Start":"00:45.470 ","End":"00:49.250","Text":"It\u0027s telling us to go to the cleaning expense account,"},{"Start":"00:49.250 ","End":"00:52.685","Text":"find it and put 230 on the debit side."},{"Start":"00:52.685 ","End":"00:55.880","Text":"It\u0027s then telling us to go to the cash at bank account angle and find"},{"Start":"00:55.880 ","End":"00:59.750","Text":"the cash or bank account and put 230 on the credit side."},{"Start":"00:59.750 ","End":"01:02.555","Text":"That\u0027s all it is, it\u0027s telling us what to do."},{"Start":"01:02.555 ","End":"01:05.060","Text":"We\u0027re going to find the cleaning expense account."},{"Start":"01:05.060 ","End":"01:06.740","Text":"That\u0027s the first one because well,"},{"Start":"01:06.740 ","End":"01:10.640","Text":"I always go through it very methodically so we don\u0027t forget to post something."},{"Start":"01:10.640 ","End":"01:13.655","Text":"I always start with the debit instruction."},{"Start":"01:13.655 ","End":"01:18.095","Text":"The debit entry is 230 to the cleaning expense account."},{"Start":"01:18.095 ","End":"01:21.230","Text":"Here is the cleaning expense account and if you recall,"},{"Start":"01:21.230 ","End":"01:22.490","Text":"because it\u0027s an expense,"},{"Start":"01:22.490 ","End":"01:25.290","Text":"it doesn\u0027t have an opening balance."},{"Start":"01:26.180 ","End":"01:32.425","Text":"Now, what we have to do is put in here on the debit side 230."},{"Start":"01:32.425 ","End":"01:36.995","Text":"This is journal number 1 and the contra account,"},{"Start":"01:36.995 ","End":"01:39.165","Text":"as you can see, we\u0027re debiting cleaning expense,"},{"Start":"01:39.165 ","End":"01:40.805","Text":"but where\u0027s the credit going to go?"},{"Start":"01:40.805 ","End":"01:42.665","Text":"It\u0027s going to go into cash at bank."},{"Start":"01:42.665 ","End":"01:45.845","Text":"I\u0027m just going to write bank because it\u0027s quicker and asset account."},{"Start":"01:45.845 ","End":"01:51.805","Text":"This is processed at the 31st of January X2."},{"Start":"01:51.805 ","End":"01:57.770","Text":"We were told to assume 31st of January X2 as the transaction date unless told otherwise."},{"Start":"01:57.770 ","End":"01:59.840","Text":"Now let\u0027s go to the other side of the entry,"},{"Start":"01:59.840 ","End":"02:01.670","Text":"which is the cash at bank account."},{"Start":"02:01.670 ","End":"02:04.355","Text":"Cash at bank, here it is."},{"Start":"02:04.355 ","End":"02:08.180","Text":"Now, we start with the opening balance,"},{"Start":"02:08.180 ","End":"02:10.430","Text":"if you recall, was 2,250."},{"Start":"02:10.430 ","End":"02:16.025","Text":"What we have to put in here is 230 on the credit side,"},{"Start":"02:16.025 ","End":"02:17.630","Text":"according to the journal entry,"},{"Start":"02:17.630 ","End":"02:20.105","Text":"we had to credit the cash at bank."},{"Start":"02:20.105 ","End":"02:27.365","Text":"This was journal number 1 and the contra account was"},{"Start":"02:27.365 ","End":"02:31.160","Text":"cleaning expenses and expense account"},{"Start":"02:31.160 ","End":"02:36.150","Text":"and the date of the transaction was 31st of the first X2."}],"ID":28526},{"Watched":false,"Name":"Exercise 1 Part b - Part 2a","Duration":"2m 35s","ChapterTopicVideoID":26332,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.500 ","End":"00:04.215","Text":"Now, journal for transaction 2."},{"Start":"00:04.215 ","End":"00:06.510","Text":"If you remember from part a,"},{"Start":"00:06.510 ","End":"00:10.455","Text":"transaction 2 actually required 2 journal entries to be recorded."},{"Start":"00:10.455 ","End":"00:14.160","Text":"Let\u0027s do journal for transaction 2(a) first."},{"Start":"00:14.160 ","End":"00:19.350","Text":"Now, bearing in mind that journal is just a set of instructions."},{"Start":"00:19.350 ","End":"00:23.595","Text":"The first thing it\u0027s telling us to do is,"},{"Start":"00:23.595 ","End":"00:26.295","Text":"find the account salaries payable,"},{"Start":"00:26.295 ","End":"00:27.690","Text":"it\u0027s a liability account,"},{"Start":"00:27.690 ","End":"00:30.165","Text":"and debit it with 13,000."},{"Start":"00:30.165 ","End":"00:32.730","Text":"Let\u0027s do that. There we go."},{"Start":"00:32.730 ","End":"00:34.820","Text":"Salaries payable, liability."},{"Start":"00:34.820 ","End":"00:37.610","Text":"Remember we had put in the opening balances,"},{"Start":"00:37.610 ","End":"00:40.670","Text":"per the balance sheet at 31st of December X1,"},{"Start":"00:40.670 ","End":"00:42.035","Text":"and that was 13,000."},{"Start":"00:42.035 ","End":"00:46.104","Text":"Now lets put it on the credit side because liabilities have credit balances."},{"Start":"00:46.104 ","End":"00:47.930","Text":"Now, the salaries payable,"},{"Start":"00:47.930 ","End":"00:51.260","Text":"if you go back to the detail of this transaction,"},{"Start":"00:51.260 ","End":"00:58.525","Text":"the salaries were paid on the 5th of the first month, X2."},{"Start":"00:58.525 ","End":"01:01.845","Text":"This is journal number 2(a),"},{"Start":"01:01.845 ","End":"01:08.125","Text":"and the amount that we\u0027re having to deal with this account with, is 13,000."},{"Start":"01:08.125 ","End":"01:13.580","Text":"We were actually paying the balance that we owed at the end of December X1,"},{"Start":"01:13.580 ","End":"01:17.495","Text":"you can see it\u0027s obliterating,"},{"Start":"01:17.495 ","End":"01:21.630","Text":"we\u0027re sitting off that credit opening balance as 13,000."},{"Start":"01:21.630 ","End":"01:24.140","Text":"Now, we don\u0027t owe anything after this entry."},{"Start":"01:24.140 ","End":"01:25.985","Text":"Now, we\u0027re not finished yet,"},{"Start":"01:25.985 ","End":"01:27.680","Text":"so what is the contra account?"},{"Start":"01:27.680 ","End":"01:29.090","Text":"Well, the contra account, in other words,"},{"Start":"01:29.090 ","End":"01:30.170","Text":"is the other side of the entry,"},{"Start":"01:30.170 ","End":"01:32.495","Text":"is going to be to cash at bank."},{"Start":"01:32.495 ","End":"01:37.470","Text":"We\u0027re going to put in here cash at bank."},{"Start":"01:37.470 ","End":"01:39.090","Text":"Now, the next step is to go,"},{"Start":"01:39.090 ","End":"01:41.460","Text":"and find the cash at bank account,"},{"Start":"01:41.460 ","End":"01:45.975","Text":"and credit it with 13,000."},{"Start":"01:45.975 ","End":"01:47.735","Text":"We have to find the cash at bank account,"},{"Start":"01:47.735 ","End":"01:50.515","Text":"and credit it with 13,000."},{"Start":"01:50.515 ","End":"01:53.835","Text":"Here we have our cash at bank account,"},{"Start":"01:53.835 ","End":"01:56.280","Text":"and here you see, it\u0027s slightly grayed out,"},{"Start":"01:56.280 ","End":"01:59.210","Text":"you see the previous entries we put in here, opening balance,"},{"Start":"01:59.210 ","End":"02:01.475","Text":"in the January cleaning costs of 2,250,"},{"Start":"02:01.475 ","End":"02:05.725","Text":"opening balance, and cleaning cost unpaid was 213."},{"Start":"02:05.725 ","End":"02:11.765","Text":"We now need to credit this account with 13,000,"},{"Start":"02:11.765 ","End":"02:13.940","Text":"because payments go through on the credit side,"},{"Start":"02:13.940 ","End":"02:19.335","Text":"and the journal entry basically told us to put the 13,000 on the credit side,"},{"Start":"02:19.335 ","End":"02:22.335","Text":"and this is journal number 2(a),"},{"Start":"02:22.335 ","End":"02:27.195","Text":"this on the 5th of the 1st X2,"},{"Start":"02:27.195 ","End":"02:33.580","Text":"and the contra account, was salaries payable."}],"ID":28527},{"Watched":false,"Name":"Exercise 1 Part b - Part 2b","Duration":"2m 28s","ChapterTopicVideoID":26333,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:02.190","Text":"Okay. Still on transaction number 2,"},{"Start":"00:02.190 ","End":"00:05.790","Text":"but this is now the second part of the journal or second part of"},{"Start":"00:05.790 ","End":"00:10.290","Text":"the transaction that required a second journal. It was this one."},{"Start":"00:10.290 ","End":"00:15.000","Text":"We were told that we had incurred salaries in January,"},{"Start":"00:15.000 ","End":"00:20.940","Text":"we recorded this by saying we\u0027re going to have to debit salaries expense with 13,200,"},{"Start":"00:20.940 ","End":"00:23.145","Text":"and then we\u0027re going to credit salaries payable."},{"Start":"00:23.145 ","End":"00:26.490","Text":"Let\u0027s just do this first part of the journal entry because remember,"},{"Start":"00:26.490 ","End":"00:27.945","Text":"these are just instructions."},{"Start":"00:27.945 ","End":"00:30.180","Text":"The first part of the journal is telling us to find"},{"Start":"00:30.180 ","End":"00:34.110","Text":"the salaries expense account and debit it with 13,200."},{"Start":"00:34.110 ","End":"00:38.435","Text":"Let\u0027s do that. Here is our salaries expense account."},{"Start":"00:38.435 ","End":"00:41.180","Text":"Salaries. Notice that because it\u0027s an expense account"},{"Start":"00:41.180 ","End":"00:43.535","Text":"and because it\u0027s the first day of our financial year,"},{"Start":"00:43.535 ","End":"00:46.040","Text":"our opening balance is nil."},{"Start":"00:46.040 ","End":"00:50.720","Text":"Now let\u0027s process or post that journal entry,"},{"Start":"00:50.720 ","End":"00:52.640","Text":"the first part of the journal entry,"},{"Start":"00:52.640 ","End":"00:57.550","Text":"which says we must debit the salaries expense with 13,200."},{"Start":"00:57.550 ","End":"00:59.930","Text":"Under the debit column,"},{"Start":"00:59.930 ","End":"01:03.575","Text":"we\u0027re going to put 13,200."},{"Start":"01:03.575 ","End":"01:04.985","Text":"That\u0027s the instruction."},{"Start":"01:04.985 ","End":"01:11.750","Text":"Now, this is journal 2b and the contra account is the other side of the entry."},{"Start":"01:11.750 ","End":"01:13.580","Text":"If you have a look at the journal entry,"},{"Start":"01:13.580 ","End":"01:17.110","Text":"the other side of the entry is going to be to salaries payable."},{"Start":"01:17.110 ","End":"01:18.805","Text":"Under contra account,"},{"Start":"01:18.805 ","End":"01:23.535","Text":"we need to put in here salaries payable."},{"Start":"01:23.535 ","End":"01:28.880","Text":"The date of this entry was the 31st of January X2."},{"Start":"01:28.880 ","End":"01:32.435","Text":"We were told to assume all transactions happened"},{"Start":"01:32.435 ","End":"01:36.260","Text":"on the 31st of January X2, unless otherwise indicated."},{"Start":"01:36.260 ","End":"01:39.905","Text":"All right. That\u0027s the first part of this entry."},{"Start":"01:39.905 ","End":"01:44.240","Text":"The next part is to now go and find the salaries payable account,"},{"Start":"01:44.240 ","End":"01:49.415","Text":"a liability account, and credit it with 13,200."},{"Start":"01:49.415 ","End":"01:54.125","Text":"Let\u0027s do that. Salaries payable account,"},{"Start":"01:54.125 ","End":"01:56.590","Text":"which is a liability account, has been found."},{"Start":"01:56.590 ","End":"01:58.220","Text":"What do we have to do here?"},{"Start":"01:58.220 ","End":"02:02.645","Text":"We\u0027ve been told we must credit this with 13,200."},{"Start":"02:02.645 ","End":"02:04.400","Text":"The date of the transaction,"},{"Start":"02:04.400 ","End":"02:06.260","Text":"we\u0027re assuming it\u0027s the last day of the month,"},{"Start":"02:06.260 ","End":"02:09.440","Text":"which makes sense when it\u0027s salaries anyway."},{"Start":"02:09.440 ","End":"02:11.500","Text":"The contra entry."},{"Start":"02:11.500 ","End":"02:12.930","Text":"This is the salaries payable,"},{"Start":"02:12.930 ","End":"02:15.545","Text":"the contra entry was the salaries expense."},{"Start":"02:15.545 ","End":"02:19.460","Text":"We\u0027re going to put in here that the contra entry will be"},{"Start":"02:19.460 ","End":"02:23.820","Text":"found in the salaries expense account."},{"Start":"02:23.820 ","End":"02:25.950","Text":"The description of the entry, well,"},{"Start":"02:25.950 ","End":"02:28.960","Text":"I\u0027m just going to put in here journal 2b."}],"ID":28528},{"Watched":false,"Name":"Exercise 1 Part b - Part 3","Duration":"2m 40s","ChapterTopicVideoID":26334,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:01.340 ","End":"00:06.840","Text":"The journal entry for Transaction number 3 was"},{"Start":"00:06.840 ","End":"00:11.640","Text":"to debit cash at bank and credit share capital with an amount of 3,000."},{"Start":"00:11.640 ","End":"00:15.240","Text":"This was where the 2 brothers invested 1,500"},{"Start":"00:15.240 ","End":"00:20.185","Text":"currency units each and got in return some share capital, more shares."},{"Start":"00:20.185 ","End":"00:25.185","Text":"The journal entry for Transaction 3 is telling us"},{"Start":"00:25.185 ","End":"00:30.135","Text":"to find the account cash at bank and debit it with 3,000."},{"Start":"00:30.135 ","End":"00:33.750","Text":"Let\u0027s do that. Here we have the cash at"},{"Start":"00:33.750 ","End":"00:39.405","Text":"bank account and here you see we\u0027re debiting it with 3,000."},{"Start":"00:39.405 ","End":"00:41.830","Text":"It\u0027s under the debit column."},{"Start":"00:42.290 ","End":"00:47.660","Text":"In this case, we\u0027ve put the full description and proceeds from issuing new shares,"},{"Start":"00:47.660 ","End":"00:49.430","Text":"but here it is, Journal number 3."},{"Start":"00:49.430 ","End":"00:53.660","Text":"This is what I\u0027ve been putting into the previous ledger accounts."},{"Start":"00:53.660 ","End":"00:56.645","Text":"The contra account, if you have a look back at the journal entry,"},{"Start":"00:56.645 ","End":"00:59.600","Text":"you see that it\u0027s telling us to debit the cash bank,"},{"Start":"00:59.600 ","End":"01:02.080","Text":"but we would be crediting share capital."},{"Start":"01:02.080 ","End":"01:04.400","Text":"When you come to the contra account,"},{"Start":"01:04.400 ","End":"01:07.340","Text":"you\u0027re going to indicate that the other side of"},{"Start":"01:07.340 ","End":"01:10.310","Text":"the entry will be found in the share capital account,"},{"Start":"01:10.310 ","End":"01:12.095","Text":"which is an equity account."},{"Start":"01:12.095 ","End":"01:16.160","Text":"Again, we were told to assume that all transactions were 31st of"},{"Start":"01:16.160 ","End":"01:19.950","Text":"January X2 and this otherwise indicated. All right."},{"Start":"01:19.950 ","End":"01:23.580","Text":"Notice that the cash at bank was debited with 3,000."},{"Start":"01:23.580 ","End":"01:26.165","Text":"Now we need to find the other side of the entry."},{"Start":"01:26.165 ","End":"01:29.180","Text":"We need to find the share capital account."},{"Start":"01:29.180 ","End":"01:33.590","Text":"The contra entry per the journal was"},{"Start":"01:33.590 ","End":"01:37.700","Text":"to be credited with 3,000 and the contra entry was share capital."},{"Start":"01:37.700 ","End":"01:41.030","Text":"We have to find ourselves the share capital account. Here it is."},{"Start":"01:41.030 ","End":"01:42.905","Text":"Find the share capital account."},{"Start":"01:42.905 ","End":"01:46.990","Text":"The first thing we would do is make sure the opening balance is right."},{"Start":"01:46.990 ","End":"01:50.166","Text":"That was 2,000,"},{"Start":"01:50.166 ","End":"01:53.570","Text":"just picked up from the balance sheet at 31st December x1."},{"Start":"01:53.570 ","End":"01:57.735","Text":"Now let\u0027s process the contra entry."},{"Start":"01:57.735 ","End":"02:02.435","Text":"The journal entry said we must credit the share capital of 3,000."},{"Start":"02:02.435 ","End":"02:06.844","Text":"We are putting it under the credit column because equity accounts have credit balances."},{"Start":"02:06.844 ","End":"02:09.095","Text":"This is Journal number 3."},{"Start":"02:09.095 ","End":"02:13.625","Text":"The country entry was the cash at bank."},{"Start":"02:13.625 ","End":"02:19.890","Text":"We are assuming the date of the transaction is the 31st of January, X2."},{"Start":"02:19.890 ","End":"02:22.640","Text":"Just one thing here."},{"Start":"02:22.640 ","End":"02:28.590","Text":"Technically the cash at bank account is described as cash at bank,"},{"Start":"02:28.590 ","End":"02:31.520","Text":"so therefore the contra account should be more specific."},{"Start":"02:31.520 ","End":"02:36.200","Text":"Cash at bank is what it should have said here."},{"Start":"02:36.200 ","End":"02:40.920","Text":"Your solution may or may not have been corrected by the stage."}],"ID":28529},{"Watched":false,"Name":"Exercise 1 Part b - Part 4","Duration":"3m 58s","ChapterTopicVideoID":26335,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.140 ","End":"00:03.570","Text":"Now let us look at transaction number 4."},{"Start":"00:03.570 ","End":"00:05.400","Text":"If you go back to part a,"},{"Start":"00:05.400 ","End":"00:09.780","Text":"you\u0027ll see that transaction 4 required 2 journal entries."},{"Start":"00:09.780 ","End":"00:13.470","Text":"Let us do the first journal entry first."},{"Start":"00:13.470 ","End":"00:20.370","Text":"So we have cash at bank and we are told to debit it with 2,000."},{"Start":"00:20.370 ","End":"00:23.535","Text":"Remember, journal entries are just instructions."},{"Start":"00:23.535 ","End":"00:27.730","Text":"Our next step is to go and find the cash at bank account."},{"Start":"00:27.730 ","End":"00:31.005","Text":"We have the cash at bank account,"},{"Start":"00:31.005 ","End":"00:37.370","Text":"and what we do is we do exactly what the journal entry instructed us to do."},{"Start":"00:37.370 ","End":"00:40.850","Text":"In the debit column, we put 2,000."},{"Start":"00:40.850 ","End":"00:43.330","Text":"We then describe it."},{"Start":"00:43.330 ","End":"00:47.610","Text":"The entry number journal number 4 and there\u0027s a description of the entry,"},{"Start":"00:47.610 ","End":"00:50.295","Text":"receipt of the employee\u0027s loan repayment."},{"Start":"00:50.295 ","End":"00:53.540","Text":"Then don\u0027t forget the contra account."},{"Start":"00:53.540 ","End":"00:59.180","Text":"The contra account must give us where the other side of the entry has been posted."},{"Start":"00:59.180 ","End":"01:01.370","Text":"If you go back to the journal entry,"},{"Start":"01:01.370 ","End":"01:03.380","Text":"you can see that the other side of the entry is going to be"},{"Start":"01:03.380 ","End":"01:06.845","Text":"posted to the loan to employee account."},{"Start":"01:06.845 ","End":"01:09.290","Text":"Under contra account, we say that the other side of"},{"Start":"01:09.290 ","End":"01:13.595","Text":"the entry will be found in the loan to employee account."},{"Start":"01:13.595 ","End":"01:17.480","Text":"This happened on the 31st of January X2."},{"Start":"01:17.480 ","End":"01:19.610","Text":"The next step is to go back to"},{"Start":"01:19.610 ","End":"01:23.120","Text":"the journal entry and identify what we\u0027re supposed to credit."},{"Start":"01:23.120 ","End":"01:24.230","Text":"In the credit column,"},{"Start":"01:24.230 ","End":"01:30.130","Text":"the journal tells us to credit 2,000 to the loan to employee account."},{"Start":"01:30.130 ","End":"01:34.790","Text":"Our next step is to find the loan to employee account."},{"Start":"01:34.790 ","End":"01:39.530","Text":"Here we have the loan to employee account,"},{"Start":"01:39.530 ","End":"01:43.580","Text":"and we do as the journal instructed."},{"Start":"01:43.580 ","End":"01:46.475","Text":"In the credit column, we need to put 2,000."},{"Start":"01:46.475 ","End":"01:50.275","Text":"We then describe the entry number as journal number 4."},{"Start":"01:50.275 ","End":"01:53.235","Text":"This was in fact 4a and we describe it,"},{"Start":"01:53.235 ","End":"01:56.355","Text":"this is the receipt of the employee\u0027s loan repayment."},{"Start":"01:56.355 ","End":"02:00.020","Text":"The contra entry, we tell the user,"},{"Start":"02:00.020 ","End":"02:01.660","Text":"whoever is reading this account,"},{"Start":"02:01.660 ","End":"02:05.780","Text":"can be found in the cash at bank account."},{"Start":"02:05.780 ","End":"02:11.225","Text":"The date of this transaction has been assumed to be 31st of January X2."},{"Start":"02:11.225 ","End":"02:13.280","Text":"We then move on to"},{"Start":"02:13.280 ","End":"02:18.170","Text":"the second journal entry that was necessary under transaction number 4."},{"Start":"02:18.170 ","End":"02:21.800","Text":"Here we have a journal entry that tells us we need to"},{"Start":"02:21.800 ","End":"02:27.005","Text":"debit the account interest receivable with an amount of 7."},{"Start":"02:27.005 ","End":"02:31.895","Text":"First step is to go and find the interest receivable account."},{"Start":"02:31.895 ","End":"02:33.890","Text":"As soon as we\u0027ve located it,"},{"Start":"02:33.890 ","End":"02:37.210","Text":"we found the interest receivable account."},{"Start":"02:37.210 ","End":"02:40.590","Text":"In the debit column, we need to put 7."},{"Start":"02:40.590 ","End":"02:43.025","Text":"We\u0027re just following the journal entry instruction."},{"Start":"02:43.025 ","End":"02:45.260","Text":"We described the entry number,"},{"Start":"02:45.260 ","End":"02:47.760","Text":"it was journal entry number 4,"},{"Start":"02:47.760 ","End":"02:53.290","Text":"and we described the transaction interest accrued on the loan to employees."},{"Start":"02:53.290 ","End":"02:55.680","Text":"The contra account,"},{"Start":"02:55.680 ","End":"02:58.155","Text":"in other words, where is the other side of the entry?"},{"Start":"02:58.155 ","End":"03:00.380","Text":"Well, if you go back to the journal entry,"},{"Start":"03:00.380 ","End":"03:02.300","Text":"we can see that the other side of the entry,"},{"Start":"03:02.300 ","End":"03:05.135","Text":"the credit side, is going to be to the interest income account."},{"Start":"03:05.135 ","End":"03:08.450","Text":"Under contra account, we say that the other side of"},{"Start":"03:08.450 ","End":"03:12.384","Text":"the entry is in the interest income account."},{"Start":"03:12.384 ","End":"03:14.760","Text":"Then we return to the journal entry,"},{"Start":"03:14.760 ","End":"03:18.950","Text":"and we do what the journal entry instructs us to with regard to the credit."},{"Start":"03:18.950 ","End":"03:24.230","Text":"We need to credit 7 to the interest income account."},{"Start":"03:24.230 ","End":"03:27.980","Text":"We locate the interest income ledger."},{"Start":"03:27.980 ","End":"03:31.055","Text":"We find the interest income account,"},{"Start":"03:31.055 ","End":"03:35.035","Text":"and in the credit column, we put 7."},{"Start":"03:35.035 ","End":"03:38.840","Text":"The journal entry number was number 4, and we describe it,"},{"Start":"03:38.840 ","End":"03:42.260","Text":"this is the interest accrued on the loan to an employee."},{"Start":"03:42.260 ","End":"03:44.810","Text":"The contra account, where is the other side of the entry?"},{"Start":"03:44.810 ","End":"03:48.510","Text":"Well, we can see here it\u0027s in the interest receivable account."},{"Start":"03:48.510 ","End":"03:53.735","Text":"So the contra account we say is in the interest receivable ledger account."},{"Start":"03:53.735 ","End":"03:56.885","Text":"Remember the dates, 31st of January X2."},{"Start":"03:56.885 ","End":"03:59.520","Text":"Let\u0027s move on to the next one."}],"ID":28530},{"Watched":false,"Name":"Exercise 1 Part b - Part 6","Duration":"1m 40s","ChapterTopicVideoID":26336,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:03.630","Text":"Okay, so let\u0027s have a look now at Transaction six."},{"Start":"00:03.630 ","End":"00:08.205","Text":"Alright, so we have cash at bank for 1000,"},{"Start":"00:08.205 ","End":"00:09.450","Text":"it has to be debited."},{"Start":"00:09.450 ","End":"00:11.835","Text":"So let\u0027s find our cash at bank account."},{"Start":"00:11.835 ","End":"00:14.145","Text":"Alright, so we found the cash at bank."},{"Start":"00:14.145 ","End":"00:15.735","Text":"And in the debit column,"},{"Start":"00:15.735 ","End":"00:18.090","Text":"we put the 4000."},{"Start":"00:18.090 ","End":"00:24.060","Text":"We indicate that this is entry number 6 and it\u0027s a receipt from our credit clients."},{"Start":"00:24.060 ","End":"00:29.550","Text":"Otherwise, you could say receipts in respect of accounts receivable seats from debtors."},{"Start":"00:29.550 ","End":"00:31.620","Text":"Something that makes sense to you."},{"Start":"00:31.620 ","End":"00:36.690","Text":"And then we say what the country entry is already in the contra account."},{"Start":"00:36.690 ","End":"00:38.910","Text":"We have to say what the country entries and"},{"Start":"00:38.910 ","End":"00:42.250","Text":"the country entry according to the journal entry."},{"Start":"00:42.250 ","End":"00:43.699","Text":"Whereas the accounts receivable,"},{"Start":"00:43.699 ","End":"00:46.400","Text":"and we assume the 31st of January x2,"},{"Start":"00:46.400 ","End":"00:48.530","Text":"we then have a look at the journal again."},{"Start":"00:48.530 ","End":"00:51.440","Text":"And the journal says that we must then"},{"Start":"00:51.440 ","End":"00:56.510","Text":"credit and amount of 4000 to the accounts receivable account."},{"Start":"00:56.510 ","End":"01:00.155","Text":"So we go to the accounts receivable account next."},{"Start":"01:00.155 ","End":"01:04.745","Text":"Okay, so once we have located our accounts receivable account,"},{"Start":"01:04.745 ","End":"01:06.410","Text":"we follow the instructions,"},{"Start":"01:06.410 ","End":"01:10.385","Text":"the journal which was to go to the credit column and put 4000 in it."},{"Start":"01:10.385 ","End":"01:12.710","Text":"We then indicate that the journal entry numbers,"},{"Start":"01:12.710 ","End":"01:15.260","Text":"number six, we describe the journal,"},{"Start":"01:15.260 ","End":"01:17.300","Text":"the transactions basis we can,"},{"Start":"01:17.300 ","End":"01:19.010","Text":"as I said, received from credit clients,"},{"Start":"01:19.010 ","End":"01:20.960","Text":"received from accounts receivable,"},{"Start":"01:20.960 ","End":"01:22.925","Text":"or received from datas,"},{"Start":"01:22.925 ","End":"01:24.470","Text":"whatever makes sense to you."},{"Start":"01:24.470 ","End":"01:26.570","Text":"Then in the contra account column,"},{"Start":"01:26.570 ","End":"01:29.540","Text":"we say where the other side of this entries and as you know,"},{"Start":"01:29.540 ","End":"01:34.265","Text":"we\u0027ve put the other entry at the side of the entry rather into cash or bank,"},{"Start":"01:34.265 ","End":"01:35.869","Text":"and then the date of the transaction,"},{"Start":"01:35.869 ","End":"01:39.690","Text":"we\u0027re assuming the 31st of January, x2."}],"ID":28531},{"Watched":false,"Name":"Exercise 1 Part b - Part 7","Duration":"2m 22s","ChapterTopicVideoID":26337,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:03.630","Text":"Now let\u0027s look at Transaction number 7."},{"Start":"00:03.630 ","End":"00:08.820","Text":"The journal entry tells us that we need to find"},{"Start":"00:08.820 ","End":"00:14.910","Text":"the loan from the bank account and on the debit side of this account put in 1,500."},{"Start":"00:14.910 ","End":"00:19.080","Text":"We now need to find this account, there we have it."},{"Start":"00:19.080 ","End":"00:23.183","Text":"Loan from the bank on the debit side of it,"},{"Start":"00:23.183 ","End":"00:25.695","Text":"in the debit column we put 1,500."},{"Start":"00:25.695 ","End":"00:27.645","Text":"Before I actually continue,"},{"Start":"00:27.645 ","End":"00:31.110","Text":"let us have a look at on the 1st of the 1st X2,"},{"Start":"00:31.110 ","End":"00:32.340","Text":"we had an opening balance."},{"Start":"00:32.340 ","End":"00:35.445","Text":"This is obviously because we have a liability account,"},{"Start":"00:35.445 ","End":"00:38.170","Text":"liabilities, assets, equity accounts."},{"Start":"00:38.170 ","End":"00:40.940","Text":"On the first day of your financial year,"},{"Start":"00:40.940 ","End":"00:43.460","Text":"we\u0027ll have an opening balance."},{"Start":"00:43.460 ","End":"00:44.780","Text":"If the account didn\u0027t exist,"},{"Start":"00:44.780 ","End":"00:48.890","Text":"as was the case with interest receivable in one of the prior transactions,"},{"Start":"00:48.890 ","End":"00:51.110","Text":"you simply show that the opening balance was no,"},{"Start":"00:51.110 ","End":"00:55.640","Text":"but you do need to indicate what that opening balance was."},{"Start":"00:55.640 ","End":"00:59.690","Text":"On the 1st of the 1st X2 you got an opening balance and in this case,"},{"Start":"00:59.690 ","End":"01:01.805","Text":"it was 12,000 on the credit side."},{"Start":"01:01.805 ","End":"01:05.300","Text":"If you want to find that have a look at the balance sheet of"},{"Start":"01:05.300 ","End":"01:09.020","Text":"the 31st of December X2 under liabilities,"},{"Start":"01:09.020 ","End":"01:11.185","Text":"and you\u0027ll see that 12,000, That\u0027s where we got it from."},{"Start":"01:11.185 ","End":"01:14.570","Text":"Going back to this posting of this journal entry,"},{"Start":"01:14.570 ","End":"01:16.580","Text":"we were told to find the debit column,"},{"Start":"01:16.580 ","End":"01:19.070","Text":"put 1,500 in, and we\u0027ve done that."},{"Start":"01:19.070 ","End":"01:23.300","Text":"Then you see here we\u0027ve got in entry number into number 7 is what we\u0027re dealing"},{"Start":"01:23.300 ","End":"01:27.635","Text":"with is a brief description of the transaction was repayment of the loan."},{"Start":"01:27.635 ","End":"01:29.420","Text":"If you go back to the journal entry,"},{"Start":"01:29.420 ","End":"01:33.020","Text":"you can see that the other side of the entry is going be to the cash at bank account."},{"Start":"01:33.020 ","End":"01:35.300","Text":"In the contra account column of your ledger,"},{"Start":"01:35.300 ","End":"01:39.890","Text":"you tell whoever is looking at this ledger account where they could"},{"Start":"01:39.890 ","End":"01:44.795","Text":"find the other side of this transaction and it\u0027s in the cash at bank account."},{"Start":"01:44.795 ","End":"01:48.415","Text":"The date of this transaction 31st of January X2."},{"Start":"01:48.415 ","End":"01:50.595","Text":"Going back to the journal,"},{"Start":"01:50.595 ","End":"01:57.440","Text":"the credit entry is 1,500 and it must go into the cash at bank account."},{"Start":"01:57.440 ","End":"02:02.570","Text":"We find the cash at bank account and in the credit column,"},{"Start":"02:02.570 ","End":"02:07.955","Text":"we duly put the 1,500 and this general number 7 entry number,"},{"Start":"02:07.955 ","End":"02:09.590","Text":"description of the transaction,"},{"Start":"02:09.590 ","End":"02:13.445","Text":"the contra account was the loan from the bank."},{"Start":"02:13.445 ","End":"02:18.095","Text":"Let\u0027s see other side of the interests with a debit went and this is the transaction date."},{"Start":"02:18.095 ","End":"02:22.139","Text":"Now let\u0027s move on to the next transaction."}],"ID":28532},{"Watched":false,"Name":"Exercise 1 Part b - Part 8","Duration":"3m 53s","ChapterTopicVideoID":26338,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:02.625","Text":"Now looking at transaction number 8."},{"Start":"00:02.625 ","End":"00:06.360","Text":"Now, Transaction 8 required 2 journal entries,"},{"Start":"00:06.360 ","End":"00:09.735","Text":"so we split them into journal entry 8a and 8b."},{"Start":"00:09.735 ","End":"00:12.640","Text":"We\u0027re going to do Transaction 8a,"},{"Start":"00:12.640 ","End":"00:15.450","Text":"it was a journal for transaction 8a first."},{"Start":"00:15.450 ","End":"00:18.850","Text":"Now, this journal entry tells us to find the interest payable account,"},{"Start":"00:18.850 ","End":"00:20.310","Text":"it\u0027s a liability count,"},{"Start":"00:20.310 ","End":"00:22.005","Text":"and debit it with 10."},{"Start":"00:22.005 ","End":"00:27.585","Text":"I\u0027d say we locate the interest payable account."},{"Start":"00:27.585 ","End":"00:30.252","Text":"Now, bearing in mind it\u0027s a liability count,"},{"Start":"00:30.252 ","End":"00:32.900","Text":"remember we always put in the opening balance first because"},{"Start":"00:32.900 ","End":"00:35.960","Text":"it\u0027s the first day of the financial year."},{"Start":"00:35.960 ","End":"00:40.010","Text":"Because it\u0027s a liability,"},{"Start":"00:40.010 ","End":"00:41.165","Text":"it has a credit balance."},{"Start":"00:41.165 ","End":"00:43.940","Text":"You find that once again in the balance sheet is of 31st of"},{"Start":"00:43.940 ","End":"00:47.840","Text":"December 20X1 under liabilities obviously."},{"Start":"00:47.840 ","End":"00:50.375","Text":"Now, posting this journal entry,"},{"Start":"00:50.375 ","End":"00:54.215","Text":"we are told to debit this account and just payable with 10."},{"Start":"00:54.215 ","End":"00:57.410","Text":"Under the debit column, we put in 10."},{"Start":"00:57.410 ","End":"01:00.680","Text":"This is journal number 8a,"},{"Start":"01:00.680 ","End":"01:04.240","Text":"so the entry number is 8a."},{"Start":"01:04.240 ","End":"01:07.625","Text":"The contra account, if we go to the journal entry,"},{"Start":"01:07.625 ","End":"01:09.980","Text":"you can see the other side of the entry, the credit side,"},{"Start":"01:09.980 ","End":"01:11.870","Text":"is going to be in the cash at bank account,"},{"Start":"01:11.870 ","End":"01:15.140","Text":"so we pop in here is the cash at bank account,"},{"Start":"01:15.140 ","End":"01:19.025","Text":"and the date is 31st of January X2."},{"Start":"01:19.025 ","End":"01:21.455","Text":"Going back to the journal entry,"},{"Start":"01:21.455 ","End":"01:25.430","Text":"cash at bank, and we\u0027re going to credit this with 10."},{"Start":"01:25.430 ","End":"01:27.530","Text":"Notice by the way, that as I go through it,"},{"Start":"01:27.530 ","End":"01:35.131","Text":"I always mark off the debits and credits in the journal entry as I\u0027m posting them,"},{"Start":"01:35.131 ","End":"01:39.145","Text":"because that way I don\u0027t accidentally forget to post something."},{"Start":"01:39.145 ","End":"01:42.240","Text":"We locate the cash bank account,"},{"Start":"01:42.240 ","End":"01:47.855","Text":"and in the credit column we put in the 10."},{"Start":"01:47.855 ","End":"01:51.020","Text":"Remember the entry number, we\u0027re dealing with 8a."},{"Start":"01:51.020 ","End":"01:56.765","Text":"Here\u0027s a description of the transaction and the contra account, if you recall."},{"Start":"01:56.765 ","End":"01:58.580","Text":"We\u0027ve just debited interest payable."},{"Start":"01:58.580 ","End":"02:01.295","Text":"We said the other side of the entry, the debit side,"},{"Start":"02:01.295 ","End":"02:03.515","Text":"you will find an interest payable account,"},{"Start":"02:03.515 ","End":"02:06.515","Text":"and the date is 31st of January X2."},{"Start":"02:06.515 ","End":"02:10.325","Text":"Now, moving on to the second part to Transaction 8,"},{"Start":"02:10.325 ","End":"02:12.500","Text":"the second journal entry that we had to process,"},{"Start":"02:12.500 ","End":"02:15.230","Text":"this had to do with the accrual of the interests."},{"Start":"02:15.230 ","End":"02:18.110","Text":"This is journal entry 8b."},{"Start":"02:18.110 ","End":"02:21.628","Text":"This journal entry tells us to find the interest expense account,"},{"Start":"02:21.628 ","End":"02:24.140","Text":"and on the debit side put in 10."},{"Start":"02:24.140 ","End":"02:27.470","Text":"Here we have the interest expense account."},{"Start":"02:27.470 ","End":"02:31.279","Text":"Remember this was the first entry for the year,"},{"Start":"02:31.279 ","End":"02:34.400","Text":"so don\u0027t forget putting the opening balance, and of course,"},{"Start":"02:34.400 ","End":"02:37.670","Text":"at the income and expenses that opening balances will always"},{"Start":"02:37.670 ","End":"02:42.455","Text":"be nil on the first day of the financial year."},{"Start":"02:42.455 ","End":"02:46.140","Text":"This generally entry told us to put the 10 in under the debit column,"},{"Start":"02:46.140 ","End":"02:47.720","Text":"so there we go, pop it in there."},{"Start":"02:47.720 ","End":"02:50.420","Text":"The Journal entry number is 8b."},{"Start":"02:50.420 ","End":"02:52.490","Text":"There\u0027s a brief description of what we\u0027re doing."},{"Start":"02:52.490 ","End":"02:56.945","Text":"We\u0027re accruing the January interest on bank loan and the contrary count."},{"Start":"02:56.945 ","End":"02:58.850","Text":"Go back to the journal entry."},{"Start":"02:58.850 ","End":"03:02.045","Text":"It tells us that the credit side is going to go to interest payable."},{"Start":"03:02.045 ","End":"03:04.880","Text":"In this account, you\u0027ll indicate that the other side of"},{"Start":"03:04.880 ","End":"03:07.505","Text":"the entry will be found in the interest payable account,"},{"Start":"03:07.505 ","End":"03:11.615","Text":"and the date is the 31st of January X2."},{"Start":"03:11.615 ","End":"03:14.450","Text":"We go back now to the journal,"},{"Start":"03:14.450 ","End":"03:22.400","Text":"and the credited side tells us we\u0027re going to put 10 in the interest payable account."},{"Start":"03:22.400 ","End":"03:26.735","Text":"Our next step is to locate our interest payable account."},{"Start":"03:26.735 ","End":"03:29.750","Text":"Here we have our interest payable account,"},{"Start":"03:29.750 ","End":"03:31.235","Text":"and on the credit side,"},{"Start":"03:31.235 ","End":"03:32.629","Text":"we do as instructed,"},{"Start":"03:32.629 ","End":"03:34.700","Text":"we\u0027ve put the 10 on the credit side."},{"Start":"03:34.700 ","End":"03:37.010","Text":"This is journal entree 8b,"},{"Start":"03:37.010 ","End":"03:40.783","Text":"this is the description of the transaction,"},{"Start":"03:40.783 ","End":"03:43.910","Text":"and the contra account was to the interest expense."},{"Start":"03:43.910 ","End":"03:48.837","Text":"As you can see, the other side of the entry went to into his expensive at site the date,"},{"Start":"03:48.837 ","End":"03:51.330","Text":"31st of January X2."}],"ID":28533},{"Watched":false,"Name":"Exercise 1 Part b - Part 9","Duration":"2m 16s","ChapterTopicVideoID":26339,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:03.675","Text":"Now let\u0027s look at the journal for transaction 9."},{"Start":"00:03.675 ","End":"00:06.270","Text":"In the journal we\u0027re told to find"},{"Start":"00:06.270 ","End":"00:11.440","Text":"the corporation tax payable account and debited with 2,750."},{"Start":"00:12.290 ","End":"00:16.875","Text":"Here we have our corporation tax payable account."},{"Start":"00:16.875 ","End":"00:18.810","Text":"Again, this is a liability,"},{"Start":"00:18.810 ","End":"00:20.925","Text":"It\u0027s the first transaction for the year so"},{"Start":"00:20.925 ","End":"00:23.760","Text":"don\u0027t forget we have to also put in that opening balance,"},{"Start":"00:23.760 ","End":"00:28.815","Text":"which we pick up from the balance sheet at the 31st of December, X1."},{"Start":"00:28.815 ","End":"00:32.925","Text":"You\u0027ll see it under the current liabilities."},{"Start":"00:32.925 ","End":"00:34.310","Text":"Because it\u0027s a liability,"},{"Start":"00:34.310 ","End":"00:36.170","Text":"obviously it has a credit balance,"},{"Start":"00:36.170 ","End":"00:39.155","Text":"2,750, credit opening balance."},{"Start":"00:39.155 ","End":"00:42.770","Text":"Now, this journal entry tells us to debit this account."},{"Start":"00:42.770 ","End":"00:46.265","Text":"Under the debit column, we\u0027re going to put in 2,750."},{"Start":"00:46.265 ","End":"00:50.395","Text":"The entry number is number 9."},{"Start":"00:50.395 ","End":"00:52.340","Text":"A short description is, here,"},{"Start":"00:52.340 ","End":"00:53.810","Text":"we are paying the tax,"},{"Start":"00:53.810 ","End":"00:57.950","Text":"that\u0027s why we\u0027re debiting our liability account because we\u0027re actually reducing it."},{"Start":"00:57.950 ","End":"01:02.785","Text":"Then the contra entry is cash at bank."},{"Start":"01:02.785 ","End":"01:05.480","Text":"If you have a look at that original journal entry,"},{"Start":"01:05.480 ","End":"01:07.895","Text":"you can pick up what the contra entry will be."},{"Start":"01:07.895 ","End":"01:09.590","Text":"Where the credit entry will be,"},{"Start":"01:09.590 ","End":"01:11.200","Text":"you can see it\u0027s cash at bank."},{"Start":"01:11.200 ","End":"01:13.090","Text":"31st of January,"},{"Start":"01:13.090 ","End":"01:15.380","Text":"X2 is the date of the transaction."},{"Start":"01:15.380 ","End":"01:17.515","Text":"Going back to the journal entry,"},{"Start":"01:17.515 ","End":"01:20.740","Text":"mark off the fact that we\u0027re not doing the credit side."},{"Start":"01:20.740 ","End":"01:22.960","Text":"Cash at bank is the account we\u0027re going to find,"},{"Start":"01:22.960 ","End":"01:26.015","Text":"and we\u0027re going to credit this account with 2,750."},{"Start":"01:26.015 ","End":"01:30.075","Text":"Here we have our cash at bank account."},{"Start":"01:30.075 ","End":"01:37.815","Text":"In the credit column we put in the 2,750 and it\u0027s entry number 9."},{"Start":"01:37.815 ","End":"01:39.340","Text":"Here\u0027s a description of the accounts,"},{"Start":"01:39.340 ","End":"01:42.129","Text":"payment of the tax payable,"},{"Start":"01:42.129 ","End":"01:45.730","Text":"and the contra count was corporation tax payable."},{"Start":"01:45.730 ","End":"01:48.430","Text":"That\u0027s where the debit entry will be found and the date of it,"},{"Start":"01:48.430 ","End":"01:51.470","Text":"31st of January, X2."},{"Start":"01:52.100 ","End":"01:59.040","Text":"What we have done now is we have completed the posting of our 9 transactions,"},{"Start":"01:59.040 ","End":"02:01.204","Text":"or the journals for the 9 transactions."},{"Start":"02:01.204 ","End":"02:05.900","Text":"We\u0027ve finished posting them to the ledger so the next step is to extract"},{"Start":"02:05.900 ","End":"02:10.820","Text":"our trial balance at the 31st of January,"},{"Start":"02:10.820 ","End":"02:16.120","Text":"20X2, and that will be done in part c."}],"ID":28534},{"Watched":false,"Name":"Exercise 1 Part c - The trial balance","Duration":"26m 26s","ChapterTopicVideoID":27423,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:02.760","Text":"Now we move on to Part C,"},{"Start":"00:02.760 ","End":"00:07.800","Text":"which is to extract the trial balance on 31 January 20X2,"},{"Start":"00:07.800 ","End":"00:13.380","Text":"the last day of the first month of this new financial period."},{"Start":"00:13.380 ","End":"00:17.430","Text":"Now, I want you to notice when you draw up a trial balance,"},{"Start":"00:17.430 ","End":"00:21.180","Text":"you\u0027re going to have a debit column and a credit column."},{"Start":"00:21.180 ","End":"00:24.510","Text":"Your data\u0027s 31st of January 20X2,"},{"Start":"00:24.510 ","End":"00:25.920","Text":"although this is repeated,"},{"Start":"00:25.920 ","End":"00:29.710","Text":"so you don\u0027t necessarily need to put in that date there."},{"Start":"00:30.080 ","End":"00:37.890","Text":"Now, this trial balance I have separated into the sections relating to the 5 elements."},{"Start":"00:37.890 ","End":"00:41.575","Text":"The first section I\u0027ve got is assets."},{"Start":"00:41.575 ","End":"00:49.690","Text":"What this is simply a listing of the balances in the ledger at 31 January 20X2."},{"Start":"00:49.690 ","End":"00:53.150","Text":"We\u0027ll go back just now to the ledger accounts to have a look"},{"Start":"00:53.150 ","End":"00:56.945","Text":"at each \u0027\u0027one\u0027\u0027 of these accounts."},{"Start":"00:56.945 ","End":"01:02.240","Text":"The second section I have is liabilities."},{"Start":"01:02.240 ","End":"01:05.060","Text":"You see here I have a few liabilities."},{"Start":"01:05.060 ","End":"01:07.530","Text":"I\u0027m just going to move it down a little bit."},{"Start":"01:08.150 ","End":"01:11.875","Text":"We have 4 liabilities here."},{"Start":"01:11.875 ","End":"01:15.110","Text":"Corporation tax payable now has a 0 balance,"},{"Start":"01:15.110 ","End":"01:17.565","Text":"but we have 4 liability accounts."},{"Start":"01:17.565 ","End":"01:22.550","Text":"Notice that you would still show corporation tax payable even though it is no,"},{"Start":"01:22.550 ","End":"01:24.905","Text":"you still show it in your trial balance."},{"Start":"01:24.905 ","End":"01:29.390","Text":"Then further on down below my liabilities, I have my equity."},{"Start":"01:29.390 ","End":"01:31.910","Text":"I\u0027ve got to equity accounts at the moment,"},{"Start":"01:31.910 ","End":"01:34.250","Text":"the retained earnings account is still showing"},{"Start":"01:34.250 ","End":"01:39.255","Text":"the opening balance on the 1st of January 20X2."},{"Start":"01:39.255 ","End":"01:43.880","Text":"That is because we\u0027re going to close off the income and expense accounts at the end of"},{"Start":"01:43.880 ","End":"01:45.920","Text":"the year to retained earnings when we\u0027re"},{"Start":"01:45.920 ","End":"01:48.395","Text":"typically not to close them off at the end of every month."},{"Start":"01:48.395 ","End":"01:50.480","Text":"Although you can, if you wish,"},{"Start":"01:50.480 ","End":"01:53.045","Text":"just more work which isn\u0027t advisable."},{"Start":"01:53.045 ","End":"01:57.410","Text":"Now that\u0027s 3 of the elements, assets, liabilities, equity."},{"Start":"01:57.410 ","End":"02:00.190","Text":"We then move on down."},{"Start":"02:00.190 ","End":"02:03.065","Text":"This is my trial balance continued."},{"Start":"02:03.065 ","End":"02:05.180","Text":"You see, I now have income."},{"Start":"02:05.180 ","End":"02:08.675","Text":"I\u0027ve got 2 income accounts and then I have expenses."},{"Start":"02:08.675 ","End":"02:10.970","Text":"I\u0027ve got 3 expense accounts."},{"Start":"02:10.970 ","End":"02:18.410","Text":"Now, the final step in this trial balance is to add up all the debits."},{"Start":"02:18.410 ","End":"02:22.110","Text":"This, by the way, is the debit column."},{"Start":"02:22.180 ","End":"02:24.425","Text":"I lost the hitting."},{"Start":"02:24.425 ","End":"02:26.525","Text":"It was on the previous page."},{"Start":"02:26.525 ","End":"02:29.045","Text":"This on the right-hand side is the credit column."},{"Start":"02:29.045 ","End":"02:32.710","Text":"What we then do is we add up all the debits starting from the assets on"},{"Start":"02:32.710 ","End":"02:37.265","Text":"the previous page all the way through assets liabilities to assets and expenses,"},{"Start":"02:37.265 ","End":"02:40.235","Text":"and then everything that\u0027s in the credit column,"},{"Start":"02:40.235 ","End":"02:45.990","Text":"which would be your equity and your liabilities and your income and you total them."},{"Start":"02:45.990 ","End":"02:52.145","Text":"In this case our totals of the debit column come to 48,707 and the credit column 48,707."},{"Start":"02:52.145 ","End":"02:53.645","Text":"If they don\u0027t agree,"},{"Start":"02:53.645 ","End":"02:55.610","Text":"then it means that there has been an error."},{"Start":"02:55.610 ","End":"02:59.570","Text":"Perhaps you\u0027ve put in an amount incorrectly"},{"Start":"02:59.570 ","End":"03:04.235","Text":"or you\u0027ve put in the debit and forgot to post the credit, but there will be an error."},{"Start":"03:04.235 ","End":"03:07.670","Text":"Both of those, the debits and the credits should total."},{"Start":"03:07.670 ","End":"03:10.100","Text":"The reason for that is because you started with"},{"Start":"03:10.100 ","End":"03:13.940","Text":"a balance sheet that balanced and then every journal entry that"},{"Start":"03:13.940 ","End":"03:16.580","Text":"you process there was a debit and a corresponding credit or"},{"Start":"03:16.580 ","End":"03:21.035","Text":"the debits in the journal entry equal the credits in the journal entry."},{"Start":"03:21.035 ","End":"03:24.275","Text":"Now, let\u0027s see where these figures come from."},{"Start":"03:24.275 ","End":"03:27.125","Text":"Let\u0027s start with property, plant, and equipment."},{"Start":"03:27.125 ","End":"03:29.615","Text":"Where did I get this 20,000 from?"},{"Start":"03:29.615 ","End":"03:34.790","Text":"Well, if you have a look at the transactions numbered 1 to 9,"},{"Start":"03:34.790 ","End":"03:39.530","Text":"you will see that none of those transactions had affected property, plant, and equipment."},{"Start":"03:39.530 ","End":"03:46.040","Text":"This thing means that I\u0027m going to simply pick this balance sheet amount, well,"},{"Start":"03:46.040 ","End":"03:53.255","Text":"this balance from the balance sheet at 31 December X1."},{"Start":"03:53.255 ","End":"03:57.500","Text":"We haven\u0027t created a ledger account for property, plant,"},{"Start":"03:57.500 ","End":"04:01.655","Text":"and equipment because it had not been affected by your journal entries."},{"Start":"04:01.655 ","End":"04:05.180","Text":"If you go back to the balance sheet 31st December X1, Let\u0027s do that now."},{"Start":"04:05.180 ","End":"04:11.055","Text":"You\u0027ll see the balance was 20,000 and it remains unchanged at 20,000."},{"Start":"04:11.055 ","End":"04:12.680","Text":"Here we have the balance sheet at"},{"Start":"04:12.680 ","End":"04:18.545","Text":"31st December X1 and we have our property plant and equipment and it was 20,000."},{"Start":"04:18.545 ","End":"04:23.585","Text":"Now the next \u0027\u0027one\u0027\u0027, the loan to the employee of 2,000,"},{"Start":"04:23.585 ","End":"04:26.720","Text":"that account actually did change."},{"Start":"04:26.720 ","End":"04:30.320","Text":"What we need to do is we need to go and have a look at"},{"Start":"04:30.320 ","End":"04:35.360","Text":"that ledger account that we\u0027ve worked with already in Part B."},{"Start":"04:35.360 ","End":"04:40.415","Text":"We pick up the balance at the 31st of the first X2."},{"Start":"04:40.415 ","End":"04:43.654","Text":"Here is the loan to the employee account."},{"Start":"04:43.654 ","End":"04:48.035","Text":"You can see our opening balance at 4,000 was"},{"Start":"04:48.035 ","End":"04:56.325","Text":"the opening balance for the balance sheet at 31 December X1."},{"Start":"04:56.325 ","End":"05:02.680","Text":"Then we adjusted it and it was part of the transaction number 4."},{"Start":"05:02.680 ","End":"05:07.370","Text":"In this adjustment, we had credited this account because"},{"Start":"05:07.370 ","End":"05:11.645","Text":"the employee had part payed his account."},{"Start":"05:11.645 ","End":"05:15.230","Text":"What we do know is we have to add up the debits."},{"Start":"05:15.230 ","End":"05:17.750","Text":"This is now what we call balancing the ledger."},{"Start":"05:17.750 ","End":"05:21.050","Text":"We add up the debits and we add up"},{"Start":"05:21.050 ","End":"05:27.305","Text":"all the credits and then we ask ourselves which one\u0027s bigger and by how much."},{"Start":"05:27.305 ","End":"05:33.900","Text":"4,000 is bigger than 2,000 by an amount of 2,000."},{"Start":"05:33.900 ","End":"05:36.975","Text":"What is bigger? The debit side is bigger."},{"Start":"05:36.975 ","End":"05:40.369","Text":"You can see here we have a debit balance."},{"Start":"05:40.369 ","End":"05:45.800","Text":"This 2,000 is what will appear in the trial balance."},{"Start":"05:45.800 ","End":"05:48.170","Text":"Now we have a look at the accounts receivable."},{"Start":"05:48.170 ","End":"05:52.880","Text":"The accounts receivable in the trial balance we are going to be showing at 9,000."},{"Start":"05:52.880 ","End":"05:57.770","Text":"Let\u0027s go back to the same ledger account at 31st of"},{"Start":"05:57.770 ","End":"06:03.680","Text":"January X2 to see how we got to that debit balance of 9,000."},{"Start":"06:03.680 ","End":"06:08.165","Text":"Now I\u0027ve found my accounts receivable account in my ledger."},{"Start":"06:08.165 ","End":"06:10.610","Text":"What we have to do remember is we add up"},{"Start":"06:10.610 ","End":"06:13.130","Text":"all the debits and we add up all the credits and find out"},{"Start":"06:13.130 ","End":"06:18.585","Text":"which side is bigger and pop that in as our balance."},{"Start":"06:18.585 ","End":"06:20.010","Text":"If you add up our debits,"},{"Start":"06:20.010 ","End":"06:25.110","Text":"8,500+ 4,500, that comes to 13,000."},{"Start":"06:25.110 ","End":"06:26.795","Text":"If we add up all their credits,"},{"Start":"06:26.795 ","End":"06:30.980","Text":"that comes to 4,000, which one\u0027s bigger?"},{"Start":"06:30.980 ","End":"06:34.265","Text":"The debits are bigger. Our balance is going to be a debit balance."},{"Start":"06:34.265 ","End":"06:36.620","Text":"How much bigger? We subtract them."},{"Start":"06:36.620 ","End":"06:42.655","Text":"13,000 - 4,000 is 9,000."},{"Start":"06:42.655 ","End":"06:46.850","Text":"That was where we got the balance for"},{"Start":"06:46.850 ","End":"06:52.505","Text":"our trial balance at 31st of January 20X2. Let\u0027s do another \u0027\u0027one\u0027\u0027."},{"Start":"06:52.505 ","End":"06:55.710","Text":"Cash at bank at 4,260."},{"Start":"06:55.710 ","End":"06:57.480","Text":"How did we do that?"},{"Start":"06:57.480 ","End":"07:03.440","Text":"Again, we go back to the ledger accounts at 31st of January X2,"},{"Start":"07:03.440 ","End":"07:06.020","Text":"and we balanced the cash at bank account and we\u0027ll find"},{"Start":"07:06.020 ","End":"07:09.020","Text":"hopefully that the balance is 4,260."},{"Start":"07:09.020 ","End":"07:12.320","Text":"Here I have found my cash at"},{"Start":"07:12.320 ","End":"07:17.990","Text":"bank account and I have to add up the debits and I have to add up the credits."},{"Start":"07:17.990 ","End":"07:19.955","Text":"Take out a calculator,"},{"Start":"07:19.955 ","End":"07:22.400","Text":"and add up the debits 2,250,"},{"Start":"07:22.400 ","End":"07:27.170","Text":"3,000+ 2,000 +10,500 +"},{"Start":"07:27.170 ","End":"07:34.180","Text":"4,000 and we get 21,750."},{"Start":"07:34.180 ","End":"07:36.685","Text":"Now, add up the credits."},{"Start":"07:36.685 ","End":"07:41.140","Text":"230 plus 13,000 plus 1,500 plus 10 plus"},{"Start":"07:41.140 ","End":"07:48.370","Text":"2,750 and that gives you 17,490."},{"Start":"07:48.370 ","End":"07:51.940","Text":"Which is bigger? The debits are bigger than the credits."},{"Start":"07:51.940 ","End":"07:55.855","Text":"Therefore, we have a debit balance and the difference between the two,"},{"Start":"07:55.855 ","End":"08:05.410","Text":"21,750, there\u0027s 17,490, gives you 4,260."},{"Start":"08:05.410 ","End":"08:08.110","Text":"It is this figure, 4,260,"},{"Start":"08:08.110 ","End":"08:12.669","Text":"debit balance, that we put into our trial balance."},{"Start":"08:12.669 ","End":"08:15.865","Text":"Interest receivable, where does that come from?"},{"Start":"08:15.865 ","End":"08:20.170","Text":"It\u0027s an amount of 7 in the trial balance on the debit side,"},{"Start":"08:20.170 ","End":"08:22.210","Text":"where do we get that one from?"},{"Start":"08:22.210 ","End":"08:26.485","Text":"From the ledger account at 31st of January X2."},{"Start":"08:26.485 ","End":"08:28.270","Text":"Let\u0027s have a look for it."},{"Start":"08:28.270 ","End":"08:30.760","Text":"Here we have our interest receivable account."},{"Start":"08:30.760 ","End":"08:32.650","Text":"We have an opening balance of nil,"},{"Start":"08:32.650 ","End":"08:34.285","Text":"we put in 7."},{"Start":"08:34.285 ","End":"08:37.000","Text":"We don\u0027t have any credits, in fact."},{"Start":"08:37.000 ","End":"08:40.945","Text":"We\u0027ve got debits of 7 and no credits."},{"Start":"08:40.945 ","End":"08:45.355","Text":"The net effect is the debits are bigger than the credits by 7."},{"Start":"08:45.355 ","End":"08:49.044","Text":"The 7 was what goes into our trial balance."},{"Start":"08:49.044 ","End":"08:51.340","Text":"Continuing with our trial balance,"},{"Start":"08:51.340 ","End":"08:54.685","Text":"we\u0027ve now moved into the liability section of the trial balance."},{"Start":"08:54.685 ","End":"08:57.850","Text":"Now we\u0027re looking for the liability ledger accounts."},{"Start":"08:57.850 ","End":"08:59.920","Text":"Let\u0027s start with the first one,"},{"Start":"08:59.920 ","End":"09:02.035","Text":"the loan from the bank."},{"Start":"09:02.035 ","End":"09:04.915","Text":"The answer is 10,500."},{"Start":"09:04.915 ","End":"09:07.720","Text":"Where did we get that from?"},{"Start":"09:07.720 ","End":"09:09.775","Text":"Again, it\u0027s the ledger account."},{"Start":"09:09.775 ","End":"09:14.305","Text":"Let\u0027s go back and find the ledger account and check that is indeed the correct answer."},{"Start":"09:14.305 ","End":"09:16.930","Text":"Here we have the loan from the bank and you"},{"Start":"09:16.930 ","End":"09:19.600","Text":"see we\u0027ve got a debit and a credit going through."},{"Start":"09:19.600 ","End":"09:20.800","Text":"We have got the opening balance,"},{"Start":"09:20.800 ","End":"09:22.285","Text":"which was 12,000,"},{"Start":"09:22.285 ","End":"09:24.430","Text":"and then we debited with 1,500."},{"Start":"09:24.430 ","End":"09:28.375","Text":"The total of our credits is 12,000,"},{"Start":"09:28.375 ","End":"09:33.130","Text":"and the total of the debits is 1,500. Which is bigger?"},{"Start":"09:33.130 ","End":"09:36.040","Text":"The credits are bigger, so we have a credit balance."},{"Start":"09:36.040 ","End":"09:38.410","Text":"How much bigger? Well,"},{"Start":"09:38.410 ","End":"09:42.220","Text":"you subtract the one from the other 12,000 minus 1,500."},{"Start":"09:42.220 ","End":"09:44.695","Text":"That gives you 10,500."},{"Start":"09:44.695 ","End":"09:49.015","Text":"That\u0027s what you see in the trial balance on the credit side."},{"Start":"09:49.015 ","End":"09:51.910","Text":"Next liability is the salaries payable,"},{"Start":"09:51.910 ","End":"09:54.370","Text":"13,200 on the credit side,"},{"Start":"09:54.370 ","End":"09:57.400","Text":"as you can see, it\u0027s on the right-hand column, credit column."},{"Start":"09:57.400 ","End":"10:00.595","Text":"Let\u0027s go and have a look at the balance sheet and"},{"Start":"10:00.595 ","End":"10:04.150","Text":"see if the balance is indeed 13,200 on the right-hand side."},{"Start":"10:04.150 ","End":"10:06.949","Text":"Here is our salaries payable."},{"Start":"10:08.100 ","End":"10:10.540","Text":"You can see on the credit side,"},{"Start":"10:10.540 ","End":"10:13.090","Text":"slightly grayed out, sorry about that,"},{"Start":"10:13.090 ","End":"10:17.650","Text":"but the 13,000 was opening balance and we put in another 13,200."},{"Start":"10:17.650 ","End":"10:23.005","Text":"The total of the credits comes to 26,200."},{"Start":"10:23.005 ","End":"10:26.440","Text":"The debits, we\u0027ve only got the 13,000 debit,"},{"Start":"10:26.440 ","End":"10:30.430","Text":"so we have 13,000. Which side is bigger?"},{"Start":"10:30.430 ","End":"10:32.275","Text":"The credits are bigger than the debits,"},{"Start":"10:32.275 ","End":"10:37.465","Text":"26,200 less 13,000 gives you 13,200."},{"Start":"10:37.465 ","End":"10:40.690","Text":"That\u0027s what you see in the trial balance,"},{"Start":"10:40.690 ","End":"10:43.870","Text":"13,200 on the credit side for salaries payable."},{"Start":"10:43.870 ","End":"10:48.160","Text":"Coming back to the trial balance, corporation tax payable."},{"Start":"10:48.160 ","End":"10:52.720","Text":"We\u0027ve got here corporation tax payable of nil."},{"Start":"10:52.720 ","End":"10:55.540","Text":"That balance comes from the general ledger."},{"Start":"10:55.540 ","End":"10:59.680","Text":"We now find a corporation tax payable account."},{"Start":"10:59.680 ","End":"11:02.410","Text":"Notice that it had an opening balance in the credit side of"},{"Start":"11:02.410 ","End":"11:06.115","Text":"2,750 and that we then debited it with 2,750."},{"Start":"11:06.115 ","End":"11:12.940","Text":"That then means that our credits of 2,750 equal our debits of 2,750."},{"Start":"11:12.940 ","End":"11:16.345","Text":"There\u0027s no difference, so the balances 0."},{"Start":"11:16.345 ","End":"11:18.580","Text":"Coming back to the trial balance,"},{"Start":"11:18.580 ","End":"11:25.165","Text":"interest payable is the last of our liabilities and it has a 10 credits balance."},{"Start":"11:25.165 ","End":"11:27.595","Text":"Let\u0027s go find that account."},{"Start":"11:27.595 ","End":"11:30.220","Text":"Here we have the interest payable account."},{"Start":"11:30.220 ","End":"11:32.965","Text":"You\u0027ll see here that we had an opening balance of 10."},{"Start":"11:32.965 ","End":"11:35.560","Text":"Hope you can see, it was 10 on the credit side,"},{"Start":"11:35.560 ","End":"11:37.525","Text":"it\u0027s slightly grayed out unfortunately."},{"Start":"11:37.525 ","End":"11:42.025","Text":"Then we debited this account with 10 and then we credited this account with 10."},{"Start":"11:42.025 ","End":"11:47.515","Text":"The credits add up to 20 and the debits add up to 10."},{"Start":"11:47.515 ","End":"11:51.415","Text":"The credits are bigger than the debits by how much? By 10."},{"Start":"11:51.415 ","End":"11:58.070","Text":"We have a credit balance of 10 for interest payable."},{"Start":"11:58.590 ","End":"12:03.040","Text":"We\u0027ve finished recording all the liability balances"},{"Start":"12:03.040 ","End":"12:05.875","Text":"and now we move on to all of the equity accounts."},{"Start":"12:05.875 ","End":"12:08.050","Text":"Let\u0027s have a look at the share capital account."},{"Start":"12:08.050 ","End":"12:11.155","Text":"The share capital account was affected by journal entries."},{"Start":"12:11.155 ","End":"12:13.865","Text":"Let\u0027s go and have a look at that ledger account."},{"Start":"12:13.865 ","End":"12:17.360","Text":"Apparently, it has a credit balance of 5,000. Let\u0027s go and check."},{"Start":"12:17.360 ","End":"12:20.320","Text":"Here we have our share capital equity account."},{"Start":"12:20.320 ","End":"12:23.170","Text":"Notice that we start with an opening balance of 2,000 that"},{"Start":"12:23.170 ","End":"12:26.170","Text":"would have come from the balance sheet at 31st December X1."},{"Start":"12:26.170 ","End":"12:32.440","Text":"Then we process a journal entry was number 3 where we put another 3,000 in."},{"Start":"12:32.440 ","End":"12:35.620","Text":"Those were there any entries so we don\u0027t have any debits,"},{"Start":"12:35.620 ","End":"12:38.935","Text":"but we do have credits and they totaled 5,000."},{"Start":"12:38.935 ","End":"12:42.715","Text":"The credits are bigger than the debits by 5,000."},{"Start":"12:42.715 ","End":"12:48.295","Text":"That is why we showed in the trial balance the 5,000 credit."},{"Start":"12:48.295 ","End":"12:52.305","Text":"We then have retained earnings of 4,990."},{"Start":"12:52.305 ","End":"12:55.440","Text":"The retained earnings has remained unchanged."},{"Start":"12:55.440 ","End":"13:00.030","Text":"We haven\u0027t closed off any of our income and expense accounts yet to retained earnings."},{"Start":"13:00.030 ","End":"13:06.130","Text":"This was straight from the balance sheet at 31st of"},{"Start":"13:06.130 ","End":"13:10.000","Text":"December X1 because we haven\u0027t adjusted that"},{"Start":"13:10.000 ","End":"13:14.320","Text":"balanced by any of the journal entries for transactions 1 to 9."},{"Start":"13:14.320 ","End":"13:17.169","Text":"In other words, we had 9 transactions in January,"},{"Start":"13:17.169 ","End":"13:19.870","Text":"none of them affected retained earnings."},{"Start":"13:19.870 ","End":"13:22.840","Text":"Therefore, the retained earnings balance is still the same"},{"Start":"13:22.840 ","End":"13:26.185","Text":"as the balance in the balance sheet at 31st December X1."},{"Start":"13:26.185 ","End":"13:28.480","Text":"Let\u0027s go and check the balance sheet."},{"Start":"13:28.480 ","End":"13:30.850","Text":"Your balance sheet your 31st of December X1."},{"Start":"13:30.850 ","End":"13:34.750","Text":"The other account that was unchanged is property, plant, and equipment."},{"Start":"13:34.750 ","End":"13:41.215","Text":"The other one that is unchanged as our retained earnings of 4,990."},{"Start":"13:41.215 ","End":"13:44.695","Text":"This is the trial balance continued."},{"Start":"13:44.695 ","End":"13:47.470","Text":"We\u0027re now moving on to income."},{"Start":"13:47.470 ","End":"13:49.750","Text":"Let\u0027s find the fee income account."},{"Start":"13:49.750 ","End":"13:55.070","Text":"15,000 is the credit balance that came from our ledger account."},{"Start":"13:55.350 ","End":"13:58.570","Text":"Here is our fee income account."},{"Start":"13:58.570 ","End":"14:01.390","Text":"Remember the opening balance for income and expenses"},{"Start":"14:01.390 ","End":"14:05.020","Text":"is nil when it\u0027s the beginning of the financial year,"},{"Start":"14:05.020 ","End":"14:09.610","Text":"so that was nil, and then we put in 15,000 and that was it."},{"Start":"14:09.610 ","End":"14:14.185","Text":"We didn\u0027t have any debits and we had a credit of 15,000."},{"Start":"14:14.185 ","End":"14:18.145","Text":"The credits exceed the debits for 15,000,"},{"Start":"14:18.145 ","End":"14:21.205","Text":"we have a 15,000 balance,"},{"Start":"14:21.205 ","End":"14:26.200","Text":"which is a credit balance because income has a credit balance."},{"Start":"14:26.200 ","End":"14:30.565","Text":"Let\u0027s look at the second income account as interest income."},{"Start":"14:30.565 ","End":"14:32.635","Text":"We\u0027re going to credit balance of 7."},{"Start":"14:32.635 ","End":"14:34.945","Text":"Here\u0027s our interest income account."},{"Start":"14:34.945 ","End":"14:37.180","Text":"Opening balance for income was obviously"},{"Start":"14:37.180 ","End":"14:40.435","Text":"0 at the beginning of the year first the first X2,"},{"Start":"14:40.435 ","End":"14:42.175","Text":"and we only put in 7."},{"Start":"14:42.175 ","End":"14:45.175","Text":"There were no debits so credits come to 7."},{"Start":"14:45.175 ","End":"14:46.525","Text":"Our debits come to nothing."},{"Start":"14:46.525 ","End":"14:49.060","Text":"Our credits exceed our debits by 7,"},{"Start":"14:49.060 ","End":"14:51.880","Text":"so we have a 7 credit balance."},{"Start":"14:51.880 ","End":"14:56.109","Text":"Now let\u0027s look at our expenses."},{"Start":"14:56.109 ","End":"14:57.460","Text":"We finished dealing with income,"},{"Start":"14:57.460 ","End":"14:59.245","Text":"let\u0027s look at these expenses."},{"Start":"14:59.245 ","End":"15:02.440","Text":"Cleaning expense is 230."},{"Start":"15:02.440 ","End":"15:05.980","Text":"Here we have our cleaning expense."},{"Start":"15:05.980 ","End":"15:08.155","Text":"The opening balance was nil."},{"Start":"15:08.155 ","End":"15:13.225","Text":"We put in 230, so our debits add up to 230,"},{"Start":"15:13.225 ","End":"15:15.190","Text":"and our credits, there weren\u0027t any."},{"Start":"15:15.190 ","End":"15:18.430","Text":"So our debit succeeds our credits by 230."},{"Start":"15:18.430 ","End":"15:22.015","Text":"So our balance in the trial balance was 230."},{"Start":"15:22.015 ","End":"15:27.625","Text":"The second expense account was our salaries expense for 13,200."},{"Start":"15:27.625 ","End":"15:30.250","Text":"Here\u0027s our salaries expense."},{"Start":"15:30.250 ","End":"15:32.590","Text":"The opening balance was no because it\u0027s the first day of"},{"Start":"15:32.590 ","End":"15:35.590","Text":"the year and then we put in 13,200."},{"Start":"15:35.590 ","End":"15:37.330","Text":"We didn\u0027t put anything under the credit column."},{"Start":"15:37.330 ","End":"15:41.695","Text":"Our debits come to 13,200 and our credits come to nothing."},{"Start":"15:41.695 ","End":"15:46.135","Text":"Our debits exceed our credits, therefore by 13,200."},{"Start":"15:46.135 ","End":"15:49.165","Text":"That\u0027s why it has a debit balance."},{"Start":"15:49.165 ","End":"15:54.940","Text":"Then lastly, our interest expense has a debit balance of 10."},{"Start":"15:54.940 ","End":"15:57.580","Text":"It\u0027s fine that in our ledger account."},{"Start":"15:57.580 ","End":"16:00.475","Text":"In case, here we have interest expense."},{"Start":"16:00.475 ","End":"16:02.995","Text":"Opening balance was nil, we put in 10."},{"Start":"16:02.995 ","End":"16:05.620","Text":"Therefore, our debits add up to 10,"},{"Start":"16:05.620 ","End":"16:08.215","Text":"our credits, we don\u0027t have any in this case."},{"Start":"16:08.215 ","End":"16:10.720","Text":"So our debits exceed our credits by 10."},{"Start":"16:10.720 ","End":"16:15.680","Text":"That\u0027s where we got the balance on the debit side of 10."},{"Start":"16:15.680 ","End":"16:19.455","Text":"Now you\u0027ll notice there are totals at the bottom of the trial balance."},{"Start":"16:19.455 ","End":"16:22.860","Text":"There\u0027s a total of the debits, 48,707."},{"Start":"16:22.860 ","End":"16:25.590","Text":"There\u0027s a total of the credits, 48,707."},{"Start":"16:25.590 ","End":"16:28.590","Text":"Now, the debits would be"},{"Start":"16:28.590 ","End":"16:36.075","Text":"the asset balances and the expense balances added together, you just put EXP."},{"Start":"16:36.075 ","End":"16:42.415","Text":"The credit balances would be all of the liabilities"},{"Start":"16:42.415 ","End":"16:48.895","Text":"plus owner\u0027s equity plus income balances,"},{"Start":"16:48.895 ","End":"16:51.790","Text":"and they must equal one another."},{"Start":"16:51.790 ","End":"16:54.070","Text":"Now, there is another way to calculate"},{"Start":"16:54.070 ","End":"16:58.075","Text":"the trial balance figures at 31st of January 20X2,"},{"Start":"16:58.075 ","End":"17:04.390","Text":"assuming you had not extracted the ledger accounts."},{"Start":"17:04.390 ","End":"17:06.460","Text":"If you hadn\u0027t had to do part B,"},{"Start":"17:06.460 ","End":"17:09.235","Text":"which was posting the journal entries to the ledger,"},{"Start":"17:09.235 ","End":"17:14.620","Text":"how would you calculate the trial balances at 31st of January 20X2?"},{"Start":"17:14.620 ","End":"17:21.400","Text":"Well, all you would do is you would start with the balance sheet at 31st of DecemberX1,"},{"Start":"17:21.480 ","End":"17:24.880","Text":"and then you would adjust it so you would add"},{"Start":"17:24.880 ","End":"17:27.595","Text":"to those balances or subtract from those balances"},{"Start":"17:27.595 ","End":"17:34.185","Text":"based on what you had recorded in your journal entries in part A,"},{"Start":"17:34.185 ","End":"17:38.160","Text":"and you could get them to the balances that you"},{"Start":"17:38.160 ","End":"17:42.465","Text":"should have in the trial balance at 31st of December X2."},{"Start":"17:42.465 ","End":"17:46.870","Text":"So for example, this is the start of the trial balance."},{"Start":"17:46.870 ","End":"17:49.375","Text":"I\u0027ve got the asset balances listed."},{"Start":"17:49.375 ","End":"17:51.220","Text":"Now, these balances 20,000,"},{"Start":"17:51.220 ","End":"17:52.300","Text":"4,000, 8,500,"},{"Start":"17:52.300 ","End":"17:57.310","Text":"and 2,250, are the balances at the 31st of December X1."},{"Start":"17:57.310 ","End":"17:59.620","Text":"So as I say, that is from the balance sheet at"},{"Start":"17:59.620 ","End":"18:03.475","Text":"31st December X1 that was given to these balances here,"},{"Start":"18:03.475 ","End":"18:05.935","Text":"we\u0027re given to you in that balance sheet."},{"Start":"18:05.935 ","End":"18:09.700","Text":"Let\u0027s have a look; 20,000,"},{"Start":"18:09.700 ","End":"18:13.255","Text":"4,000, 8,500, and 2,250."},{"Start":"18:13.255 ","End":"18:17.890","Text":"All right, so here are all the asset balances it was the 20,000 for PPE,"},{"Start":"18:17.890 ","End":"18:20.635","Text":"4,000, 8,500, and 2,250."},{"Start":"18:20.635 ","End":"18:22.555","Text":"Those are the 4 balances."},{"Start":"18:22.555 ","End":"18:25.060","Text":"Don\u0027t worry about the 20,000, 14,750,"},{"Start":"18:25.060 ","End":"18:28.630","Text":"and the 34,750 because those are just subtotals and totals."},{"Start":"18:28.630 ","End":"18:30.220","Text":"Those are the 4 balances."},{"Start":"18:30.220 ","End":"18:35.695","Text":"So we\u0027re simply picking up the balances per the balance sheet at 31st December X1,"},{"Start":"18:35.695 ","End":"18:41.560","Text":"and we populate the trial balance at 31st December X1 with these balances first."},{"Start":"18:41.560 ","End":"18:44.050","Text":"We will do the same thing with our non-current liabilities,"},{"Start":"18:44.050 ","End":"18:47.500","Text":"we\u0027ll put the loan from the bank of 12,000 and salaries payable 13,000,"},{"Start":"18:47.500 ","End":"18:49.240","Text":"2,750, and the 10."},{"Start":"18:49.240 ","End":"18:52.465","Text":"We\u0027ll put that in for liabilities,"},{"Start":"18:52.465 ","End":"18:54.790","Text":"our shareholders\u0027 equity made up of"},{"Start":"18:54.790 ","End":"18:58.180","Text":"the share capital and the 4,990 for retained earnings."},{"Start":"18:58.180 ","End":"19:00.415","Text":"We\u0027ll put those into the trial balance as well."},{"Start":"19:00.415 ","End":"19:04.420","Text":"Okay. So there are the asset balances"},{"Start":"19:04.420 ","End":"19:08.755","Text":"that we looked at a moment ago from the balance sheet of 31st December X1."},{"Start":"19:08.755 ","End":"19:13.975","Text":"Just for interest, I\u0027m just going to scroll down a little bit,"},{"Start":"19:13.975 ","End":"19:17.844","Text":"and you see we also have an interest receivable account,"},{"Start":"19:17.844 ","End":"19:20.590","Text":"but we didn\u0027t pick it up in the balance sheet."},{"Start":"19:20.590 ","End":"19:22.930","Text":"We only pick this up from our journals because"},{"Start":"19:22.930 ","End":"19:28.135","Text":"this account did not exist at the 31st of December X1."},{"Start":"19:28.135 ","End":"19:32.335","Text":"Going to scroll down further to show you the liability balances."},{"Start":"19:32.335 ","End":"19:34.120","Text":"Here are the liability balances."},{"Start":"19:34.120 ","End":"19:35.605","Text":"We got the loan from the bank."},{"Start":"19:35.605 ","End":"19:38.830","Text":"Salaries payable, the 2,750 corporation tax payable,"},{"Start":"19:38.830 ","End":"19:40.360","Text":"and interest payable of 10."},{"Start":"19:40.360 ","End":"19:44.380","Text":"Then we have our share capital of 2,000 and our retained earnings of 4,990."},{"Start":"19:44.380 ","End":"19:48.490","Text":"I\u0027m going to scroll down a little bit further."},{"Start":"19:48.800 ","End":"19:51.690","Text":"Before I scroll down further."},{"Start":"19:51.690 ","End":"19:57.555","Text":"These are the figures that came directly from the balance sheet at 31st December X1."},{"Start":"19:57.555 ","End":"20:00.450","Text":"Then we see we\u0027ve got income. All right?"},{"Start":"20:00.450 ","End":"20:03.650","Text":"But we don\u0027t have anything in the income accounts,"},{"Start":"20:03.650 ","End":"20:08.800","Text":"because those were closed off to retained earnings at the end of December X1,"},{"Start":"20:08.800 ","End":"20:12.010","Text":"so there would have 0 balances."},{"Start":"20:12.010 ","End":"20:15.775","Text":"The same applies to the expense accounts."},{"Start":"20:15.775 ","End":"20:18.130","Text":"Here are the expense accounts you see here."},{"Start":"20:18.130 ","End":"20:20.890","Text":"We\u0027ve got 3 expense accounts that we know of,"},{"Start":"20:20.890 ","End":"20:24.700","Text":"and there were no balances obviously because income and"},{"Start":"20:24.700 ","End":"20:28.435","Text":"expenses always get closed off at the end of a financial year."},{"Start":"20:28.435 ","End":"20:33.790","Text":"So those would all have had 0 balances at the beginning of X2."},{"Start":"20:33.790 ","End":"20:39.250","Text":"We just make sure by adding up the debits and adding up"},{"Start":"20:39.250 ","End":"20:44.380","Text":"the credits that we\u0027re starting with a correct opening trial balance."},{"Start":"20:44.380 ","End":"20:46.660","Text":"The next thing we do is that we\u0027re going to"},{"Start":"20:46.660 ","End":"20:50.650","Text":"process the adjustments according to the journal entries."},{"Start":"20:50.650 ","End":"20:53.065","Text":"You can see here for property, plant, and equipment,"},{"Start":"20:53.065 ","End":"20:56.800","Text":"we didn\u0027t have any journals that affect property, plant, and equipment."},{"Start":"20:56.800 ","End":"21:00.100","Text":"So we take the opening balance of 20,000,"},{"Start":"21:00.100 ","End":"21:04.165","Text":"no adjustments that gives us the closing trial balance,"},{"Start":"21:04.165 ","End":"21:07.330","Text":"balance at 31st of January X2."},{"Start":"21:07.330 ","End":"21:09.550","Text":"Now we look at the loan to the employee."},{"Start":"21:09.550 ","End":"21:11.830","Text":"We have an opening balance of 4,000,"},{"Start":"21:11.830 ","End":"21:15.610","Text":"but we have an adjustment which was minus 2,000,"},{"Start":"21:15.610 ","End":"21:18.925","Text":"and I say it was minus 2,000 because according to the journal entry,"},{"Start":"21:18.925 ","End":"21:20.544","Text":"it was a credit."},{"Start":"21:20.544 ","End":"21:22.615","Text":"We credited this account."},{"Start":"21:22.615 ","End":"21:24.760","Text":"Remember, assets have a debit balance."},{"Start":"21:24.760 ","End":"21:26.500","Text":"So if you credited that account,"},{"Start":"21:26.500 ","End":"21:28.705","Text":"it means you\u0027re subtracting that amount."},{"Start":"21:28.705 ","End":"21:34.060","Text":"Now let\u0027s see this journal entry to see where I got that minus 2,000 from."},{"Start":"21:34.060 ","End":"21:37.030","Text":"If you go to your journal transaction number 4 (a),"},{"Start":"21:37.030 ","End":"21:41.380","Text":"you\u0027ll see that we adjusted the loan to employee account."},{"Start":"21:41.380 ","End":"21:45.980","Text":"We adjusted it by 2,000 on the credit side."},{"Start":"21:46.380 ","End":"21:48.580","Text":"That\u0027s where I got it from."},{"Start":"21:48.580 ","End":"21:50.995","Text":"It was journal 4 (a)."},{"Start":"21:50.995 ","End":"21:54.220","Text":"I won\u0027t go through all of the journal adjustments with you"},{"Start":"21:54.220 ","End":"21:57.580","Text":"because it will just take too long and you\u0027ll get the hang of this soon enough."},{"Start":"21:57.580 ","End":"21:59.290","Text":"But let\u0027s do 1 more."},{"Start":"21:59.290 ","End":"22:02.845","Text":"So accounts receivable, the opening balance was 8,500"},{"Start":"22:02.845 ","End":"22:08.485","Text":"and the journal adjustments are to increase that account,"},{"Start":"22:08.485 ","End":"22:11.440","Text":"add 4,500 and I say increase because assets have"},{"Start":"22:11.440 ","End":"22:14.155","Text":"a debit balance and according to the journal entry,"},{"Start":"22:14.155 ","End":"22:17.380","Text":"we had to debit it, so that\u0027s increasing the asset."},{"Start":"22:17.380 ","End":"22:19.750","Text":"Then we\u0027re going to subtract the 4,000."},{"Start":"22:19.750 ","End":"22:23.200","Text":"The reason I say that is because the journal entry said we must credit it."},{"Start":"22:23.200 ","End":"22:25.885","Text":"But now let\u0027s go and find these 2 journal entries;"},{"Start":"22:25.885 ","End":"22:29.140","Text":"was Journal 4 (a)."},{"Start":"22:29.140 ","End":"22:32.860","Text":"Let\u0027s find that 4,500 and the minus 4,000."},{"Start":"22:32.860 ","End":"22:35.260","Text":"Which journals were those?"},{"Start":"22:35.260 ","End":"22:38.680","Text":"In transaction Number 5,"},{"Start":"22:38.680 ","End":"22:44.110","Text":"I can see accounts receivable had to be debited with 4,500."},{"Start":"22:44.110 ","End":"22:49.075","Text":"So that was Transaction 5, debiting was 4,500."},{"Start":"22:49.075 ","End":"22:53.815","Text":"Then in transaction Number 6,"},{"Start":"22:53.815 ","End":"22:59.620","Text":"the accounts receivable was credited with 4,000."},{"Start":"22:59.620 ","End":"23:03.200","Text":"That would\u0027ve been subtract 4,000,"},{"Start":"23:04.320 ","End":"23:09.460","Text":"plus 4,500 was Journal 5,"},{"Start":"23:09.460 ","End":"23:13.345","Text":"and that minus 4,000 was Journal 6."},{"Start":"23:13.345 ","End":"23:21.790","Text":"So 8,500 plus 4,500 is 13,000 less 4,000 gives you the 9,000."},{"Start":"23:21.790 ","End":"23:27.235","Text":"Loan to the employee was 4,000 minus 2,000 gives you 2,000."},{"Start":"23:27.235 ","End":"23:33.370","Text":"Okay. So I won\u0027t go through each of the adjustments because it will just take too long,"},{"Start":"23:33.370 ","End":"23:36.775","Text":"but you can work through each 1 and just label each 1 if you like,"},{"Start":"23:36.775 ","End":"23:41.740","Text":"to make sure that you are happy that you know where these adjustments came from."},{"Start":"23:41.740 ","End":"23:45.100","Text":"Then what I suggest you do is as you"},{"Start":"23:45.100 ","End":"23:49.795","Text":"find which journal entry was responsible for each of these adjustments,"},{"Start":"23:49.795 ","End":"23:54.000","Text":"mark the journal off as well so that you know,"},{"Start":"23:54.000 ","End":"23:57.030","Text":"you\u0027ve accounted for all of the journal debits and"},{"Start":"23:57.030 ","End":"24:00.710","Text":"all of the journal credits in your trial balance."},{"Start":"24:00.710 ","End":"24:06.010","Text":"All right, so you can see many adjustments for bank was the worst account to work out."},{"Start":"24:06.010 ","End":"24:08.860","Text":"We need 1 adjustment for interest receivable,"},{"Start":"24:08.860 ","End":"24:11.620","Text":"liabilities We had an adjustment for the loan from"},{"Start":"24:11.620 ","End":"24:14.935","Text":"the bank with 2 adjustments to the salaries payable account."},{"Start":"24:14.935 ","End":"24:18.235","Text":"We had 1 adjustment for corporation tax payable,"},{"Start":"24:18.235 ","End":"24:21.205","Text":"2 adjustments for the interest payable."},{"Start":"24:21.205 ","End":"24:25.795","Text":"The equity, we adjusted the share capital is only 1 entry."},{"Start":"24:25.795 ","End":"24:28.960","Text":"We haven\u0027t done anything to retained earnings."},{"Start":"24:28.960 ","End":"24:31.705","Text":"The fee income we put through 1 adjustment,"},{"Start":"24:31.705 ","End":"24:33.730","Text":"the expenses we put through 1 adjustment."},{"Start":"24:33.730 ","End":"24:35.935","Text":"Salaries expense put through 1 adjustment,"},{"Start":"24:35.935 ","End":"24:38.709","Text":"Interest expense put through 1 adjustment."},{"Start":"24:38.709 ","End":"24:45.880","Text":"Then what you do is you adjust the opening balance with a debit or credit balance."},{"Start":"24:45.880 ","End":"24:50.560","Text":"You just put these journal adjustments in the general adjustments column,"},{"Start":"24:50.560 ","End":"24:52.690","Text":"and you get to the closing balance."},{"Start":"24:52.690 ","End":"24:55.990","Text":"Just remember, the left-hand side is the debit,"},{"Start":"24:55.990 ","End":"24:57.835","Text":"the right-hand side is the credit."},{"Start":"24:57.835 ","End":"25:01.540","Text":"It was the opening trial balance 31st December X1,"},{"Start":"25:01.540 ","End":"25:07.345","Text":"and the closing trial balance 31st of the first X2 is debit credit."},{"Start":"25:07.345 ","End":"25:09.910","Text":"Then the final thing that you do,"},{"Start":"25:09.910 ","End":"25:15.130","Text":"is you simply total the debits and total the credits,"},{"Start":"25:15.130 ","End":"25:17.740","Text":"and that\u0027s just to make sure that you haven\u0027t"},{"Start":"25:17.740 ","End":"25:21.780","Text":"made a mistake in putting through the adjustments,"},{"Start":"25:21.780 ","End":"25:24.450","Text":"or perhaps you might have made a mistake in capturing"},{"Start":"25:24.450 ","End":"25:28.070","Text":"the wrong opening balance in the opening trial balance."},{"Start":"25:28.070 ","End":"25:30.985","Text":"Okay, so that is how you extract a trial balance."},{"Start":"25:30.985 ","End":"25:33.685","Text":"Typically in real life,"},{"Start":"25:33.685 ","End":"25:37.930","Text":"your trial balance gets extracted from your ledger."},{"Start":"25:37.930 ","End":"25:43.000","Text":"You would record your journals, like in part A."},{"Start":"25:43.000 ","End":"25:47.185","Text":"You would impose those journals to the ledger In part B."},{"Start":"25:47.185 ","End":"25:51.055","Text":"Then you balance your ledger and all of those balances"},{"Start":"25:51.055 ","End":"25:55.974","Text":"simply get extracted and they populate your trial balance."},{"Start":"25:55.974 ","End":"25:57.925","Text":"Doing it this way,"},{"Start":"25:57.925 ","End":"26:00.400","Text":"starting with the opening trial balance and"},{"Start":"26:00.400 ","End":"26:02.950","Text":"then putting through the journal adjustments in your trial balance."},{"Start":"26:02.950 ","End":"26:07.135","Text":"You would only ever do that in an exam situation if you had not been"},{"Start":"26:07.135 ","End":"26:13.000","Text":"asked to balance or post the journal to the ledger and then balance your ledger account,"},{"Start":"26:13.000 ","End":"26:16.405","Text":"you would do it this way under those circumstances."},{"Start":"26:16.405 ","End":"26:21.460","Text":"Now the next step is to move on to part D and E,"},{"Start":"26:21.460 ","End":"26:27.050","Text":"which was simply to extract your financial statements."}],"ID":28535},{"Watched":false,"Name":"Exercise 1 Part d - The income statement","Duration":"5m 8s","ChapterTopicVideoID":26326,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.680 ","End":"00:03.765","Text":"Now part d, the income statement."},{"Start":"00:03.765 ","End":"00:05.490","Text":"Now for the income statement,"},{"Start":"00:05.490 ","End":"00:07.200","Text":"what we need to know,"},{"Start":"00:07.200 ","End":"00:12.270","Text":"what are our income items and what are our expense items."},{"Start":"00:12.270 ","End":"00:15.300","Text":"You will find these in your trial balance."},{"Start":"00:15.300 ","End":"00:22.020","Text":"Now, we are providing the income statement for the month ended 31st of January 20X2."},{"Start":"00:22.020 ","End":"00:28.915","Text":"This means we need the trial balance at 31st of January 20X2."},{"Start":"00:28.915 ","End":"00:33.950","Text":"Something else I wanted to point out is that an income statement covers an entire period."},{"Start":"00:33.950 ","End":"00:36.200","Text":"In this case, we\u0027re doing it for 1 month."},{"Start":"00:36.200 ","End":"00:39.245","Text":"Typically, an income statement is done for an entire year,"},{"Start":"00:39.245 ","End":"00:43.070","Text":"or a 6 monthly or perhaps even a quarterly income statement."},{"Start":"00:43.070 ","End":"00:45.945","Text":"But in this case, we\u0027re just doing it for the 1 month."},{"Start":"00:45.945 ","End":"00:50.000","Text":"We need the trial balance of 31st of January 20X2,"},{"Start":"00:50.000 ","End":"00:54.380","Text":"and we did that in part c. Let\u0027s go and have a look at our trial balance again at"},{"Start":"00:54.380 ","End":"00:59.599","Text":"31st of January 20X2 to find our income and expense items."},{"Start":"00:59.599 ","End":"01:06.410","Text":"In part c, we extracted the trial balance at 31st of January 20X2."},{"Start":"01:06.410 ","End":"01:08.645","Text":"Now what we\u0027re looking for in order to draw up"},{"Start":"01:08.645 ","End":"01:12.635","Text":"our income statement are the income and expense items."},{"Start":"01:12.635 ","End":"01:16.220","Text":"Now, remember our trial balance has a section for all 5 items."},{"Start":"01:16.220 ","End":"01:20.135","Text":"We\u0027ve got assets. Now they are not relevant to the income statement."},{"Start":"01:20.135 ","End":"01:24.815","Text":"Liabilities, they\u0027re also not relevant to our income statement, and equity."},{"Start":"01:24.815 ","End":"01:28.025","Text":"They\u0027re also not relevant to our income statement."},{"Start":"01:28.025 ","End":"01:30.950","Text":"However, we continue onto the next page of"},{"Start":"01:30.950 ","End":"01:34.895","Text":"our trial balance and in the continuation of the trial balance,"},{"Start":"01:34.895 ","End":"01:38.000","Text":"you find the income and the expenses."},{"Start":"01:38.000 ","End":"01:44.375","Text":"In this example, we have 2 income accounts and we have 3 expenses,"},{"Start":"01:44.375 ","End":"01:46.780","Text":"a very simple set of affairs."},{"Start":"01:46.780 ","End":"01:49.790","Text":"It\u0027s just these income and expense accounts,"},{"Start":"01:49.790 ","End":"01:53.555","Text":"5 of them, which are going to appear in our income statement."},{"Start":"01:53.555 ","End":"01:57.110","Text":"Here is our income statement all completely prepared for us,"},{"Start":"01:57.110 ","End":"02:00.840","Text":"but let\u0027s work through it to see where everything came from."},{"Start":"02:01.330 ","End":"02:06.875","Text":"We have a heading for income and we have a heading for expenses."},{"Start":"02:06.875 ","End":"02:10.625","Text":"Now, there was only 1 item under income,"},{"Start":"02:10.625 ","End":"02:12.050","Text":"that\u0027s your fee income."},{"Start":"02:12.050 ","End":"02:17.885","Text":"However, we only have 1 income item under the income heading."},{"Start":"02:17.885 ","End":"02:22.835","Text":"The other item of income is shown at the bottom here."},{"Start":"02:22.835 ","End":"02:26.480","Text":"The reason for this is that in our income statement,"},{"Start":"02:26.480 ","End":"02:31.740","Text":"we would start with our main income or operational income."},{"Start":"02:31.740 ","End":"02:33.770","Text":"What is our main business?"},{"Start":"02:33.770 ","End":"02:35.090","Text":"In this particular case,"},{"Start":"02:35.090 ","End":"02:36.920","Text":"we are a service provider,"},{"Start":"02:36.920 ","End":"02:38.990","Text":"so we are making fee income."},{"Start":"02:38.990 ","End":"02:41.060","Text":"That\u0027s our operational income."},{"Start":"02:41.060 ","End":"02:43.460","Text":"This on the other hand, the interest income,"},{"Start":"02:43.460 ","End":"02:45.425","Text":"is our financing income."},{"Start":"02:45.425 ","End":"02:47.990","Text":"We like to separate them."},{"Start":"02:47.990 ","End":"02:54.455","Text":"It gives our users more useful information to have them separated."},{"Start":"02:54.455 ","End":"02:56.690","Text":"Now if you look under the expenses,"},{"Start":"02:56.690 ","End":"02:58.960","Text":"you will see similarly,"},{"Start":"02:58.960 ","End":"03:02.280","Text":"that we only have 2 expenses, whereas we,"},{"Start":"03:02.280 ","End":"03:06.255","Text":"if you recall, had 3 expenses in the trial balance."},{"Start":"03:06.255 ","End":"03:09.215","Text":"So the third expense was the interest expense."},{"Start":"03:09.215 ","End":"03:14.760","Text":"This split is the same principle as how we split out income."},{"Start":"03:14.760 ","End":"03:20.790","Text":"Our 2 expenses are our operating expenses"},{"Start":"03:20.790 ","End":"03:27.665","Text":"and the interest expense at the bottom is our financing expense."},{"Start":"03:27.665 ","End":"03:33.500","Text":"Once we had our operational income and our operating expenses separated,"},{"Start":"03:33.500 ","End":"03:35.755","Text":"we subtract the 1 from the other."},{"Start":"03:35.755 ","End":"03:42.380","Text":"We\u0027ve got 15,000 operating income and we\u0027ve got 230 and 13,200 operating expenses."},{"Start":"03:42.380 ","End":"03:47.690","Text":"We subtract that from the income and we get our operating profit."},{"Start":"03:47.690 ","End":"03:54.455","Text":"We\u0027ve made a profit of 1,570 before taking into account financing income and expenses."},{"Start":"03:54.455 ","End":"03:57.800","Text":"We then subtract the financing expense and add"},{"Start":"03:57.800 ","End":"04:05.775","Text":"our incidental financing income and we get to our profit for the period of 1,567."},{"Start":"04:05.775 ","End":"04:09.420","Text":"Now just one other thing I\u0027d like to point out,"},{"Start":"04:09.420 ","End":"04:16.115","Text":"and that is income heading and the expense heading is not compulsory."},{"Start":"04:16.115 ","End":"04:17.630","Text":"It\u0027s nice to see,"},{"Start":"04:17.630 ","End":"04:21.280","Text":"but it\u0027s not a compulsory set of headings."},{"Start":"04:21.280 ","End":"04:23.180","Text":"That\u0027s the income statement."},{"Start":"04:23.180 ","End":"04:26.150","Text":"It\u0027s simply reorganization of"},{"Start":"04:26.150 ","End":"04:30.140","Text":"the income and expense items that you saw on the trial balance."},{"Start":"04:30.140 ","End":"04:33.530","Text":"What we\u0027re trying to do by presenting it in a slightly different format is"},{"Start":"04:33.530 ","End":"04:36.890","Text":"we\u0027re trying to give additional information to our users."},{"Start":"04:36.890 ","End":"04:39.875","Text":"What is the additional information that we have provided them?"},{"Start":"04:39.875 ","End":"04:42.410","Text":"We worked out the profit for the period,"},{"Start":"04:42.410 ","End":"04:46.190","Text":"but we\u0027ve also separated out the financing income and financing"},{"Start":"04:46.190 ","End":"04:50.420","Text":"expenses so we\u0027ve also given them the operating profit."},{"Start":"04:50.420 ","End":"04:52.265","Text":"That\u0027s just the pure business."},{"Start":"04:52.265 ","End":"04:54.680","Text":"Having a look at the pure business, what do we make?"},{"Start":"04:54.680 ","End":"04:56.545","Text":"Do we make a profit or a loss,"},{"Start":"04:56.545 ","End":"05:00.170","Text":"so that excludes any issues regarding how we financed"},{"Start":"05:00.170 ","End":"05:04.740","Text":"it or how we earned incidental financing income."},{"Start":"05:05.410 ","End":"05:08.520","Text":"That\u0027s part d done."}],"ID":28519},{"Watched":false,"Name":"Exercise 1 Part e - The balance sheet","Duration":"13m 3s","ChapterTopicVideoID":26327,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:03.225","Text":"Part e, the balance sheet."},{"Start":"00:03.225 ","End":"00:05.190","Text":"Now, when we draw up a balance sheet,"},{"Start":"00:05.190 ","End":"00:09.975","Text":"what we\u0027re going to be showing our users is the assets,"},{"Start":"00:09.975 ","End":"00:13.770","Text":"the liabilities, and owner\u0027s equity."},{"Start":"00:13.770 ","End":"00:15.420","Text":"There\u0027s 3 different elements."},{"Start":"00:15.420 ","End":"00:17.385","Text":"Remember, when we did part d,"},{"Start":"00:17.385 ","End":"00:20.404","Text":"income statement, we showed income and expenses."},{"Start":"00:20.404 ","End":"00:22.950","Text":"Balance sheet we\u0027re showing 3 other elements,"},{"Start":"00:22.950 ","End":"00:26.019","Text":"assets, liabilities, and equity."},{"Start":"00:26.240 ","End":"00:29.160","Text":"For them, we\u0027re going to go back to our trial balance,"},{"Start":"00:29.160 ","End":"00:30.780","Text":"and we\u0027ll pick up the assets,"},{"Start":"00:30.780 ","End":"00:33.495","Text":"liabilities, and owners equity."},{"Start":"00:33.495 ","End":"00:37.770","Text":"Here was our trial balance at 31st of January 20X2."},{"Start":"00:37.770 ","End":"00:41.560","Text":"This was Part c, we have debit and credit columns."},{"Start":"00:41.560 ","End":"00:44.405","Text":"Here, we have our assets,"},{"Start":"00:44.405 ","End":"00:46.490","Text":"and we have liabilities,"},{"Start":"00:46.490 ","End":"00:48.274","Text":"and we have equity."},{"Start":"00:48.274 ","End":"00:51.695","Text":"Going back to the assets,"},{"Start":"00:51.695 ","End":"00:54.030","Text":"we can see that we\u0027ve got 1, 2,"},{"Start":"00:54.030 ","End":"00:56.435","Text":"3, 4, 5 assets."},{"Start":"00:56.435 ","End":"00:58.456","Text":"In terms of liabilities, we\u0027ve got 1,"},{"Start":"00:58.456 ","End":"01:00.985","Text":"2, 3, 4 liabilities."},{"Start":"01:00.985 ","End":"01:03.870","Text":"Although, I\u0027m going to put down here 4 liabilities."},{"Start":"01:03.870 ","End":"01:06.875","Text":"We have 4 liabilities, but where the balance is 0,"},{"Start":"01:06.875 ","End":"01:09.755","Text":"you wouldn\u0027t show that in your balance sheet."},{"Start":"01:09.755 ","End":"01:11.960","Text":"Then, in terms of equity,"},{"Start":"01:11.960 ","End":"01:14.599","Text":"we have 2 equity accounts,"},{"Start":"01:14.599 ","End":"01:17.284","Text":"2 owner\u0027s equity accounts."},{"Start":"01:17.284 ","End":"01:22.760","Text":"Now, what we\u0027re going to do with these 3 sets of elements, assets, liabilities,"},{"Start":"01:22.760 ","End":"01:28.130","Text":"and equity, is we\u0027re going to rearrange them in a way that adds value for our users."},{"Start":"01:28.130 ","End":"01:33.080","Text":"Instead of just simply listing them in no apparent order, first of all,"},{"Start":"01:33.080 ","End":"01:35.405","Text":"in terms of our assets and our liabilities,"},{"Start":"01:35.405 ","End":"01:43.340","Text":"we will separate our assets into non-current assets and current assets."},{"Start":"01:43.340 ","End":"01:46.520","Text":"The liabilities, we\u0027re going to separate into"},{"Start":"01:46.520 ","End":"01:51.050","Text":"non-current liabilities and current liabilities."},{"Start":"01:51.050 ","End":"01:55.160","Text":"We will follow the selection that was given to"},{"Start":"01:55.160 ","End":"01:59.210","Text":"us in terms of the balance sheet at 31st December X1."},{"Start":"01:59.210 ","End":"02:04.370","Text":"Whatever asset hitting was used for particular asset,"},{"Start":"02:04.370 ","End":"02:07.510","Text":"we will use it again at 31st of January X2."},{"Start":"02:07.510 ","End":"02:10.340","Text":"If property, plant and equipment was considered to be"},{"Start":"02:10.340 ","End":"02:13.745","Text":"a non-current assets at 31st of December X1,"},{"Start":"02:13.745 ","End":"02:21.500","Text":"we would put it under non-current assets at 31st of January X2."},{"Start":"02:21.500 ","End":"02:23.810","Text":"Now, property, plant and equipment,"},{"Start":"02:23.810 ","End":"02:26.880","Text":"just incidentally is always considered to be a non-current asset."},{"Start":"02:26.880 ","End":"02:28.490","Text":"But if ever you are unsure,"},{"Start":"02:28.490 ","End":"02:35.720","Text":"simply follow the hitting descriptions if they were given to you in the question."},{"Start":"02:35.720 ","End":"02:37.700","Text":"Now, having looked at the balance sheet,"},{"Start":"02:37.700 ","End":"02:43.310","Text":"what we\u0027re going to do is balance sheet using the vertical presentation."},{"Start":"02:43.310 ","End":"02:48.560","Text":"In the question, I focused mainly on the balance sheet using the horizontal presentation,"},{"Start":"02:48.560 ","End":"02:51.305","Text":"but I\u0027d like you to get used to the vertical presentation."},{"Start":"02:51.305 ","End":"02:55.370","Text":"In fact, most businesses would use vertical presentation."},{"Start":"02:55.370 ","End":"02:58.070","Text":"Most listed companies tend to use vertical presentation."},{"Start":"02:58.070 ","End":"03:00.890","Text":"It is very important that you know the vertical presentation."},{"Start":"03:00.890 ","End":"03:03.920","Text":"It\u0027s also a nice and easy way of putting"},{"Start":"03:03.920 ","End":"03:07.625","Text":"together your balance sheet because there\u0027s more space on the page,"},{"Start":"03:07.625 ","End":"03:10.980","Text":"where you do need to show any calculations."},{"Start":"03:10.980 ","End":"03:13.550","Text":"It\u0027s a nice format."},{"Start":"03:13.550 ","End":"03:15.110","Text":"Something else I wanted you to notice,"},{"Start":"03:15.110 ","End":"03:18.710","Text":"is the balance sheet is prepared at a specific date."},{"Start":"03:18.710 ","End":"03:20.810","Text":"It\u0027s not for the month of January,"},{"Start":"03:20.810 ","End":"03:23.885","Text":"it\u0027s at the 31st of January X2."},{"Start":"03:23.885 ","End":"03:27.470","Text":"That means the balance sheet is been prepared on a specific date."},{"Start":"03:27.470 ","End":"03:31.210","Text":"We\u0027re simply showing the balances that existed on a specific date."},{"Start":"03:31.210 ","End":"03:33.980","Text":"We\u0027re not showing the income earned over a period,"},{"Start":"03:33.980 ","End":"03:36.560","Text":"or the expenses incurred over a period,"},{"Start":"03:36.560 ","End":"03:39.680","Text":"we\u0027re showing the balances at a specific date."},{"Start":"03:39.680 ","End":"03:45.904","Text":"Now, the first section in this balance sheet is to show our total assets."},{"Start":"03:45.904 ","End":"03:48.020","Text":"Now, I mentioned earlier,"},{"Start":"03:48.020 ","End":"03:53.060","Text":"we\u0027re going to add value to our users by separating our assets into 2 headings,"},{"Start":"03:53.060 ","End":"03:55.705","Text":"non-current assets and current assets."},{"Start":"03:55.705 ","End":"03:59.060","Text":"All we do here, is we take the information straight from"},{"Start":"03:59.060 ","End":"04:02.705","Text":"our trial balance and we pop it into our balance sheet."},{"Start":"04:02.705 ","End":"04:04.370","Text":"Again, back to our trial balance,"},{"Start":"04:04.370 ","End":"04:06.595","Text":"you see we\u0027ve got our assets."},{"Start":"04:06.595 ","End":"04:09.440","Text":"The first asset here is property,"},{"Start":"04:09.440 ","End":"04:12.140","Text":"plant and equipment, and it\u0027s 20,000."},{"Start":"04:12.140 ","End":"04:14.495","Text":"That\u0027s what we\u0027re going to show in the balance sheet."},{"Start":"04:14.495 ","End":"04:15.890","Text":"Here, we put in our property,"},{"Start":"04:15.890 ","End":"04:19.495","Text":"plant and equipment 20,000."},{"Start":"04:19.495 ","End":"04:22.640","Text":"Notice, we put it under non-current assets."},{"Start":"04:22.640 ","End":"04:28.940","Text":"The next item we have in our trial balance is the loan to the employee, 2,000."},{"Start":"04:28.940 ","End":"04:32.020","Text":"Here, we have the loan to the employees,"},{"Start":"04:32.020 ","End":"04:34.530","Text":"2,000 and so on."},{"Start":"04:34.530 ","End":"04:39.830","Text":"Simply take the asset figure from the trial balance and put it into your balance sheet."},{"Start":"04:39.830 ","End":"04:42.410","Text":"You will find the accounts receivable from the trial balance,"},{"Start":"04:42.410 ","End":"04:44.150","Text":"interest receivable from the trial balance,"},{"Start":"04:44.150 ","End":"04:45.305","Text":"and the cash at the bank,"},{"Start":"04:45.305 ","End":"04:47.825","Text":"from the trial balance, and you simply put them in."},{"Start":"04:47.825 ","End":"04:51.740","Text":"Notice, that you\u0027re going to total the non-current assets,"},{"Start":"04:51.740 ","End":"04:56.126","Text":"and you\u0027re also going to total the current assets."},{"Start":"04:56.126 ","End":"05:00.175","Text":"The non-current assets and the current assets,"},{"Start":"05:00.175 ","End":"05:02.135","Text":"if you add those 2 together,"},{"Start":"05:02.135 ","End":"05:08.485","Text":"you will get to the final total assets of 35,267."},{"Start":"05:08.485 ","End":"05:10.535","Text":"That\u0027s your assets."},{"Start":"05:10.535 ","End":"05:12.920","Text":"Now we need to show our liabilities."},{"Start":"05:12.920 ","End":"05:15.170","Text":"Now, my balance sheet didn\u0027t fit onto 1 page,"},{"Start":"05:15.170 ","End":"05:17.825","Text":"so I\u0027m simply carrying on in the next page."},{"Start":"05:17.825 ","End":"05:20.615","Text":"Here are my liabilities."},{"Start":"05:20.615 ","End":"05:27.480","Text":"I have non-current liabilities and current liabilities that make up my total liabilities."},{"Start":"05:27.890 ","End":"05:30.550","Text":"These pieces of information on"},{"Start":"05:30.550 ","End":"05:33.910","Text":"these individual liabilities are all picked up from the trial balance,"},{"Start":"05:33.910 ","End":"05:36.610","Text":"loan from bank, salaries payable, interest payable."},{"Start":"05:36.610 ","End":"05:38.800","Text":"Let\u0027s go and have a look quickly."},{"Start":"05:38.800 ","End":"05:40.900","Text":"Here is a trial balance,"},{"Start":"05:40.900 ","End":"05:43.360","Text":"and here are the liabilities."},{"Start":"05:43.360 ","End":"05:45.290","Text":"Here, we have our loan from the bank."},{"Start":"05:45.290 ","End":"05:47.110","Text":"Here we have salaries payable."},{"Start":"05:47.110 ","End":"05:51.985","Text":"These are the amounts you\u0027ll see on your balance sheet,10,500 and 13,200."},{"Start":"05:51.985 ","End":"05:54.400","Text":"Remember, corporation tax payable,"},{"Start":"05:54.400 ","End":"05:59.540","Text":"because it has a 0 balance we\u0027re not going to show that in our balance sheet."},{"Start":"05:59.540 ","End":"06:02.430","Text":"There was a 4th liability,"},{"Start":"06:02.430 ","End":"06:05.100","Text":"interests payable, and that balance was 10."},{"Start":"06:05.100 ","End":"06:12.080","Text":"Those 3 liabilities that do have balances other than 0 will appear on our balance sheet."},{"Start":"06:12.080 ","End":"06:19.760","Text":"Now, I want you to notice that all of these liabilities here have been put in brackets."},{"Start":"06:19.760 ","End":"06:22.310","Text":"Now, there are different ways of presenting your balance sheet,"},{"Start":"06:22.310 ","End":"06:24.575","Text":"and some people like to use brackets and some don\u0027t."},{"Start":"06:24.575 ","End":"06:26.840","Text":"But in here, we have shown brackets."},{"Start":"06:26.840 ","End":"06:31.070","Text":"The reason we\u0027ve done that is because the very next line is to"},{"Start":"06:31.070 ","End":"06:36.060","Text":"show that we have net assets of 11,557."},{"Start":"06:36.060 ","End":"06:40.429","Text":"What that means is, this is the assets less the liabilities."},{"Start":"06:40.429 ","End":"06:46.054","Text":"The brackets were indicating that we are going to subtract them from the assets."},{"Start":"06:46.054 ","End":"06:49.640","Text":"The brackets we\u0027re saying we\u0027re going to subtract all of"},{"Start":"06:49.640 ","End":"06:53.615","Text":"these balances from the asset balances."},{"Start":"06:53.615 ","End":"06:55.880","Text":"If we go back to the previous page,"},{"Start":"06:55.880 ","End":"06:58.100","Text":"we can pick up how much our assets were."},{"Start":"06:58.100 ","End":"07:00.380","Text":"Here is the first part of our balance sheet,"},{"Start":"07:00.380 ","End":"07:02.885","Text":"where we showed our assets."},{"Start":"07:02.885 ","End":"07:06.940","Text":"Our total assets came to 35,267."},{"Start":"07:06.940 ","End":"07:08.595","Text":"Let\u0027s put that in here."},{"Start":"07:08.595 ","End":"07:12.595","Text":"Our assets were 35,267."},{"Start":"07:12.595 ","End":"07:15.590","Text":"We\u0027re subtracting these liabilities."},{"Start":"07:15.590 ","End":"07:19.805","Text":"The total liability is, 23,710."},{"Start":"07:19.805 ","End":"07:28.565","Text":"We\u0027re subtracting 23,710 and the difference is 11,557."},{"Start":"07:28.565 ","End":"07:31.040","Text":"The assets were bigger than the liabilities,"},{"Start":"07:31.040 ","End":"07:33.515","Text":"so we call these the net assets."},{"Start":"07:33.515 ","End":"07:37.130","Text":"If our liabilities exceeded our assets,"},{"Start":"07:37.130 ","End":"07:39.530","Text":"we would put here net liabilities,"},{"Start":"07:39.530 ","End":"07:42.215","Text":"and obviously that wouldn\u0027t be a good situation."},{"Start":"07:42.215 ","End":"07:46.580","Text":"Now, our balance sheet has got our assets in it and our liabilities in it."},{"Start":"07:46.580 ","End":"07:51.935","Text":"The last set of elements we need to put in are the equity accounts."},{"Start":"07:51.935 ","End":"07:54.760","Text":"I\u0027m going to move the balance sheet down just a fraction,"},{"Start":"07:54.760 ","End":"07:56.525","Text":"so you can see the equity."},{"Start":"07:56.525 ","End":"07:59.240","Text":"Here we have our shareholders equity."},{"Start":"07:59.240 ","End":"08:06.545","Text":"We have shareholders equity made up of share capital and retained earnings."},{"Start":"08:06.545 ","End":"08:09.455","Text":"Now, this one\u0027s interesting because"},{"Start":"08:09.455 ","End":"08:13.220","Text":"our share capital from our trial balance shows 5,000,"},{"Start":"08:13.220 ","End":"08:18.260","Text":"that our retained earnings in the trial balance does not show 6,557."},{"Start":"08:18.260 ","End":"08:20.375","Text":"That\u0027s simply because it would normally,"},{"Start":"08:20.375 ","End":"08:23.135","Text":"if we\u0027re doing the balance sheet at the end of the year."},{"Start":"08:23.135 ","End":"08:25.940","Text":"But it doesn\u0027t at this stage because we haven\u0027t closed"},{"Start":"08:25.940 ","End":"08:28.985","Text":"off our income and expense accounts to our retained earnings it,"},{"Start":"08:28.985 ","End":"08:31.775","Text":"but I\u0027ll show you how to work this out."},{"Start":"08:31.775 ","End":"08:36.065","Text":"The share capital you see appears in the trial balance at 5,000."},{"Start":"08:36.065 ","End":"08:38.660","Text":"Let\u0027s go back to the trial balance to prove that, and also,"},{"Start":"08:38.660 ","End":"08:44.530","Text":"to pick up what the retained earnings is reflected at in the trial balance at the moment."},{"Start":"08:44.530 ","End":"08:49.080","Text":"We\u0027re back to our trial balance at 31st of January 20X2."},{"Start":"08:49.080 ","End":"08:51.940","Text":"I\u0027m just going to scroll down the trial balance,"},{"Start":"08:51.940 ","End":"08:55.360","Text":"so I can show you the equity accounts."},{"Start":"08:55.360 ","End":"08:57.739","Text":"Here we have our equity accounts,"},{"Start":"08:57.739 ","End":"08:58.800","Text":"they are only 2."},{"Start":"08:58.800 ","End":"09:02.875","Text":"As you can see, the share capital does indeed show 5,000."},{"Start":"09:02.875 ","End":"09:08.710","Text":"However, the retained earnings figure was 4,990."},{"Start":"09:08.710 ","End":"09:15.000","Text":"That was indeed the balance at the 31st of December 20X1,"},{"Start":"09:15.000 ","End":"09:17.215","Text":"and we hadn\u0027t changed it."},{"Start":"09:17.215 ","End":"09:25.820","Text":"That balance of 4,990 was the balance at 31 December 20X1."},{"Start":"09:25.820 ","End":"09:29.639","Text":"This was last year\u0027s balance."},{"Start":"09:29.980 ","End":"09:36.499","Text":"It hasn\u0027t been updated for the income and expenses that we have earned in January,"},{"Start":"09:36.499 ","End":"09:39.425","Text":"and incurred in January respectively."},{"Start":"09:39.425 ","End":"09:47.190","Text":"The income and expense accounts that we earn and incur respectively during the year,"},{"Start":"09:47.190 ","End":"09:49.130","Text":"we\u0027ll take those income and expense accounts,"},{"Start":"09:49.130 ","End":"09:51.250","Text":"and we\u0027ll close them off to the retained earnings,"},{"Start":"09:51.250 ","End":"09:53.380","Text":"but only at the end of the year."},{"Start":"09:53.380 ","End":"09:57.575","Text":"We have this little problem at the end of each month,"},{"Start":"09:57.575 ","End":"10:00.860","Text":"if we haven\u0027t closed off our income and expense accounts."},{"Start":"10:00.860 ","End":"10:03.410","Text":"The problem is that"},{"Start":"10:03.410 ","End":"10:07.460","Text":"the retained earnings is not what\u0027s going to appear on our balance sheet."},{"Start":"10:07.460 ","End":"10:11.585","Text":"Back to the balance sheet of 31st of January 20X2."},{"Start":"10:11.585 ","End":"10:14.975","Text":"I\u0027m just going to scroll down, so you can see the equity section."},{"Start":"10:14.975 ","End":"10:16.970","Text":"The share capital is 5,000,"},{"Start":"10:16.970 ","End":"10:18.110","Text":"that was from our trial balance,"},{"Start":"10:18.110 ","End":"10:24.235","Text":"but the retained earnings for our trial balance was still showing the opening balance."},{"Start":"10:24.235 ","End":"10:29.505","Text":"The opening balance was 4,990,"},{"Start":"10:29.505 ","End":"10:32.750","Text":"and it had not yet been updated for the income and"},{"Start":"10:32.750 ","End":"10:37.625","Text":"expenses that were earned and incurred respectively."},{"Start":"10:37.625 ","End":"10:44.170","Text":"Profit represents these income less expenses."},{"Start":"10:44.170 ","End":"10:47.705","Text":"All we need to do is go to our income statement,"},{"Start":"10:47.705 ","End":"10:51.970","Text":"which is where we get the profit calculated."},{"Start":"10:51.970 ","End":"10:55.160","Text":"We\u0027ll go to the income statement, pickup the profit,"},{"Start":"10:55.160 ","End":"10:58.895","Text":"and pop that figure in its place."},{"Start":"10:58.895 ","End":"11:02.375","Text":"I\u0027ve gone back to my income statement."},{"Start":"11:02.375 ","End":"11:07.595","Text":"Here\u0027s my income statement for the month end of 31st of January 20X2,"},{"Start":"11:07.595 ","End":"11:11.315","Text":"and the profit for the period was 1,567."},{"Start":"11:11.315 ","End":"11:14.360","Text":"That\u0027s the net effect of those income and expenses that"},{"Start":"11:14.360 ","End":"11:17.960","Text":"had not yet been put into the retained earnings account."},{"Start":"11:17.960 ","End":"11:21.180","Text":"Back to the balance sheet at 31st journey 20X2."},{"Start":"11:21.180 ","End":"11:25.925","Text":"I\u0027m just going to scroll down to show you the shareholders equity section."},{"Start":"11:25.925 ","End":"11:33.365","Text":"Here, I\u0027m going to add in that profit of 1,567 per the income statement."},{"Start":"11:33.365 ","End":"11:35.540","Text":"If you add these 2 together,"},{"Start":"11:35.540 ","End":"11:40.540","Text":"4,990 plus 1,567,"},{"Start":"11:40.540 ","End":"11:44.290","Text":"you get to 6,557."},{"Start":"11:44.480 ","End":"11:47.420","Text":"If this was at the end of the year,"},{"Start":"11:47.420 ","End":"11:50.105","Text":"these amounts, the income and expense accounts,"},{"Start":"11:50.105 ","End":"11:53.330","Text":"would have been closed off already to the retained earnings and"},{"Start":"11:53.330 ","End":"11:58.970","Text":"then this breakdown would not necessarily have to be showing."},{"Start":"11:58.970 ","End":"12:03.200","Text":"You could just simply show the 6,557."},{"Start":"12:03.200 ","End":"12:06.350","Text":"Although, it is quite nice to show them the reconciliation."},{"Start":"12:06.350 ","End":"12:11.410","Text":"Our use is the reconciliation."},{"Start":"12:11.960 ","End":"12:16.880","Text":"The shareholder\u0027s equity is the share capital plus the retained earnings."},{"Start":"12:16.880 ","End":"12:22.530","Text":"5,000 plus the 6,557 gives you the 11,557."},{"Start":"12:22.530 ","End":"12:28.490","Text":"Notice, that, that total equity equals our net assets of 11,557."},{"Start":"12:28.490 ","End":"12:32.150","Text":"Just remember, that the reason why this balances is"},{"Start":"12:32.150 ","End":"12:39.215","Text":"because assets equals liabilities plus equity."},{"Start":"12:39.215 ","End":"12:41.015","Text":"In this particular case,"},{"Start":"12:41.015 ","End":"12:44.540","Text":"what we\u0027ve done is we\u0027ve taken the liabilities across to the other side,"},{"Start":"12:44.540 ","End":"12:49.945","Text":"so its assets minus liabilities equals equity."},{"Start":"12:49.945 ","End":"12:53.435","Text":"That\u0027s the structure we\u0027ve used for our balance sheet here."},{"Start":"12:53.435 ","End":"12:59.760","Text":"Net assets, which is assets minus liabilities equals equity."},{"Start":"13:00.220 ","End":"13:03.360","Text":"I hope that has helped."}],"ID":28520},{"Watched":false,"Name":"Exercise 2 - Introduction","Duration":"1m 26s","ChapterTopicVideoID":27418,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:03.210","Text":"In this exercise, we\u0027re going to prepare an income statement"},{"Start":"00:03.210 ","End":"00:06.240","Text":"and a balance sheet using a trial balance."},{"Start":"00:06.240 ","End":"00:12.315","Text":"As you can see, we are given a trial balance of Tapper limited at 31 December 20X1."},{"Start":"00:12.315 ","End":"00:16.005","Text":"Here we have all the debits listed."},{"Start":"00:16.005 ","End":"00:18.210","Text":"We\u0027ve got property plants and equipment,"},{"Start":"00:18.210 ","End":"00:19.620","Text":"for example, it\u0027s an asset."},{"Start":"00:19.620 ","End":"00:23.790","Text":"If we scroll down, you\u0027ll see cost of goods sold, that\u0027s an expense."},{"Start":"00:23.790 ","End":"00:27.010","Text":"Remember, assets and expenses have debit balances."},{"Start":"00:27.010 ","End":"00:29.835","Text":"That\u0027s what you\u0027ll see listed under the debit column."},{"Start":"00:29.835 ","End":"00:31.695","Text":"Then the trial balance continues,"},{"Start":"00:31.695 ","End":"00:34.890","Text":"in here we\u0027ve got all the credit balances listed together."},{"Start":"00:34.890 ","End":"00:36.750","Text":"If we scroll down through them,"},{"Start":"00:36.750 ","End":"00:37.980","Text":"we\u0027ve got accounts payable,"},{"Start":"00:37.980 ","End":"00:39.525","Text":"which is a liability."},{"Start":"00:39.525 ","End":"00:42.205","Text":"A little bit further down, we\u0027ve got share capital,"},{"Start":"00:42.205 ","End":"00:44.880","Text":"a little bit further down we\u0027ve got revenue."},{"Start":"00:44.880 ","End":"00:47.300","Text":"Accounts payable is a liability."},{"Start":"00:47.300 ","End":"00:50.735","Text":"Share capital is equity and revenue, which is income."},{"Start":"00:50.735 ","End":"00:53.960","Text":"Those are the 3 elements that have a credit balance."},{"Start":"00:53.960 ","End":"00:58.040","Text":"Notice that the debit and the credit both total 53,000."},{"Start":"00:58.040 ","End":"01:04.200","Text":"Then the required, prepare the income statement for the period ending 31 December 20X1,"},{"Start":"01:04.200 ","End":"01:05.650","Text":"and then B,"},{"Start":"01:05.650 ","End":"01:10.010","Text":"prepare the balance sheet as at the 31 December 20X1."},{"Start":"01:10.010 ","End":"01:15.540","Text":"Notice that the income statement is prepared for a period ending 31 December."},{"Start":"01:15.540 ","End":"01:19.380","Text":"This will be for the year ending 31 December, 20X1."},{"Start":"01:19.380 ","End":"01:21.020","Text":"It actually covers an entire period,"},{"Start":"01:21.020 ","End":"01:26.580","Text":"whereas the balance sheet is like a photograph or a snapshot on a particular day."}],"ID":28536},{"Watched":false,"Name":"Exercise 2 - Analysing the elements in the Trial balance","Duration":"7m 3s","ChapterTopicVideoID":27419,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:02.400","Text":"In this exercise, we are having to prepare"},{"Start":"00:02.400 ","End":"00:06.059","Text":"a balance sheet and an income statement using the trial balance."},{"Start":"00:06.059 ","End":"00:07.875","Text":"Before we can get started,"},{"Start":"00:07.875 ","End":"00:11.430","Text":"what we need to be able to do is have a look at the trial balance and identify"},{"Start":"00:11.430 ","End":"00:13.110","Text":"which items will go in"},{"Start":"00:13.110 ","End":"00:16.260","Text":"the balance sheet and which items are going to go on the income statement."},{"Start":"00:16.260 ","End":"00:20.625","Text":"To do that, you need to understand that there are 5 essential elements."},{"Start":"00:20.625 ","End":"00:24.848","Text":"The 5 elements are assets and expenses,"},{"Start":"00:24.848 ","End":"00:27.345","Text":"and then we have liabilities,"},{"Start":"00:27.345 ","End":"00:29.760","Text":"income, and owners equity,"},{"Start":"00:29.760 ","End":"00:31.320","Text":"which are to say equity."},{"Start":"00:31.320 ","End":"00:36.390","Text":"Now, the assets and expenses have debit balances and the liabilities,"},{"Start":"00:36.390 ","End":"00:39.104","Text":"income, and equity have credit balances."},{"Start":"00:39.104 ","End":"00:44.390","Text":"Now, before getting going and preparing the balance sheet and the income statement,"},{"Start":"00:44.390 ","End":"00:47.330","Text":"let\u0027s go through the trial balance and make sure we"},{"Start":"00:47.330 ","End":"00:51.260","Text":"know what each of these line items in the trial balance represent."},{"Start":"00:51.260 ","End":"00:52.910","Text":"In other words, are their assets,"},{"Start":"00:52.910 ","End":"00:55.865","Text":"expenses, liability, income over equity."},{"Start":"00:55.865 ","End":"01:00.215","Text":"Thus, will they appear in the balance sheet or the income statement?"},{"Start":"01:00.215 ","End":"01:03.005","Text":"Let\u0027s start with the debit balances."},{"Start":"01:03.005 ","End":"01:08.014","Text":"We\u0027re going to identify whether they belong in the balance sheet or an income statement."},{"Start":"01:08.014 ","End":"01:11.315","Text":"To know whether they belong in the balance sheet or the income statement,"},{"Start":"01:11.315 ","End":"01:15.485","Text":"we need to understand that the balance sheet will show assets,"},{"Start":"01:15.485 ","End":"01:18.305","Text":"liabilities, and equity,"},{"Start":"01:18.305 ","End":"01:24.635","Text":"and that the income statement is going to show the income less the expenses."},{"Start":"01:24.635 ","End":"01:26.300","Text":"Property, plant and equipment."},{"Start":"01:26.300 ","End":"01:29.565","Text":"This is a resource that we can use over a period of time,"},{"Start":"01:29.565 ","End":"01:30.830","Text":"so that is an asset."},{"Start":"01:30.830 ","End":"01:32.225","Text":"Since it\u0027s an asset,"},{"Start":"01:32.225 ","End":"01:33.965","Text":"an asset belongs in the balance sheet,"},{"Start":"01:33.965 ","End":"01:37.355","Text":"we\u0027re going to put here that it\u0027s going to appear on the balance sheet."},{"Start":"01:37.355 ","End":"01:39.799","Text":"Inventories. This too is a resource."},{"Start":"01:39.799 ","End":"01:43.160","Text":"This is we\u0027re going to sell it hopefully within a year or so."},{"Start":"01:43.160 ","End":"01:47.675","Text":"It\u0027s a shorter term asset than property, plant, and equipment."},{"Start":"01:47.675 ","End":"01:48.980","Text":"But because it\u0027s an asset,"},{"Start":"01:48.980 ","End":"01:51.605","Text":"it too will appear in the balance sheet."},{"Start":"01:51.605 ","End":"01:53.105","Text":"Cost of goods sold."},{"Start":"01:53.105 ","End":"01:54.740","Text":"Well, that is an expense."},{"Start":"01:54.740 ","End":"01:56.915","Text":"That is a depletion of an asset."},{"Start":"01:56.915 ","End":"02:02.855","Text":"Expenses arise if your assets decrease or your liabilities increase,"},{"Start":"02:02.855 ","End":"02:06.685","Text":"which lead to a decrease in your equity."},{"Start":"02:06.685 ","End":"02:08.400","Text":"So that is an expense."},{"Start":"02:08.400 ","End":"02:14.060","Text":"Now, I know the cost of goods sold is an expense is because when you sell inventories,"},{"Start":"02:14.060 ","End":"02:18.230","Text":"your balance or stock of inventory is decreases,"},{"Start":"02:18.230 ","End":"02:23.450","Text":"so your asset is going down and that asset is basically becoming an expense."},{"Start":"02:23.450 ","End":"02:26.360","Text":"If we sell inventory,"},{"Start":"02:26.360 ","End":"02:29.030","Text":"what happens is,"},{"Start":"02:29.030 ","End":"02:31.490","Text":"let\u0027s say, it was 100 in the inventory account,"},{"Start":"02:31.490 ","End":"02:35.330","Text":"we will take 20 out of the inventory asset account and we will"},{"Start":"02:35.330 ","End":"02:39.620","Text":"put that into the cost of goods sold, expense account instead."},{"Start":"02:39.620 ","End":"02:42.185","Text":"Notice the inventory, which is an asset,"},{"Start":"02:42.185 ","End":"02:44.720","Text":"is going down so that it meets the definition of"},{"Start":"02:44.720 ","End":"02:47.615","Text":"an expense because it is a decrease in the asset."},{"Start":"02:47.615 ","End":"02:54.125","Text":"Because we know that assets minus liabilities equals equity,"},{"Start":"02:54.125 ","End":"02:59.960","Text":"if our assets goes down by 20 and nothing happens to our liabilities,"},{"Start":"02:59.960 ","End":"03:01.610","Text":"our equity will go down."},{"Start":"03:01.610 ","End":"03:04.625","Text":"You can see the definition of an expense is met."},{"Start":"03:04.625 ","End":"03:07.430","Text":"The asset inventory goes down and it leads to"},{"Start":"03:07.430 ","End":"03:10.430","Text":"a decrease in our equity because of the accounting equation."},{"Start":"03:10.430 ","End":"03:12.125","Text":"Then we move on to cash."},{"Start":"03:12.125 ","End":"03:15.665","Text":"Cash is an asset because it\u0027s a resource that we can use."},{"Start":"03:15.665 ","End":"03:17.795","Text":"So that\u0027s going to appear in the balance sheet."},{"Start":"03:17.795 ","End":"03:20.180","Text":"Sorry, I did forget to put in here the cost of goods"},{"Start":"03:20.180 ","End":"03:24.125","Text":"sold being an expense will appear in the income statement."},{"Start":"03:24.125 ","End":"03:26.885","Text":"Let\u0027s carry on. The accounts receivables."},{"Start":"03:26.885 ","End":"03:29.870","Text":"That is actually an asset because that is going to convert"},{"Start":"03:29.870 ","End":"03:33.365","Text":"into cash when our debtors pay us."},{"Start":"03:33.365 ","End":"03:35.300","Text":"It is also a resource."},{"Start":"03:35.300 ","End":"03:37.995","Text":"Those accounts receivables being our debtors,"},{"Start":"03:37.995 ","End":"03:39.975","Text":"will be paying us in the future."},{"Start":"03:39.975 ","End":"03:41.730","Text":"Because it\u0027s an asset,"},{"Start":"03:41.730 ","End":"03:43.955","Text":"it will be in the balance sheet."},{"Start":"03:43.955 ","End":"03:45.410","Text":"Salary expenses."},{"Start":"03:45.410 ","End":"03:47.149","Text":"Well, obviously, that\u0027s an expense."},{"Start":"03:47.149 ","End":"03:50.120","Text":"You don\u0027t get lasting benefit from salaries and you"},{"Start":"03:50.120 ","End":"03:53.030","Text":"get an immediate benefit from the salaries that you pay."},{"Start":"03:53.030 ","End":"03:54.590","Text":"That\u0027s why it\u0027s an expense."},{"Start":"03:54.590 ","End":"03:55.970","Text":"You\u0027re not getting a lasting benefits."},{"Start":"03:55.970 ","End":"03:58.160","Text":"That\u0027s not a resource that you can use in the future."},{"Start":"03:58.160 ","End":"04:00.560","Text":"Similarly, the administrative expense."},{"Start":"04:00.560 ","End":"04:01.610","Text":"Well, obviously, it\u0027s an expense."},{"Start":"04:01.610 ","End":"04:02.810","Text":"We\u0027ve been told us an expense,"},{"Start":"04:02.810 ","End":"04:05.270","Text":"but why are the admin costs, expenses?"},{"Start":"04:05.270 ","End":"04:08.390","Text":"Once again, it\u0027s because you\u0027re getting an immediate benefit"},{"Start":"04:08.390 ","End":"04:12.755","Text":"from the expenditure on administrative costs."},{"Start":"04:12.755 ","End":"04:14.570","Text":"You\u0027re not getting a lasting benefits,"},{"Start":"04:14.570 ","End":"04:16.460","Text":"so it\u0027s not a resource as such."},{"Start":"04:16.460 ","End":"04:19.070","Text":"Once again, the tax expense where we are told is"},{"Start":"04:19.070 ","End":"04:22.050","Text":"an expense and that\u0027s going to appear in the income statement."},{"Start":"04:22.050 ","End":"04:25.910","Text":"Now we\u0027ll move on to the credit balances in the trial balance."},{"Start":"04:25.910 ","End":"04:33.050","Text":"Now, remember, credit balances as I put on the previous slide, we have assets,"},{"Start":"04:33.050 ","End":"04:35.600","Text":"expenses on the debit side,"},{"Start":"04:35.600 ","End":"04:37.970","Text":"but on the credit side,"},{"Start":"04:37.970 ","End":"04:40.954","Text":"we have liabilities, income,"},{"Start":"04:40.954 ","End":"04:44.820","Text":"and equity or owners equity if you prefer."},{"Start":"04:44.840 ","End":"04:47.780","Text":"Let\u0027s have a look here. We\u0027ve got credit balances."},{"Start":"04:47.780 ","End":"04:49.385","Text":"What is accounts payable?"},{"Start":"04:49.385 ","End":"04:51.530","Text":"Well, this is an obligation that we have."},{"Start":"04:51.530 ","End":"04:53.510","Text":"We\u0027re going to have to pay something in the future."},{"Start":"04:53.510 ","End":"04:57.500","Text":"That is a liability because liabilities are obligations."},{"Start":"04:57.500 ","End":"04:59.780","Text":"Now, if you recall,"},{"Start":"04:59.780 ","End":"05:05.105","Text":"what goes into the balance sheet are our assets and our liabilities, and our equity."},{"Start":"05:05.105 ","End":"05:11.695","Text":"What goes into our income statement is the income less the expenses."},{"Start":"05:11.695 ","End":"05:13.835","Text":"Since we have a liability,"},{"Start":"05:13.835 ","End":"05:15.730","Text":"liabilities belong in the balance sheet."},{"Start":"05:15.730 ","End":"05:19.015","Text":"I\u0027ll put underneath this column here, balance sheet."},{"Start":"05:19.015 ","End":"05:21.785","Text":"Then we have a loan payable in 5 years time."},{"Start":"05:21.785 ","End":"05:24.140","Text":"Once again, this is a liability because it meets"},{"Start":"05:24.140 ","End":"05:27.560","Text":"the definition of a liability because it is an obligation."},{"Start":"05:27.560 ","End":"05:31.115","Text":"We have an obligation to repay this loan in the future."},{"Start":"05:31.115 ","End":"05:33.575","Text":"Liabilities belongs in the balance sheet,"},{"Start":"05:33.575 ","End":"05:36.530","Text":"shareholders equity, then we get to share capital."},{"Start":"05:36.530 ","End":"05:38.330","Text":"As you can see in this trial balance,"},{"Start":"05:38.330 ","End":"05:42.440","Text":"it\u0027s been filled in here as shareholders equity share capital."},{"Start":"05:42.440 ","End":"05:45.050","Text":"Now, that\u0027s not normal for"},{"Start":"05:45.050 ","End":"05:48.890","Text":"the share capital account to be identified as shareholders equity."},{"Start":"05:48.890 ","End":"05:50.960","Text":"Don\u0027t assume that you will see that."},{"Start":"05:50.960 ","End":"05:55.910","Text":"You must be able to recognize share capital as equity."},{"Start":"05:55.910 ","End":"05:57.695","Text":"Share capital is equity."},{"Start":"05:57.695 ","End":"05:59.960","Text":"Don\u0027t assume you\u0027ll be told that it is equity."},{"Start":"05:59.960 ","End":"06:01.610","Text":"Let\u0027s pop in here."},{"Start":"06:01.610 ","End":"06:04.760","Text":"That\u0027s equity, and equity belongs in the balance sheets."},{"Start":"06:04.760 ","End":"06:07.660","Text":"So we\u0027ll put over here in this column, balance sheet."},{"Start":"06:07.660 ","End":"06:09.620","Text":"The next line item is retained earnings."},{"Start":"06:09.620 ","End":"06:12.230","Text":"Once again, it\u0027s not normal for that to"},{"Start":"06:12.230 ","End":"06:15.020","Text":"be identified as belonging within shareholders equity."},{"Start":"06:15.020 ","End":"06:19.340","Text":"You may simply know that retained earnings is an equity account."},{"Start":"06:19.340 ","End":"06:23.929","Text":"Once again, retained earnings is equity and because it\u0027s equity,"},{"Start":"06:23.929 ","End":"06:26.180","Text":"we\u0027re going to put in this column balance sheet."},{"Start":"06:26.180 ","End":"06:27.710","Text":"Then we have revenue."},{"Start":"06:27.710 ","End":"06:29.615","Text":"Revenue is income."},{"Start":"06:29.615 ","End":"06:31.790","Text":"Let\u0027s pop over here. That\u0027s income,"},{"Start":"06:31.790 ","End":"06:34.155","Text":"and we know income belongs in the income statement."},{"Start":"06:34.155 ","End":"06:35.570","Text":"Then we have tax payable."},{"Start":"06:35.570 ","End":"06:39.740","Text":"Once again, it\u0027s an obligation that we have to pay cash in the future."},{"Start":"06:39.740 ","End":"06:42.950","Text":"Step amongst the balance sheet, salaries payable."},{"Start":"06:42.950 ","End":"06:47.930","Text":"This is full staff embassy of work for us already and have not yet been paid."},{"Start":"06:47.930 ","End":"06:50.690","Text":"That\u0027s an obligation to pay them in the future"},{"Start":"06:50.690 ","End":"06:53.540","Text":"and that therefore it\u0027s liability and therefore,"},{"Start":"06:53.540 ","End":"06:55.630","Text":"we pop in their balance sheet."},{"Start":"06:55.630 ","End":"07:00.230","Text":"We can now get going with the preparation of income statement and the balance sheet."},{"Start":"07:00.230 ","End":"07:03.540","Text":"We\u0027ll first start with the income statement."}],"ID":28537},{"Watched":false,"Name":"Exercise 2 - Part A Income Statement","Duration":"3m 24s","ChapterTopicVideoID":27420,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.140 ","End":"00:02.955","Text":"Now let\u0027s do the income statement."},{"Start":"00:02.955 ","End":"00:07.530","Text":"Now remember, the income statement only shows the income and expenses,"},{"Start":"00:07.530 ","End":"00:10.515","Text":"and we have identified those already in our trial balance"},{"Start":"00:10.515 ","End":"00:13.540","Text":"and analyze whether they belong in the income statement or balance sheet."},{"Start":"00:13.540 ","End":"00:15.465","Text":"Let\u0027s look at that trial balance again."},{"Start":"00:15.465 ","End":"00:17.490","Text":"Now, this is the trial balance which was"},{"Start":"00:17.490 ","End":"00:20.400","Text":"previously shown over two pages and I\u0027ve simply put it onto"},{"Start":"00:20.400 ","End":"00:25.440","Text":"one page so you can see our debit balances and then our credit balances."},{"Start":"00:25.440 ","End":"00:30.405","Text":"I\u0027ve just made it slightly smaller so that you can see all of it on one page."},{"Start":"00:30.405 ","End":"00:34.610","Text":"As you can see here, I\u0027ve highlighted all of the line items in"},{"Start":"00:34.610 ","End":"00:39.100","Text":"the trial balance that we have identified as belonging in the income statement."},{"Start":"00:39.100 ","End":"00:40.550","Text":"Now, when we do our income statement,"},{"Start":"00:40.550 ","End":"00:44.445","Text":"we\u0027re going to start with the main revenue line item,"},{"Start":"00:44.445 ","End":"00:52.160","Text":"that\u0027s 31,000, revenue is the first line item in our income statement,"},{"Start":"00:52.160 ","End":"00:55.400","Text":"you see here revenue 31,000."},{"Start":"00:55.400 ","End":"00:58.880","Text":"The next line item is going to be the main expense,"},{"Start":"00:58.880 ","End":"01:00.530","Text":"so the cost of goods sold."},{"Start":"01:00.530 ","End":"01:05.070","Text":"Let\u0027s have a look for the cost of goods sold in the trial balance."},{"Start":"01:05.360 ","End":"01:09.900","Text":"Here, we have our cost of goods sold of 15,000,"},{"Start":"01:10.540 ","End":"01:15.635","Text":"so we subtract the cost of goods sold of 15,000 against the 31,000,"},{"Start":"01:15.635 ","End":"01:17.570","Text":"to give us the net effect,"},{"Start":"01:17.570 ","End":"01:20.730","Text":"which is our gross profit of 16,000."},{"Start":"01:20.730 ","End":"01:24.230","Text":"We don\u0027t have to show gross profit on the face of the income statement"},{"Start":"01:24.230 ","End":"01:28.585","Text":"and it\u0027s not a requirement of the International Financial Reporting Standards."},{"Start":"01:28.585 ","End":"01:31.700","Text":"But, it is commonly shown on the face of"},{"Start":"01:31.700 ","End":"01:35.675","Text":"the income statement because it\u0027s very useful for our uses."},{"Start":"01:35.675 ","End":"01:39.850","Text":"Let\u0027s get back to the trial balance to pick up the other expenses."},{"Start":"01:39.850 ","End":"01:43.850","Text":"We\u0027ve got the revenue and we\u0027ve got the cost of goods sold in our income statements,"},{"Start":"01:43.850 ","End":"01:46.100","Text":"so let\u0027s put the next expense in,"},{"Start":"01:46.100 ","End":"01:49.475","Text":"which is the salary expense of 8,000."},{"Start":"01:49.475 ","End":"01:52.460","Text":"You see here we\u0027ve got after gross profit and hitting for"},{"Start":"01:52.460 ","End":"01:57.090","Text":"other expenses and then we\u0027ve got our salary expense, 8,000."},{"Start":"02:00.020 ","End":"02:03.965","Text":"Let\u0027s go back to the trial balance to pick up the next expense."},{"Start":"02:03.965 ","End":"02:07.520","Text":"The next expense is the admin expense of 4,000."},{"Start":"02:07.520 ","End":"02:12.905","Text":"You see, we put the admin expense into the section for other expenses."},{"Start":"02:12.905 ","End":"02:18.560","Text":"That\u0027s then going to give us our profit before tax."},{"Start":"02:18.560 ","End":"02:21.630","Text":"Notice that, there is another expense,"},{"Start":"02:21.630 ","End":"02:23.850","Text":"it is the tax expense in the trial balance,"},{"Start":"02:23.850 ","End":"02:25.175","Text":"so we\u0027re going to get to in a moment,"},{"Start":"02:25.175 ","End":"02:32.060","Text":"but we have to show this line item called profit before showing their tax expense."},{"Start":"02:32.060 ","End":"02:33.635","Text":"The profit before tax,"},{"Start":"02:33.635 ","End":"02:37.370","Text":"is the gross profit less the other expenses of 8 and"},{"Start":"02:37.370 ","End":"02:41.570","Text":"4,000 and that gives us a net amount of 4,000."},{"Start":"02:41.570 ","End":"02:47.495","Text":"Let\u0027s go back to the trial balance and is the next expense, tax expense,"},{"Start":"02:47.495 ","End":"02:50.570","Text":"and we subtract the tax expense of 1,000,"},{"Start":"02:50.570 ","End":"02:55.630","Text":"and that then gives us our profits for the period of 3,000."},{"Start":"02:55.630 ","End":"02:58.250","Text":"So that\u0027s your income statement."},{"Start":"02:58.250 ","End":"02:59.960","Text":"It\u0027s simply the income,"},{"Start":"02:59.960 ","End":"03:04.430","Text":"minus expenses and notice we start with income, then we subtract."},{"Start":"03:04.430 ","End":"03:05.720","Text":"If that was revenue from sales,"},{"Start":"03:05.720 ","End":"03:07.115","Text":"which it is in this question,"},{"Start":"03:07.115 ","End":"03:09.310","Text":"we then subtract our cost of goods sold."},{"Start":"03:09.310 ","End":"03:12.200","Text":"Then, we list our other expenses,"},{"Start":"03:12.200 ","End":"03:14.840","Text":"but we must separate out the tax expense and"},{"Start":"03:14.840 ","End":"03:17.975","Text":"show it after the line item, profit before tax."},{"Start":"03:17.975 ","End":"03:22.070","Text":"Our final line item is profit for the period or in this case,"},{"Start":"03:22.070 ","End":"03:24.810","Text":"we could have written profit for the year."}],"ID":28538},{"Watched":false,"Name":"Exercise 2 - Part B - Balance Sheet","Duration":"13m 32s","ChapterTopicVideoID":27421,"CourseChapterTopicPlaylistID":254927,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:05.430","Text":"Now let\u0027s look at the balance sheet at 31 December 20X1."},{"Start":"00:05.430 ","End":"00:09.525","Text":"We head to the trial balance and we can see that in our trial balance,"},{"Start":"00:09.525 ","End":"00:12.990","Text":"we\u0027ve identified certain items as belonging to the balance sheet."},{"Start":"00:12.990 ","End":"00:16.365","Text":"Those are the assets, liabilities, and equity."},{"Start":"00:16.365 ","End":"00:20.340","Text":"Now just remember that in the retained earnings account at the moment"},{"Start":"00:20.340 ","End":"00:25.725","Text":"the trial balance shows it as the first of the first X1 balance being 3,000."},{"Start":"00:25.725 ","End":"00:28.635","Text":"That is the opening balance in our retained earnings."},{"Start":"00:28.635 ","End":"00:31.770","Text":"But the retained earnings that we\u0027re going to show on our balance sheet must"},{"Start":"00:31.770 ","End":"00:35.535","Text":"be the retained earnings balance at 31 December X1."},{"Start":"00:35.535 ","End":"00:40.165","Text":"We still need to close off our income and expense accounts to the profit and"},{"Start":"00:40.165 ","End":"00:45.155","Text":"loss and then the profitable loss figure within me closed off to the retained earnings."},{"Start":"00:45.155 ","End":"00:49.400","Text":"You can see our income and expense accounts are still in the trial balance."},{"Start":"00:49.400 ","End":"00:53.390","Text":"There\u0027s your cost of goods sold and is expense, salary expense,"},{"Start":"00:53.390 ","End":"00:55.610","Text":"admin expense, tax expense,"},{"Start":"00:55.610 ","End":"00:57.690","Text":"and then our revenue of income."},{"Start":"00:57.690 ","End":"00:59.645","Text":"Those are all still in the trial balance."},{"Start":"00:59.645 ","End":"01:02.120","Text":"Those need to be cleared out of the trial balance,"},{"Start":"01:02.120 ","End":"01:03.755","Text":"closed-off to profit and loss,"},{"Start":"01:03.755 ","End":"01:07.340","Text":"and then the profit or loss closed off into the retained earnings."},{"Start":"01:07.340 ","End":"01:11.040","Text":"There\u0027s a quick way of working out the retained earnings closing balance."},{"Start":"01:11.040 ","End":"01:14.150","Text":"That is to look at the income statement that you\u0027ve just worked out."},{"Start":"01:14.150 ","End":"01:16.710","Text":"The income statement shows that we\u0027ve got profit for the year."},{"Start":"01:16.710 ","End":"01:22.440","Text":"This is basically a columnar format of our profit and loss account."},{"Start":"01:22.440 ","End":"01:25.490","Text":"We\u0027ve got our revenues and then all of our expenses,"},{"Start":"01:25.490 ","End":"01:27.725","Text":"cost of goods sold less the salary expenses,"},{"Start":"01:27.725 ","End":"01:30.020","Text":"admin expense and less the tax expense."},{"Start":"01:30.020 ","End":"01:33.380","Text":"The profit or loss account would show profit for the period of"},{"Start":"01:33.380 ","End":"01:37.790","Text":"3,000 and that amount would then be closed off to our retained earnings,"},{"Start":"01:37.790 ","End":"01:42.590","Text":"thus increasing retained earnings balance by 3,000 at the end of the year."},{"Start":"01:42.590 ","End":"01:48.645","Text":"The retained earnings account of 3,000 will then become 6,000,"},{"Start":"01:48.645 ","End":"01:51.405","Text":"so 3,000 plus 3,000."},{"Start":"01:51.405 ","End":"01:53.735","Text":"When we close off our income and expense accounts,"},{"Start":"01:53.735 ","End":"01:56.210","Text":"we close off all the income to the right-hand side or"},{"Start":"01:56.210 ","End":"01:59.330","Text":"credit side of our profit and loss and our expenses will"},{"Start":"01:59.330 ","End":"02:01.920","Text":"be closed off to the left-hand side or"},{"Start":"02:01.920 ","End":"02:05.595","Text":"the debit side of our profit and loss and all of the income."},{"Start":"02:05.595 ","End":"02:11.610","Text":"Well, we only had 1, was 31,000 and our expenses we had 15,000,"},{"Start":"02:11.610 ","End":"02:16.575","Text":"8,000, 4,000, and 1,000."},{"Start":"02:16.575 ","End":"02:18.890","Text":"If we balance this off,"},{"Start":"02:18.890 ","End":"02:23.805","Text":"we take the 31,000 across and subtract all of our expenses,"},{"Start":"02:23.805 ","End":"02:28.915","Text":"we\u0027ll get to a figure of 3,000 being a balance carried down."},{"Start":"02:28.915 ","End":"02:32.030","Text":"We take it down to the right-hand side because"},{"Start":"02:32.030 ","End":"02:36.150","Text":"the credit side was bigger and we\u0027ve got 3,000."},{"Start":"02:36.150 ","End":"02:39.878","Text":"Now that 3,000 because it\u0027s on the right-hand side of the profit and loss account,"},{"Start":"02:39.878 ","End":"02:42.805","Text":"indicates that it\u0027s a profit and we then take that"},{"Start":"02:42.805 ","End":"02:47.630","Text":"3,000 and we transfer that to our retained earnings account,"},{"Start":"02:47.630 ","End":"02:51.140","Text":"which already has an opening balance of 3,000 in there."},{"Start":"02:51.140 ","End":"02:55.100","Text":"When we transfer that 3,000 across,"},{"Start":"02:55.100 ","End":"02:59.575","Text":"it\u0027s increasing that balance to 6,000."},{"Start":"02:59.575 ","End":"03:03.755","Text":"That will then be our closing balance of retained earnings."},{"Start":"03:03.755 ","End":"03:06.170","Text":"At which point our trial balance,"},{"Start":"03:06.170 ","End":"03:08.060","Text":"if we were to draw it up again,"},{"Start":"03:08.060 ","End":"03:14.360","Text":"post-closing entries, we would have nothing in our cost of goods sold account."},{"Start":"03:14.360 ","End":"03:16.160","Text":"We would have nothing to salaries,"},{"Start":"03:16.160 ","End":"03:21.515","Text":"admin tax expense, and we would have nothing in our revenue."},{"Start":"03:21.515 ","End":"03:25.220","Text":"Our trial balance would still balance."},{"Start":"03:25.220 ","End":"03:29.780","Text":"The totals of 53 and 53 would be different figures,"},{"Start":"03:29.780 ","End":"03:33.065","Text":"but they would both still equal each other."},{"Start":"03:33.065 ","End":"03:34.895","Text":"Now in drawing up your balance sheet,"},{"Start":"03:34.895 ","End":"03:37.895","Text":"we could present it in any number of ways."},{"Start":"03:37.895 ","End":"03:44.030","Text":"Very common is using the equation assets equals liabilities plus equity."},{"Start":"03:44.030 ","End":"03:46.625","Text":"Basically, going back to your accounting equation."},{"Start":"03:46.625 ","End":"03:48.005","Text":"Now using this format,"},{"Start":"03:48.005 ","End":"03:51.855","Text":"what we would have is we present the total assets."},{"Start":"03:51.855 ","End":"03:55.085","Text":"I\u0027ll show you in a moment how we get to those total assets."},{"Start":"03:55.085 ","End":"04:00.215","Text":"Then the next section will be to show the total liabilities and the total equity."},{"Start":"04:00.215 ","End":"04:04.920","Text":"We would add the total liabilities and equity together showing us 25,000 in"},{"Start":"04:04.920 ","End":"04:10.925","Text":"this particular example be 25,000 and that will equal our total assets of 25,000."},{"Start":"04:10.925 ","End":"04:16.520","Text":"That\u0027s based on the formula assets equals liabilities and equity."},{"Start":"04:16.520 ","End":"04:19.170","Text":"Your balance sheet would balance."},{"Start":"04:19.170 ","End":"04:23.480","Text":"Now, this particular format is shown in a horizontal format."},{"Start":"04:23.480 ","End":"04:26.060","Text":"It could also be in a vertical format."},{"Start":"04:26.060 ","End":"04:29.900","Text":"In other words, we could show the total assets and then underneath it,"},{"Start":"04:29.900 ","End":"04:31.415","Text":"instead of on the right-hand side,"},{"Start":"04:31.415 ","End":"04:35.570","Text":"we could then show the total liabilities and total equity."},{"Start":"04:35.570 ","End":"04:41.195","Text":"Now let\u0027s have a look at the total assets and how we get to that total of 25,000."},{"Start":"04:41.195 ","End":"04:43.070","Text":"Going back to the balance sheet,"},{"Start":"04:43.070 ","End":"04:45.830","Text":"we\u0027re now extracting from our balance sheet anything"},{"Start":"04:45.830 ","End":"04:49.980","Text":"that we identified as belonging in the balance sheet."},{"Start":"04:50.180 ","End":"04:55.290","Text":"Within those, we now need to identify which are the assets and which the liabilities."},{"Start":"04:55.290 ","End":"04:57.180","Text":"We\u0027ve got property, plant and equipment,"},{"Start":"04:57.180 ","End":"04:58.590","Text":"that is an asset."},{"Start":"04:58.590 ","End":"05:00.255","Text":"Inventories is an asset,"},{"Start":"05:00.255 ","End":"05:04.215","Text":"cash is an asset and accounts receivable is an asset."},{"Start":"05:04.215 ","End":"05:07.590","Text":"The rest are not assets and I know that immediately without"},{"Start":"05:07.590 ","End":"05:11.055","Text":"having to go into the detail because they\u0027ve got credit balances."},{"Start":"05:11.055 ","End":"05:12.870","Text":"Now, within those,"},{"Start":"05:12.870 ","End":"05:16.785","Text":"we now need to identify are these current assets or non-current assets?"},{"Start":"05:16.785 ","End":"05:18.630","Text":"Property, plant and equipment is an asset that"},{"Start":"05:18.630 ","End":"05:21.360","Text":"we plan to use over a long period of time."},{"Start":"05:21.360 ","End":"05:24.225","Text":"So that would be a non-current asset."},{"Start":"05:24.225 ","End":"05:26.310","Text":"We plan to use it over more than a year."},{"Start":"05:26.310 ","End":"05:31.425","Text":"Inventories is a current asset because we are hoping to sell it typically within a year."},{"Start":"05:31.425 ","End":"05:34.320","Text":"Cash is also a current asset because it\u0027s typically"},{"Start":"05:34.320 ","End":"05:37.725","Text":"used within a year and accounts receivable as well."},{"Start":"05:37.725 ","End":"05:41.400","Text":"We have 1 non-current asset and 3 current assets."},{"Start":"05:41.400 ","End":"05:43.995","Text":"We simply take those line items from the trial balance"},{"Start":"05:43.995 ","End":"05:46.950","Text":"and pop them into your balance sheet under the relevant headings."},{"Start":"05:46.950 ","End":"05:49.020","Text":"We have a heading for non-current assets,"},{"Start":"05:49.020 ","End":"05:50.355","Text":"property, plant and equipment."},{"Start":"05:50.355 ","End":"05:52.470","Text":"It was 10,000 from the trial balance."},{"Start":"05:52.470 ","End":"05:54.030","Text":"Then our current assets,"},{"Start":"05:54.030 ","End":"05:56.580","Text":"we\u0027ve got inventory, accounts receivable, and cash."},{"Start":"05:56.580 ","End":"05:58.050","Text":"5,000, 3,000,"},{"Start":"05:58.050 ","End":"05:59.745","Text":"and 7,000 respectively,"},{"Start":"05:59.745 ","End":"06:03.720","Text":"giving us a total of our current assets being 15,000."},{"Start":"06:03.720 ","End":"06:07.050","Text":"We then take the 10,000 and the 15,000."},{"Start":"06:07.050 ","End":"06:09.520","Text":"In other words, the total of the non-current assets and the total of"},{"Start":"06:09.520 ","End":"06:14.709","Text":"the current assets and that then gives us the total assets."},{"Start":"06:14.709 ","End":"06:20.500","Text":"Now bear in mind that we have to show our assets in order of liquidity."},{"Start":"06:20.500 ","End":"06:24.040","Text":"But we could have shown it in the opposite order."},{"Start":"06:24.040 ","End":"06:27.070","Text":"So we have shown here the assets in"},{"Start":"06:27.070 ","End":"06:30.250","Text":"order of liquidity from the least liquid to the most liquid."},{"Start":"06:30.250 ","End":"06:32.630","Text":"Cash is the most liquid asset."},{"Start":"06:32.630 ","End":"06:38.005","Text":"We could\u0027ve shown current assets first and then non-current assets afterwards."},{"Start":"06:38.005 ","End":"06:39.460","Text":"Then in that case,"},{"Start":"06:39.460 ","End":"06:41.500","Text":"our current assets would start with cash,"},{"Start":"06:41.500 ","End":"06:43.865","Text":"next item would have been accounts receivable,"},{"Start":"06:43.865 ","End":"06:46.200","Text":"then the last item would have been inventories."},{"Start":"06:46.200 ","End":"06:51.380","Text":"Inventories is the least current or least liquid because it still has to be converted"},{"Start":"06:51.380 ","End":"06:57.340","Text":"into a data or accounts receivable before it can be converted into cash."},{"Start":"06:57.340 ","End":"07:01.100","Text":"Just to recap, the order in which we\u0027ve presented these assets is from"},{"Start":"07:01.100 ","End":"07:06.125","Text":"the least liquid being the non-current assets to the most liquid,"},{"Start":"07:06.125 ","End":"07:10.610","Text":"which are your current assets and then the most liquid of the current asset is cash."},{"Start":"07:10.610 ","End":"07:12.730","Text":"Now let\u0027s look at the total liabilities."},{"Start":"07:12.730 ","End":"07:14.435","Text":"Looking at our trial balance,"},{"Start":"07:14.435 ","End":"07:17.405","Text":"we\u0027ve got liabilities here for accounts payable."},{"Start":"07:17.405 ","End":"07:21.965","Text":"Looking here we have liabilities being accounts payable,"},{"Start":"07:21.965 ","End":"07:23.285","Text":"we have a loan,"},{"Start":"07:23.285 ","End":"07:26.150","Text":"we have tax payable and salary payable."},{"Start":"07:26.150 ","End":"07:27.920","Text":"Just as with the assets,"},{"Start":"07:27.920 ","End":"07:32.630","Text":"we must also identify which of these liabilities and non-current and which are current."},{"Start":"07:32.630 ","End":"07:37.415","Text":"Now accounts payable, those are typically paid within the years of their current."},{"Start":"07:37.415 ","End":"07:40.865","Text":"Here we have a loan which is payable in 5 years time,"},{"Start":"07:40.865 ","End":"07:47.810","Text":"so that makes it a non-current liability because it\u0027s repayable beyond year from now."},{"Start":"07:47.810 ","End":"07:50.600","Text":"Tax payable, that has to be paid very quickly."},{"Start":"07:50.600 ","End":"07:52.100","Text":"Salaries payable, very quickly."},{"Start":"07:52.100 ","End":"07:54.520","Text":"So both of those are current."},{"Start":"07:54.520 ","End":"07:59.135","Text":"Let\u0027s put these items into our balance sheet."},{"Start":"07:59.135 ","End":"08:01.970","Text":"As you can see, the non-current liabilities are loan,"},{"Start":"08:01.970 ","End":"08:04.025","Text":"which was repayable in 5 years time,"},{"Start":"08:04.025 ","End":"08:07.200","Text":"is shown under the non-current liabilities section."},{"Start":"08:07.200 ","End":"08:09.515","Text":"Then under the current liabilities section,"},{"Start":"08:09.515 ","End":"08:11.720","Text":"we\u0027ve got salaries payable, tax payable,"},{"Start":"08:11.720 ","End":"08:14.240","Text":"accounts payable, all are equally current."},{"Start":"08:14.240 ","End":"08:17.125","Text":"You could have put it in any order you liked really."},{"Start":"08:17.125 ","End":"08:19.785","Text":"750, 500, and 6,750."},{"Start":"08:19.785 ","End":"08:22.020","Text":"That adds up to 8,000."},{"Start":"08:22.020 ","End":"08:25.370","Text":"If we take the total of our non-current liabilities of"},{"Start":"08:25.370 ","End":"08:29.655","Text":"7,000 and the total of our current liabilities of 8,000,"},{"Start":"08:29.655 ","End":"08:33.695","Text":"that then gives us the total liabilities of 15,000."},{"Start":"08:33.695 ","End":"08:36.845","Text":"Now let\u0027s look at the total equity of 10,000."},{"Start":"08:36.845 ","End":"08:41.565","Text":"We come back to our trial balance and we see we\u0027ve got 2 equity accounts."},{"Start":"08:41.565 ","End":"08:45.290","Text":"We\u0027ve got share capital and we\u0027ve got retained earnings."},{"Start":"08:45.290 ","End":"08:48.515","Text":"Just remember that a trial balance normally does not show"},{"Start":"08:48.515 ","End":"08:52.850","Text":"shareholder capital or share capital as being shareholder\u0027s equity,"},{"Start":"08:52.850 ","End":"08:55.400","Text":"nor does the retained earnings and only get"},{"Start":"08:55.400 ","End":"08:58.550","Text":"identified as being a shareholder\u0027s equity account."},{"Start":"08:58.550 ","End":"09:01.040","Text":"You would have to identify those correctly."},{"Start":"09:01.040 ","End":"09:03.140","Text":"Next thing to remember is,"},{"Start":"09:03.140 ","End":"09:04.430","Text":"as we have already discussed,"},{"Start":"09:04.430 ","End":"09:08.045","Text":"that retained earnings is as at the first of the first X1."},{"Start":"09:08.045 ","End":"09:10.250","Text":"That is the opening balance in"},{"Start":"09:10.250 ","End":"09:14.015","Text":"your retained earnings account and we have to work out the closing balance."},{"Start":"09:14.015 ","End":"09:17.750","Text":"Opening balance is 3,000 and we\u0027re going to"},{"Start":"09:17.750 ","End":"09:21.875","Text":"add to that the profit for the year which we worked out in our income statement,"},{"Start":"09:21.875 ","End":"09:25.910","Text":"and that gives us a closing balance of 6,000."},{"Start":"09:25.910 ","End":"09:28.820","Text":"Instead of showing 3,000 on our balance sheet,"},{"Start":"09:28.820 ","End":"09:31.865","Text":"we\u0027re actually going to show 6,000."},{"Start":"09:31.865 ","End":"09:35.840","Text":"That\u0027s because what we\u0027re doing is we are taking the 31,000"},{"Start":"09:35.840 ","End":"09:39.935","Text":"revenue and transferring that effectively into the retained earnings."},{"Start":"09:39.935 ","End":"09:42.830","Text":"We\u0027re subtracting the 15,000 out of"},{"Start":"09:42.830 ","End":"09:46.190","Text":"the cost of goods sold and putting that into the retained earnings account,"},{"Start":"09:46.190 ","End":"09:49.970","Text":"the 8,000 salaries expense goes effectively to retained earnings,"},{"Start":"09:49.970 ","End":"09:53.140","Text":"so does admin expense and so does the tax expense."},{"Start":"09:53.140 ","End":"09:57.440","Text":"Those items, those income and expenses reduced to"},{"Start":"09:57.440 ","End":"10:02.645","Text":"0 because they\u0027re effectively now sitting in our retained earnings account."},{"Start":"10:02.645 ","End":"10:06.365","Text":"The net effect of them is the 3,000 profit."},{"Start":"10:06.365 ","End":"10:09.040","Text":"We\u0027re going to show the share capital 4,000 and we\u0027re"},{"Start":"10:09.040 ","End":"10:11.620","Text":"going to show retained earnings of 6,000."},{"Start":"10:11.620 ","End":"10:16.285","Text":"Here we have our share capital of 4,000 and our retained earnings of 6,000."},{"Start":"10:16.285 ","End":"10:20.780","Text":"The 2 together give us the total equity of 10,000."},{"Start":"10:20.780 ","End":"10:27.450","Text":"We then take total equity of 10,000 and add to that the total liabilities of 15,000,"},{"Start":"10:27.450 ","End":"10:33.510","Text":"the 2 together give us the total liabilities and equity of 25,000."},{"Start":"10:33.510 ","End":"10:41.100","Text":"Notice that the total assets of 25,000 equal the total liabilities and equity of 25,000."},{"Start":"10:41.100 ","End":"10:44.310","Text":"That\u0027s because of our accounting equation being based"},{"Start":"10:44.310 ","End":"10:48.810","Text":"on assets equals liabilities plus equity."},{"Start":"10:48.810 ","End":"10:50.640","Text":"Now there is another way of presenting"},{"Start":"10:50.640 ","End":"10:53.175","Text":"your accounting equation and that could then devolve"},{"Start":"10:53.175 ","End":"10:57.480","Text":"into another way of presenting our balance sheets. Let\u0027s take a look."},{"Start":"10:57.480 ","End":"10:59.340","Text":"Using the accounting equation,"},{"Start":"10:59.340 ","End":"11:02.490","Text":"assets minus liabilities equals equity."},{"Start":"11:02.490 ","End":"11:06.080","Text":"So just a reminder, the previous balance sheet was based on"},{"Start":"11:06.080 ","End":"11:10.225","Text":"the formula, assets equals liabilities plus equity."},{"Start":"11:10.225 ","End":"11:11.795","Text":"That\u0027s the same formula,"},{"Start":"11:11.795 ","End":"11:16.040","Text":"except that the liabilities in this case are now on the left-hand side of the equal sign."},{"Start":"11:16.040 ","End":"11:20.165","Text":"When you take the liabilities across to the other side,"},{"Start":"11:20.165 ","End":"11:25.160","Text":"a positive liability becomes a negative liability and that\u0027s why we subtracting it here,"},{"Start":"11:25.160 ","End":"11:27.955","Text":"assets minus liabilities gives us equity."},{"Start":"11:27.955 ","End":"11:30.585","Text":"The structure of our balance sheet now changes."},{"Start":"11:30.585 ","End":"11:33.479","Text":"We\u0027ve got total assets minus"},{"Start":"11:33.479 ","End":"11:37.455","Text":"the total liabilities because we\u0027re saying assets minus liabilities."},{"Start":"11:37.455 ","End":"11:41.520","Text":"We working with net assets because assets minus liabilities is"},{"Start":"11:41.520 ","End":"11:45.444","Text":"the same thing as saying net assets because assets minus"},{"Start":"11:45.444 ","End":"11:54.300","Text":"liabilities equals equities is the same thing as saying,"},{"Start":"11:54.300 ","End":"11:57.165","Text":"net assets equals equity."},{"Start":"11:57.165 ","End":"11:59.310","Text":"The left-hand side of this accounting equation,"},{"Start":"11:59.310 ","End":"12:02.490","Text":"A-L is your net assets and"},{"Start":"12:02.490 ","End":"12:06.135","Text":"then the next section within your balance sheet is the total equity."},{"Start":"12:06.135 ","End":"12:10.815","Text":"You notice that these 2 figures equal each other."},{"Start":"12:10.815 ","End":"12:14.640","Text":"Now this is again presented in a horizontal format,"},{"Start":"12:14.640 ","End":"12:17.100","Text":"where I\u0027ve got the net assets on"},{"Start":"12:17.100 ","End":"12:21.060","Text":"the left-hand side of the page and total equity on the right-hand side of the page."},{"Start":"12:21.060 ","End":"12:24.960","Text":"But this could as easily be presented in a vertical format."},{"Start":"12:24.960 ","End":"12:27.780","Text":"In other words, the total equity could just have been"},{"Start":"12:27.780 ","End":"12:31.785","Text":"presented below the net assets instead of on the right-hand side."},{"Start":"12:31.785 ","End":"12:33.825","Text":"Let\u0027s do the presentation."},{"Start":"12:33.825 ","End":"12:35.310","Text":"If you look at your total assets,"},{"Start":"12:35.310 ","End":"12:37.230","Text":"we would have gone straight to the trial balance and"},{"Start":"12:37.230 ","End":"12:39.210","Text":"picked up the figures for our property,"},{"Start":"12:39.210 ","End":"12:41.580","Text":"plant and equipment, which we\u0027ve already established as"},{"Start":"12:41.580 ","End":"12:43.980","Text":"a non-current assets and then we put in the inventories,"},{"Start":"12:43.980 ","End":"12:45.645","Text":"accounts receivable, and cash."},{"Start":"12:45.645 ","End":"12:48.000","Text":"So the total assets is 25,000."},{"Start":"12:48.000 ","End":"12:49.650","Text":"You\u0027ll notice all the figures are the same,"},{"Start":"12:49.650 ","End":"12:51.630","Text":"it\u0027s just presented in a different order."},{"Start":"12:51.630 ","End":"12:53.730","Text":"We then go back to the trial balance and pick up all of"},{"Start":"12:53.730 ","End":"12:57.285","Text":"our liabilities and categorize them as non-current and current,"},{"Start":"12:57.285 ","End":"12:59.190","Text":"just like we did previously."},{"Start":"12:59.190 ","End":"13:02.280","Text":"The total liabilities is 15,000."},{"Start":"13:02.280 ","End":"13:07.515","Text":"Notice here that we are subtracting these liabilities that\u0027s why I have it in brackets."},{"Start":"13:07.515 ","End":"13:13.290","Text":"So we subtracting those liabilities from the assets to give us the net assets of 10,000."},{"Start":"13:13.290 ","End":"13:16.290","Text":"Then we move on to the equity section, go to the trial balance."},{"Start":"13:16.290 ","End":"13:19.575","Text":"You\u0027ll see the share capital is 4,000 and the retained earnings, remember,"},{"Start":"13:19.575 ","End":"13:22.650","Text":"we were given the opening balance of 3,000 and you had to"},{"Start":"13:22.650 ","End":"13:27.025","Text":"remember that we had to increase it by 3,000 for this year\u0027s profit,"},{"Start":"13:27.025 ","End":"13:28.785","Text":"giving us the 6,000."},{"Start":"13:28.785 ","End":"13:32.520","Text":"That is the end of the balance sheet section part B."}],"ID":28539}],"Thumbnail":null,"ID":254927},{"Name":"Short Exercises","TopicPlaylistFirstVideoID":0,"Duration":null,"Videos":[{"Watched":false,"Name":"Exercise 1","Duration":"5m 25s","ChapterTopicVideoID":27332,"CourseChapterTopicPlaylistID":271756,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.140 ","End":"00:05.580","Text":"This is a series of short exercises related to the recording of"},{"Start":"00:05.580 ","End":"00:10.740","Text":"transactions brought to you by Proprep. Exercise 1."},{"Start":"00:10.740 ","End":"00:13.005","Text":"On 1 April 20x5,"},{"Start":"00:13.005 ","End":"00:21.030","Text":"a daily newspaper receives 1,200 currency units from a subscriber for a 12-month period,"},{"Start":"00:21.030 ","End":"00:28.875","Text":"this period running from 1 April 20x5 to 31 March 20x6."},{"Start":"00:28.875 ","End":"00:34.140","Text":"The end of entity is 31 December 20x5."},{"Start":"00:34.140 ","End":"00:39.960","Text":"You\u0027re required to determine the amount of the income recognized for the year ended,"},{"Start":"00:39.960 ","End":"00:48.320","Text":"31 December between 20x5 and the amount of the liability at 31 December 20x5."},{"Start":"00:48.320 ","End":"00:50.675","Text":"The best way to approach"},{"Start":"00:50.675 ","End":"00:57.515","Text":"this particular exercise is to draw a timeline looking at the dates and amounts."},{"Start":"00:57.515 ","End":"01:00.575","Text":"Let us put in the key dates."},{"Start":"01:00.575 ","End":"01:04.010","Text":"The first key date is the beginning of the year."},{"Start":"01:04.010 ","End":"01:11.240","Text":"We know the beginning of the year here is 1 January of x5."},{"Start":"01:11.240 ","End":"01:16.730","Text":"We know that because the year end is 31 December x5."},{"Start":"01:16.730 ","End":"01:19.130","Text":"So we can put it in the year end as well."},{"Start":"01:19.130 ","End":"01:26.010","Text":"The end of the year is 31 December x5."},{"Start":"01:26.010 ","End":"01:30.345","Text":"Then we\u0027re told on 1 April x5,"},{"Start":"01:30.345 ","End":"01:38.065","Text":"this amount of 1,200 is received from a subscriber for a 12-month period."},{"Start":"01:38.065 ","End":"01:40.410","Text":"Somewhere over here,"},{"Start":"01:40.410 ","End":"01:45.975","Text":"on the 1st of April of x5,"},{"Start":"01:45.975 ","End":"01:48.530","Text":"that amount is received and"},{"Start":"01:48.530 ","End":"01:53.750","Text":"the 12-month period goes all the way through to date over here,"},{"Start":"01:53.750 ","End":"02:00.125","Text":"which will be the 31st of March of the x6 year."},{"Start":"02:00.125 ","End":"02:08.910","Text":"Now the issue that comes about is specifically this year end on December 31 x5."},{"Start":"02:08.910 ","End":"02:12.275","Text":"So here\u0027s the year end, December x5,"},{"Start":"02:12.275 ","End":"02:16.970","Text":"which is partway through the 12-month contract period."},{"Start":"02:16.970 ","End":"02:23.490","Text":"You see therefore from 1 April x5 to 31 December x5,"},{"Start":"02:23.490 ","End":"02:28.005","Text":"that comprises a period of 9 of the 12 months,"},{"Start":"02:28.005 ","End":"02:33.820","Text":"then from December x5 to March of x6 the following year,"},{"Start":"02:33.820 ","End":"02:37.900","Text":"comprises a period of 3 of the 12 months."},{"Start":"02:37.900 ","End":"02:40.960","Text":"Therefore, can we determine the amount of"},{"Start":"02:40.960 ","End":"02:45.490","Text":"the income earned for the year ending December x5?"},{"Start":"02:45.490 ","End":"02:52.840","Text":"The income earned for the year ending 31 December of x5 will"},{"Start":"02:52.840 ","End":"03:00.145","Text":"be the 1,200 currency units received multiplied by 9/12,"},{"Start":"03:00.145 ","End":"03:01.735","Text":"the 9 months of the year,"},{"Start":"03:01.735 ","End":"03:04.810","Text":"equaling an amount of 900."},{"Start":"03:04.810 ","End":"03:08.170","Text":"That answers part a of the question."},{"Start":"03:08.170 ","End":"03:10.420","Text":"Looking at part b,"},{"Start":"03:10.420 ","End":"03:15.880","Text":"what is the amount of the liability at 31 December 20x5?"},{"Start":"03:15.880 ","End":"03:19.720","Text":"That\u0027ll be the amount of the liability relating to"},{"Start":"03:19.720 ","End":"03:24.655","Text":"the income that will be earned in the following period."},{"Start":"03:24.655 ","End":"03:27.430","Text":"Now remember, on this date,"},{"Start":"03:27.430 ","End":"03:32.380","Text":"on the 1st of April of 20x5,"},{"Start":"03:32.380 ","End":"03:34.644","Text":"when the cash was received,"},{"Start":"03:34.644 ","End":"03:42.024","Text":"the entity would have debited cash with the amount of 1,200 and credited"},{"Start":"03:42.024 ","End":"03:50.302","Text":"a deferred income or unearned income as liability for 1,200."},{"Start":"03:50.302 ","End":"03:52.720","Text":"This 900 income recognized in"},{"Start":"03:52.720 ","End":"03:58.930","Text":"the current year would result in the double entry of debit to"},{"Start":"03:58.930 ","End":"04:03.010","Text":"the deferred income of 900 and"},{"Start":"04:03.010 ","End":"04:09.610","Text":"credit to an income account is called a subscription income."},{"Start":"04:09.610 ","End":"04:12.585","Text":"Remember this deferred income is a liability account."},{"Start":"04:12.585 ","End":"04:18.530","Text":"The subscription income is an income account of 900 and therefore,"},{"Start":"04:18.530 ","End":"04:22.505","Text":"the amount of the liability at"},{"Start":"04:22.505 ","End":"04:28.639","Text":"31 December of the x5 year must be the remaining liability,"},{"Start":"04:28.639 ","End":"04:31.165","Text":"the liability of 1,200."},{"Start":"04:31.165 ","End":"04:37.430","Text":"This the amount recognized of 900 equals a liability of"},{"Start":"04:37.430 ","End":"04:45.975","Text":"300 on the statement of financial position at 31 December of 20x5."},{"Start":"04:45.975 ","End":"04:48.440","Text":"Looking at this in the form of"},{"Start":"04:48.440 ","End":"04:54.545","Text":"a ledger account and looking at the deferred income ledger account specifically,"},{"Start":"04:54.545 ","End":"04:56.978","Text":"deferred income as liability,"},{"Start":"04:56.978 ","End":"04:59.450","Text":"here is the 1,200,"},{"Start":"04:59.450 ","End":"05:02.780","Text":"which was received in cash initially."},{"Start":"05:02.780 ","End":"05:08.390","Text":"Here is the 900 which went to subscription income to"},{"Start":"05:08.390 ","End":"05:14.420","Text":"recognize the income earned for the year ending December x5 and therefore,"},{"Start":"05:14.420 ","End":"05:20.605","Text":"the balance in this account is the balance of 300,"},{"Start":"05:20.605 ","End":"05:24.890","Text":"which you are seeing as a liability."}],"ID":28443},{"Watched":false,"Name":"Exercise 2","Duration":"5m 3s","ChapterTopicVideoID":27333,"CourseChapterTopicPlaylistID":271756,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.380 ","End":"00:02.775","Text":"In exercise 2,"},{"Start":"00:02.775 ","End":"00:06.045","Text":"we are told that on 1 October 20X5,"},{"Start":"00:06.045 ","End":"00:13.215","Text":"an entity pays 1,200 currency units for the insurance policy for a 12-month period."},{"Start":"00:13.215 ","End":"00:18.285","Text":"This period runs from the date of payment 1 October 20X5,"},{"Start":"00:18.285 ","End":"00:22.785","Text":"through to 30 September 20X6 of the following year."},{"Start":"00:22.785 ","End":"00:28.260","Text":"The year end of the entity is 31 December 20X5."},{"Start":"00:28.260 ","End":"00:31.260","Text":"You\u0027re asked to determine the amount of the expense"},{"Start":"00:31.260 ","End":"00:35.595","Text":"recognized for the year end 31 December 20X5,"},{"Start":"00:35.595 ","End":"00:42.520","Text":"and also the amount of the asset at that date 31 December 20X5."},{"Start":"00:42.520 ","End":"00:47.150","Text":"To determine the answer to this problem, it\u0027s again,"},{"Start":"00:47.150 ","End":"00:52.789","Text":"useful to draw up a timeline relating to the dates and amounts."},{"Start":"00:52.789 ","End":"00:57.860","Text":"We have here, the key dates of the beginning of the year,"},{"Start":"00:57.860 ","End":"01:04.250","Text":"which we are told or we can determine is 1 January X5,"},{"Start":"01:04.250 ","End":"01:08.080","Text":"because the year end is 31 December X5."},{"Start":"01:08.080 ","End":"01:14.605","Text":"We know that the end of the year is 31 December of X5."},{"Start":"01:14.605 ","End":"01:19.800","Text":"This contract we know starts on 1 October of X5."},{"Start":"01:19.800 ","End":"01:26.810","Text":"On 1 October X5 is the start of the 12 month insurance policy would run from"},{"Start":"01:26.810 ","End":"01:35.790","Text":"1 October X5 through to 30 September of the X6 year."},{"Start":"01:35.800 ","End":"01:41.585","Text":"Because the year end is 31 December 20X5,"},{"Start":"01:41.585 ","End":"01:48.500","Text":"we have a split period relating to the amount of the insurance policy."},{"Start":"01:48.500 ","End":"01:53.300","Text":"We have 3/12 of the policy sitting in"},{"Start":"01:53.300 ","End":"01:57.855","Text":"the year ending 31 December 20X5 and we have"},{"Start":"01:57.855 ","End":"02:04.285","Text":"9/12 to the policy sitting in the year end 30 September 20X6."},{"Start":"02:04.285 ","End":"02:07.330","Text":"Therefore, looking at Part A,"},{"Start":"02:07.330 ","End":"02:13.010","Text":"what is the amount of the expense on the income statement for"},{"Start":"02:13.010 ","End":"02:19.550","Text":"the year ended 31 December of the X5 year."},{"Start":"02:19.550 ","End":"02:23.070","Text":"The amount paid of 1,200,"},{"Start":"02:24.730 ","End":"02:28.250","Text":"and we know there\u0027s 3/12,"},{"Start":"02:28.250 ","End":"02:34.640","Text":"which relates to the current year ending 31 December of 20X5."},{"Start":"02:34.640 ","End":"02:39.000","Text":"Therefore, an amount of 300 is the expense"},{"Start":"02:39.000 ","End":"02:44.090","Text":"recognized for the year ending 31 December 20X5."},{"Start":"02:44.090 ","End":"02:49.420","Text":"To look at Part B and say what is the asset on the statement of"},{"Start":"02:49.420 ","End":"02:55.620","Text":"financial position at the end of the year at 31 December 20X,"},{"Start":"02:55.620 ","End":"02:59.140","Text":"we go back and look at the journal entry which would\u0027ve been"},{"Start":"02:59.140 ","End":"03:03.305","Text":"processed on 1 January when the payment was made."},{"Start":"03:03.305 ","End":"03:05.580","Text":"Upon paying this amount,"},{"Start":"03:05.580 ","End":"03:15.040","Text":"there would\u0027ve been a debit to a prepaid expense and is called a prepaid"},{"Start":"03:15.040 ","End":"03:25.640","Text":"insurance as an asset for 1,200 and a credit to cash of 1,200."},{"Start":"03:25.640 ","End":"03:29.830","Text":"Now we know for the year ending December X5,"},{"Start":"03:29.830 ","End":"03:33.260","Text":"that 300 of this was expensed."},{"Start":"03:33.260 ","End":"03:43.435","Text":"Therefore, the asset would be the amount paid of 1,200 less the amount expensed of 300,"},{"Start":"03:43.435 ","End":"03:49.790","Text":"and therefore the asset at December X5 is an amount of 900."},{"Start":"03:50.280 ","End":"03:55.120","Text":"We can also look at the ledger accounts ledging"},{"Start":"03:55.120 ","End":"04:04.180","Text":"specifically to the prepaid insurance."},{"Start":"04:04.180 ","End":"04:05.885","Text":"The prepaid insurance upon payment,"},{"Start":"04:05.885 ","End":"04:10.820","Text":"it would have been a debit to the account in the amount of 1,200."},{"Start":"04:10.820 ","End":"04:14.825","Text":"That\u0027s just 1,200 over here when the amount was paid."},{"Start":"04:14.825 ","End":"04:21.935","Text":"Then when we recognize the expense for the year ending December X5,"},{"Start":"04:21.935 ","End":"04:29.370","Text":"that general entry would have been a debit to insurance expense of"},{"Start":"04:29.370 ","End":"04:38.070","Text":"300 and a credit going to the prepaid insurance,"},{"Start":"04:38.070 ","End":"04:41.505","Text":"the asset of 300."},{"Start":"04:41.505 ","End":"04:44.420","Text":"When we debited the insurance expense,"},{"Start":"04:44.420 ","End":"04:48.110","Text":"we would have credited the insurance prepaid,"},{"Start":"04:48.110 ","End":"04:51.340","Text":"remember the insurance prepaid is an asset account,"},{"Start":"04:51.340 ","End":"04:54.735","Text":"would be credited with 300."},{"Start":"04:54.735 ","End":"05:03.750","Text":"Therefore, the balance at the end of the year is the amount we see as the asset of 900."}],"ID":28444},{"Watched":false,"Name":"Exercise 3","Duration":"8m 36s","ChapterTopicVideoID":27334,"CourseChapterTopicPlaylistID":271756,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:02.850","Text":"Exercise 3."},{"Start":"00:02.850 ","End":"00:07.095","Text":"Exercise 3 requires you to use your understanding"},{"Start":"00:07.095 ","End":"00:11.910","Text":"of the transactions in particular accounts,"},{"Start":"00:11.910 ","End":"00:15.254","Text":"in this case, supplies and accounts payable,"},{"Start":"00:15.254 ","End":"00:18.549","Text":"to determine and to solve the problem."},{"Start":"00:18.549 ","End":"00:25.050","Text":"You\u0027re told that there\u0027s information relating to supplies for"},{"Start":"00:25.050 ","End":"00:32.205","Text":"the 3 month period from 1 January 20X8 to 31 March 20X8."},{"Start":"00:32.205 ","End":"00:36.540","Text":"Important information, the supplies unused at"},{"Start":"00:36.540 ","End":"00:44.765","Text":"1 January X8 and then supplies unused at 31 March 20X8."},{"Start":"00:44.765 ","End":"00:49.645","Text":"Remember the supplies unused is an asset."},{"Start":"00:49.645 ","End":"01:00.120","Text":"Then you are told there is accounts payable at 1 January X8 and also accounts payable,"},{"Start":"01:00.120 ","End":"01:03.250","Text":"at 31 March of X8."},{"Start":"01:03.250 ","End":"01:08.270","Text":"The accounts payable clearly are a liability."},{"Start":"01:08.270 ","End":"01:15.110","Text":"The other information given is that there has been supplies purchased on"},{"Start":"01:15.110 ","End":"01:21.730","Text":"credit in this period of time between 1 January X8 and 31 March X8,"},{"Start":"01:21.730 ","End":"01:24.335","Text":"the entire amount of the accounts payable"},{"Start":"01:24.335 ","End":"01:28.565","Text":"represents the amounts owing to that particular supplier."},{"Start":"01:28.565 ","End":"01:31.850","Text":"You are required to calculate the cash paid to"},{"Start":"01:31.850 ","End":"01:37.325","Text":"the supplier during those 3 months ended 31 March 20X8,"},{"Start":"01:37.325 ","End":"01:41.971","Text":"and calculate the supplies used during the 3 months,"},{"Start":"01:41.971 ","End":"01:44.825","Text":"also ended 31 March 20X8."},{"Start":"01:44.825 ","End":"01:47.060","Text":"In solving this problem,"},{"Start":"01:47.060 ","End":"01:51.815","Text":"I will first look at the logic of the transactions affecting"},{"Start":"01:51.815 ","End":"01:58.360","Text":"the relevant accounts and then prove it to you by drawing up a ledger account."},{"Start":"01:58.360 ","End":"02:02.555","Text":"Looking firstly at the cash paid to the supplier."},{"Start":"02:02.555 ","End":"02:10.390","Text":"If we start off with the opening balance in accounts payable at"},{"Start":"02:10.390 ","End":"02:19.085","Text":"the beginning of the period and we add on the purchases on credit during the period."},{"Start":"02:19.085 ","End":"02:22.570","Text":"Then we subtract the amount we\u0027re trying to"},{"Start":"02:22.570 ","End":"02:28.865","Text":"determine the cash paid to the supplier during the period,"},{"Start":"02:28.865 ","End":"02:36.325","Text":"we must end up with the ending balance in accounts payable at the end of the period."},{"Start":"02:36.325 ","End":"02:40.990","Text":"Now we are told in the equation that the opening balance in accounts payable at"},{"Start":"02:40.990 ","End":"02:46.040","Text":"1 January X8 is the amount of 350 and we are"},{"Start":"02:46.040 ","End":"02:56.335","Text":"told the goods purchased on credit during the year amounts to 2,700, so add 2,700."},{"Start":"02:56.335 ","End":"03:03.965","Text":"You\u0027re also told that the accounts payable at the end of the year amount to 490,"},{"Start":"03:03.965 ","End":"03:07.025","Text":"that\u0027s the ending balance in accounts payable."},{"Start":"03:07.025 ","End":"03:10.355","Text":"Logic therefore, if we"},{"Start":"03:10.355 ","End":"03:14.455","Text":"owe our suppliers the amount of 350 at the beginning of the period,"},{"Start":"03:14.455 ","End":"03:19.775","Text":"and we purchased supplies on credit for 2,700 during the period,"},{"Start":"03:19.775 ","End":"03:24.710","Text":"and we owe our suppliers 490 at the end of the period, therefore,"},{"Start":"03:24.710 ","End":"03:33.275","Text":"we must have paid our suppliers an amount of 2,560 during the period."},{"Start":"03:33.275 ","End":"03:38.740","Text":"This we can represent in a ledger account."},{"Start":"03:38.740 ","End":"03:42.135","Text":"At the top here, I\u0027ll draw a ledger account"},{"Start":"03:42.135 ","End":"03:47.035","Text":"for accounts payable and I\u0027ll put in the opening balance,"},{"Start":"03:47.035 ","End":"03:53.705","Text":"liability of 350, and I\u0027ll put it in a closing balance,"},{"Start":"03:53.705 ","End":"03:56.990","Text":"a liability of 490,"},{"Start":"03:56.990 ","End":"04:01.805","Text":"which must sit over here as well, balance 490."},{"Start":"04:01.805 ","End":"04:08.420","Text":"The purchases on credit with the debit going to supplies account,"},{"Start":"04:08.420 ","End":"04:12.910","Text":"credit to accounts payable is 2,700,"},{"Start":"04:12.910 ","End":"04:21.160","Text":"and therefore I can determine the amount of the cash paid of 2,560."},{"Start":"04:21.160 ","End":"04:22.960","Text":"Looking at the second part,"},{"Start":"04:22.960 ","End":"04:26.665","Text":"the amount of the supplies used during the period,"},{"Start":"04:26.665 ","End":"04:32.860","Text":"if I take the opening balance on the supplier\u0027s accounts at"},{"Start":"04:32.860 ","End":"04:40.495","Text":"the beginning of the period and I add on the supplies purchased on credit."},{"Start":"04:40.495 ","End":"04:44.020","Text":"In fact, purchased on credit or for cash."},{"Start":"04:44.020 ","End":"04:46.285","Text":"It doesn\u0027t matter, in this case, it is on credit."},{"Start":"04:46.285 ","End":"04:53.230","Text":"If I then subtract the amount of the supplies used during the period,"},{"Start":"04:53.230 ","End":"05:00.500","Text":"I must end up with the ending balance on the supplier\u0027s account."},{"Start":"05:00.500 ","End":"05:07.910","Text":"We give them the opening balance of supplies at 1 January X8 is the amount of 219."},{"Start":"05:07.910 ","End":"05:10.715","Text":"That\u0027s the opening balance of supplies."},{"Start":"05:10.715 ","End":"05:13.250","Text":"The supplies purchased,"},{"Start":"05:13.250 ","End":"05:16.430","Text":"is the same amount of 2,700 that\u0027ll be"},{"Start":"05:16.430 ","End":"05:20.360","Text":"used over here and looking at the accounts payable account."},{"Start":"05:20.360 ","End":"05:24.550","Text":"You purchased supplies of 2,700."},{"Start":"05:24.550 ","End":"05:28.640","Text":"We know the ending balance in the supplier\u0027s account,"},{"Start":"05:28.640 ","End":"05:34.610","Text":"is the amount here of 620 ending balance."},{"Start":"05:34.610 ","End":"05:41.390","Text":"Therefore, if we had supplies on hand of 290 at the beginning of the period,"},{"Start":"05:41.390 ","End":"05:50.630","Text":"we purchased supplies costing 2,700 and our ending balance of supplies, the 620,"},{"Start":"05:50.630 ","End":"05:55.715","Text":"therefore, the amount of supplies used during the period"},{"Start":"05:55.715 ","End":"06:02.615","Text":"must amount to 2,370."},{"Start":"06:02.615 ","End":"06:05.750","Text":"Now there are few important principles you can"},{"Start":"06:05.750 ","End":"06:09.445","Text":"see by looking at these 2 parts of the answer,"},{"Start":"06:09.445 ","End":"06:12.810","Text":"1 looking at these 2 together,"},{"Start":"06:12.810 ","End":"06:19.925","Text":"the supplies purchased on credit entry in part a over here,"},{"Start":"06:19.925 ","End":"06:23.330","Text":"and the supplies used in part b over there."},{"Start":"06:23.330 ","End":"06:28.579","Text":"The journal entry to record supplies purchased,"},{"Start":"06:28.579 ","End":"06:31.895","Text":"as I\u0027ve just said in both part a and part b,"},{"Start":"06:31.895 ","End":"06:35.479","Text":"is a debit to the supplier\u0027s account,"},{"Start":"06:35.479 ","End":"06:39.935","Text":"the asset account of 2,700,"},{"Start":"06:39.935 ","End":"06:43.445","Text":"and a credit to the accounts payable account,"},{"Start":"06:43.445 ","End":"06:47.885","Text":"liability account of 2,700."},{"Start":"06:47.885 ","End":"06:51.215","Text":"Here\u0027s the debit going to the supplier\u0027s account,"},{"Start":"06:51.215 ","End":"06:55.805","Text":"and here\u0027s the credit going into the accounts payable account."},{"Start":"06:55.805 ","End":"07:00.620","Text":"Also note very importantly over here is the fact that"},{"Start":"07:00.620 ","End":"07:03.890","Text":"the cash paid to"},{"Start":"07:03.890 ","End":"07:11.180","Text":"suppliers and the amount used and therefore the expense are 2 different numbers."},{"Start":"07:11.180 ","End":"07:15.455","Text":"The amount paid in cash does not represent the expense,"},{"Start":"07:15.455 ","End":"07:17.075","Text":"amount paid in cash,"},{"Start":"07:17.075 ","End":"07:18.230","Text":"which we see over here,"},{"Start":"07:18.230 ","End":"07:23.450","Text":"the 2,560 is determined by looking at the liability account."},{"Start":"07:23.450 ","End":"07:27.395","Text":"Remember, this is a liability account for accounts payable,"},{"Start":"07:27.395 ","End":"07:31.280","Text":"whereas the amount of the supplies used as the expense,"},{"Start":"07:31.280 ","End":"07:35.345","Text":"the 2,370 relates to the asset account,"},{"Start":"07:35.345 ","End":"07:37.205","Text":"which I\u0027ll do for you now."},{"Start":"07:37.205 ","End":"07:39.860","Text":"We do over here at the bottom of the page,"},{"Start":"07:39.860 ","End":"07:46.145","Text":"the supplier\u0027s account as the asset"},{"Start":"07:46.145 ","End":"07:53.645","Text":"is an opening balance which we know of 290 and there is the closing balance,"},{"Start":"07:53.645 ","End":"07:57.845","Text":"an asset, as we know of 620,"},{"Start":"07:57.845 ","End":"08:02.060","Text":"which must sit here as well, balance 620."},{"Start":"08:02.060 ","End":"08:05.000","Text":"The journal entry is a debit to supplies,"},{"Start":"08:05.000 ","End":"08:07.370","Text":"asset credit to the supplies account,"},{"Start":"08:07.370 ","End":"08:09.440","Text":"credit to accounts payable account."},{"Start":"08:09.440 ","End":"08:14.105","Text":"So here is the 2,700."},{"Start":"08:14.105 ","End":"08:16.370","Text":"Remember that\u0027s the debit,"},{"Start":"08:16.370 ","End":"08:18.200","Text":"and here\u0027s the credit,"},{"Start":"08:18.200 ","End":"08:21.170","Text":"the 2,700 and therefore,"},{"Start":"08:21.170 ","End":"08:25.380","Text":"I can determine the missing figure of the amount going into"},{"Start":"08:25.380 ","End":"08:36.150","Text":"the expense supplies used of 2,370 for the period."}],"ID":28445},{"Watched":false,"Name":"Exercise 4","Duration":"3m 39s","ChapterTopicVideoID":27335,"CourseChapterTopicPlaylistID":271756,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:05.730","Text":"Exercise 4, test your knowledge of debits and credits."},{"Start":"00:05.730 ","End":"00:09.270","Text":"You\u0027re asked to consider the following statements."},{"Start":"00:09.270 ","End":"00:13.395","Text":"Debit entries in a ledger may result in,"},{"Start":"00:13.395 ","End":"00:15.570","Text":"and you\u0027re given 5 different options."},{"Start":"00:15.570 ","End":"00:21.795","Text":"You\u0027re asked to choose the correct option and then clearly explain your answer."},{"Start":"00:21.795 ","End":"00:25.290","Text":"The best way to approach this is to think of"},{"Start":"00:25.290 ","End":"00:27.930","Text":"the accounting equation and to think of"},{"Start":"00:27.930 ","End":"00:31.815","Text":"how debits and credits impact on each of the assets,"},{"Start":"00:31.815 ","End":"00:34.225","Text":"liabilities, and equity."},{"Start":"00:34.225 ","End":"00:41.450","Text":"We will set out here the accounting equation of assets equals liabilities plus"},{"Start":"00:41.450 ","End":"00:49.595","Text":"owner\u0027s equity and we\u0027ll draw out a little ledger account for each 1 representing assets,"},{"Start":"00:49.595 ","End":"00:53.210","Text":"liabilities, and owner\u0027s equity."},{"Start":"00:53.210 ","End":"00:55.370","Text":"I will insert in the top,"},{"Start":"00:55.370 ","End":"01:00.530","Text":"I\u0027ll put it in orange debit and credit,"},{"Start":"01:00.530 ","End":"01:07.700","Text":"debit and credit, debit and credit."},{"Start":"01:07.700 ","End":"01:13.765","Text":"Now, remember, assets increase with debits and assets decrease with credits."},{"Start":"01:13.765 ","End":"01:15.308","Text":"Looking in liabilities,"},{"Start":"01:15.308 ","End":"01:19.730","Text":"these increase with a credit and decrease with a debit."},{"Start":"01:19.730 ","End":"01:21.764","Text":"The same for owner\u0027s equity;"},{"Start":"01:21.764 ","End":"01:26.270","Text":"increases with a credit and decreases with a debit."},{"Start":"01:26.270 ","End":"01:28.430","Text":"With that knowledge, we can look at"},{"Start":"01:28.430 ","End":"01:32.240","Text":"these options and determine which will be the correct 1."},{"Start":"01:32.240 ","End":"01:38.235","Text":"You\u0027re told debit entries may result in increases in equity."},{"Start":"01:38.235 ","End":"01:45.730","Text":"That must be incorrect because increase in equity will be a credit entry."},{"Start":"01:45.730 ","End":"01:49.500","Text":"Decreases in liabilities, that is correct."},{"Start":"01:49.500 ","End":"01:55.505","Text":"We do decrease liabilities with a debit and we also do increase assets with a debit."},{"Start":"01:55.505 ","End":"01:57.590","Text":"For the first part, incorrect."},{"Start":"01:57.590 ","End":"02:01.035","Text":"Part b says decreases in liabilities,"},{"Start":"02:01.035 ","End":"02:02.339","Text":"that we know is correct,"},{"Start":"02:02.339 ","End":"02:05.750","Text":"increases in assets we know is correct,"},{"Start":"02:05.750 ","End":"02:09.785","Text":"and then says increases in income."},{"Start":"02:09.785 ","End":"02:18.185","Text":"We know income will increase owner\u0027s equity and equity increases with the credit."},{"Start":"02:18.185 ","End":"02:20.405","Text":"That must be incorrect."},{"Start":"02:20.405 ","End":"02:24.440","Text":"Part c says increases in distributions."},{"Start":"02:24.440 ","End":"02:27.110","Text":"Now we know the distributions,"},{"Start":"02:27.110 ","End":"02:29.949","Text":"provident over here, distributions,"},{"Start":"02:29.949 ","End":"02:36.260","Text":"in fact, decrease owner\u0027s equity and owner\u0027s equity does decrease with a debit."},{"Start":"02:36.260 ","End":"02:37.715","Text":"That part is correct."},{"Start":"02:37.715 ","End":"02:41.220","Text":"Decrease in liabilities, we know that\u0027s correct,"},{"Start":"02:41.220 ","End":"02:45.105","Text":"or increase in assets, that\u0027s correct."},{"Start":"02:45.105 ","End":"02:48.020","Text":"For number c looks good."},{"Start":"02:48.020 ","End":"02:50.225","Text":"D refers to increases in assets."},{"Start":"02:50.225 ","End":"02:52.340","Text":"Yes, that\u0027s a debit entry."},{"Start":"02:52.340 ","End":"02:54.305","Text":"Decrease in liabilities,"},{"Start":"02:54.305 ","End":"02:55.955","Text":"that\u0027s a debit entry."},{"Start":"02:55.955 ","End":"03:01.430","Text":"But the increase in equity is a credit entry. That\u0027s incorrect."},{"Start":"03:01.430 ","End":"03:04.625","Text":"Part e says decrease in assets."},{"Start":"03:04.625 ","End":"03:08.900","Text":"No, assets decrease with a credit so that can\u0027t be correct."},{"Start":"03:08.900 ","End":"03:14.090","Text":"Increase in liabilities is also a credit so it can\u0027t be correct,"},{"Start":"03:14.090 ","End":"03:17.310","Text":"and increase in equity is also a credit,"},{"Start":"03:17.310 ","End":"03:19.025","Text":"it can\u0027t be correct."},{"Start":"03:19.025 ","End":"03:22.175","Text":"The correct answer here must be c,"},{"Start":"03:22.175 ","End":"03:29.525","Text":"that debit entries result in a increase in assets,"},{"Start":"03:29.525 ","End":"03:31.820","Text":"or a decrease in liabilities,"},{"Start":"03:31.820 ","End":"03:35.510","Text":"or an increase in distributions,"},{"Start":"03:35.510 ","End":"03:39.990","Text":"which in fact decreases equity with a debit."}],"ID":28446},{"Watched":false,"Name":"Exercise 5","Duration":"3m 24s","ChapterTopicVideoID":27336,"CourseChapterTopicPlaylistID":271756,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:03.120","Text":"Exercise 5, again,"},{"Start":"00:03.120 ","End":"00:05.535","Text":"test your knowledge of debits and credits."},{"Start":"00:05.535 ","End":"00:10.950","Text":"This time looking at credit entries specifically and you are given information"},{"Start":"00:10.950 ","End":"00:16.542","Text":"that credit entries in the ledger may result in and given 1 or 5 options,"},{"Start":"00:16.542 ","End":"00:21.565","Text":"and you\u0027re asked to choose the correct option and explain your answer."},{"Start":"00:21.565 ","End":"00:28.310","Text":"As before, the way to approach this is to look at the accounting equation and look at"},{"Start":"00:28.310 ","End":"00:36.329","Text":"the impact of the debits and credits on each part of the accounting equation."},{"Start":"00:36.329 ","End":"00:39.945","Text":"Put in here a ledger account representing assets,"},{"Start":"00:39.945 ","End":"00:45.115","Text":"1 representing liabilities, and 1 representing equity."},{"Start":"00:45.115 ","End":"00:47.325","Text":"We\u0027ll put it in the debit side,"},{"Start":"00:47.325 ","End":"00:48.875","Text":"and the credit side."},{"Start":"00:48.875 ","End":"00:53.060","Text":"Remember debit\u0027s always on the left and credit\u0027s always on the right."},{"Start":"00:53.060 ","End":"00:56.720","Text":"Debit side, and credit side."},{"Start":"00:56.720 ","End":"01:02.525","Text":"We know assets increase with a debit and assets decrease with a credit."},{"Start":"01:02.525 ","End":"01:07.130","Text":"Liabilities increase with a credit and it decrease with a debit,"},{"Start":"01:07.130 ","End":"01:12.695","Text":"and equity increases with a credit and decreases with a debit."},{"Start":"01:12.695 ","End":"01:15.785","Text":"We can now look at the various statements."},{"Start":"01:15.785 ","End":"01:21.870","Text":"We are asked to focus here on specifically credit entries."},{"Start":"01:23.480 ","End":"01:27.950","Text":"Part A, says credit entries increase equity,"},{"Start":"01:27.950 ","End":"01:29.571","Text":"which we know is correct;"},{"Start":"01:29.571 ","End":"01:31.985","Text":"credit entry will increase equity."},{"Start":"01:31.985 ","End":"01:38.910","Text":"Decrease liabilities, that\u0027s a debit entry that\u0027s incorrect, and increase assets."},{"Start":"01:38.910 ","End":"01:43.200","Text":"Now assets increase with a debit is also incorrect."},{"Start":"01:43.580 ","End":"01:48.110","Text":"Part B says a credit entry decreases liabilities."},{"Start":"01:48.110 ","End":"01:51.875","Text":"Now that we know a credit entry increases liabilities, that\u0027s incorrect."},{"Start":"01:51.875 ","End":"01:55.685","Text":"Increases assets, also incorrect."},{"Start":"01:55.685 ","End":"01:57.730","Text":"Increases income."},{"Start":"01:57.730 ","End":"02:03.875","Text":"We know from before that income will increase owner\u0027s equity."},{"Start":"02:03.875 ","End":"02:09.260","Text":"Increase in income will have the effect of increasing equity,"},{"Start":"02:09.260 ","End":"02:10.910","Text":"which will be a credit,"},{"Start":"02:10.910 ","End":"02:14.040","Text":"and therefore that part is correct."},{"Start":"02:14.470 ","End":"02:18.890","Text":"Part C refers to an increase in expenses."},{"Start":"02:18.890 ","End":"02:26.620","Text":"Again, remember expenses had the effect of decreasing owner\u0027s equity."},{"Start":"02:26.620 ","End":"02:29.735","Text":"An owner\u0027s equity decreases with a debit."},{"Start":"02:29.735 ","End":"02:34.040","Text":"Therefore a credit entry can\u0027t increase expenses,"},{"Start":"02:34.040 ","End":"02:36.355","Text":"that must be incorrect."},{"Start":"02:36.355 ","End":"02:38.520","Text":"Decrease liabilities, no,"},{"Start":"02:38.520 ","End":"02:41.985","Text":"we know liabilities increase with a credit."},{"Start":"02:41.985 ","End":"02:47.820","Text":"Increase assets is also incorrect because we know assets increase with a debit,"},{"Start":"02:47.820 ","End":"02:50.385","Text":"so all 3 options are incorrect there."},{"Start":"02:50.385 ","End":"02:53.360","Text":"Part D, increases in assets, again,"},{"Start":"02:53.360 ","End":"02:58.450","Text":"incorrect, decrease in liabilities, again, incorrect."},{"Start":"02:58.450 ","End":"03:00.810","Text":"Increase in equity,"},{"Start":"03:00.810 ","End":"03:03.345","Text":"but equity increases with a credit,"},{"Start":"03:03.345 ","End":"03:05.250","Text":"that part is correct."},{"Start":"03:05.250 ","End":"03:10.000","Text":"Part E says credit entry will decrease in asset."},{"Start":"03:10.000 ","End":"03:12.230","Text":"Yes, because assets increase with a debit,"},{"Start":"03:12.230 ","End":"03:14.675","Text":"assets decrease with a credit."},{"Start":"03:14.675 ","End":"03:17.533","Text":"Liabilities increase with a credit,"},{"Start":"03:17.533 ","End":"03:21.230","Text":"and owner\u0027s equity increases with a credit."},{"Start":"03:21.230 ","End":"03:25.590","Text":"Therefore Part E must be the correct answer."}],"ID":28447},{"Watched":false,"Name":"Exercise 6","Duration":"2m 6s","ChapterTopicVideoID":27327,"CourseChapterTopicPlaylistID":271756,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.050 ","End":"00:06.030","Text":"Exercise 6 focuses on some basic recording of transactions,"},{"Start":"00:06.030 ","End":"00:10.350","Text":"as well as emphasizing the accrual basis of accounting."},{"Start":"00:10.350 ","End":"00:15.885","Text":"Here you are told a business entity provides a home decoration service."},{"Start":"00:15.885 ","End":"00:20.550","Text":"A client\u0027s home is decorated importantly,"},{"Start":"00:20.550 ","End":"00:23.520","Text":"during the month of February 20X7,"},{"Start":"00:23.520 ","End":"00:28.875","Text":"and the fee is 800 currency units on credit."},{"Start":"00:28.875 ","End":"00:33.645","Text":"The client pays the amount owing on the following month,"},{"Start":"00:33.645 ","End":"00:36.045","Text":"which is March of 20X7."},{"Start":"00:36.045 ","End":"00:40.475","Text":"You\u0027re required to state the double entry to record"},{"Start":"00:40.475 ","End":"00:45.290","Text":"the provision for the decoration service during February of 20X7,"},{"Start":"00:45.290 ","End":"00:51.100","Text":"and the entry to record the receipt of cash during March of 20X7."},{"Start":"00:51.100 ","End":"00:54.485","Text":"When the decorating service is provided,"},{"Start":"00:54.485 ","End":"00:57.530","Text":"that is when income can be recognized,"},{"Start":"00:57.530 ","End":"01:00.545","Text":"even though no cash is being received."},{"Start":"01:00.545 ","End":"01:04.025","Text":"Therefore, when we provide the decorating service,"},{"Start":"01:04.025 ","End":"01:07.910","Text":"we will debit an asset called accounts receivable meaning"},{"Start":"01:07.910 ","End":"01:11.985","Text":"no cash is being received for an amount of 800,"},{"Start":"01:11.985 ","End":"01:14.895","Text":"and we can recognize the income."},{"Start":"01:14.895 ","End":"01:17.435","Text":"We credit are going to call it fees,"},{"Start":"01:17.435 ","End":"01:21.170","Text":"as the income account for 800."},{"Start":"01:21.170 ","End":"01:23.745","Text":"When the cash is received in March,"},{"Start":"01:23.745 ","End":"01:26.600","Text":"we can\u0027t recognize the income again."},{"Start":"01:26.600 ","End":"01:29.105","Text":"Here when we receive the cash,"},{"Start":"01:29.105 ","End":"01:31.640","Text":"the debit goes to an asset cash,"},{"Start":"01:31.640 ","End":"01:34.040","Text":"and the amount, in this case,"},{"Start":"01:34.040 ","End":"01:37.700","Text":"is the 800, and the credit goes to reduce"},{"Start":"01:37.700 ","End":"01:43.435","Text":"the amount of accounts receivable asset that\u0027s reduced by 800."},{"Start":"01:43.435 ","End":"01:49.549","Text":"This exercise again emphasizes the accrual basis of accounting."},{"Start":"01:49.549 ","End":"01:54.320","Text":"Income is recognized here where it is earned."},{"Start":"01:54.320 ","End":"01:57.455","Text":"The income is earned over here in February,"},{"Start":"01:57.455 ","End":"02:04.440","Text":"and income is not recognized in the later period of March where the cash is received."}],"ID":28448},{"Watched":false,"Name":"Exercise 7","Duration":"3m 5s","ChapterTopicVideoID":27328,"CourseChapterTopicPlaylistID":271756,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.020 ","End":"00:06.885","Text":"Exercise 7 also focuses on some basic recording of transactions."},{"Start":"00:06.885 ","End":"00:10.575","Text":"Also emphasizes the accrual basis of accounting,"},{"Start":"00:10.575 ","End":"00:13.380","Text":"but this time focuses on expense."},{"Start":"00:13.380 ","End":"00:19.110","Text":"The information given to you is about a business entity called The Honey Pot."},{"Start":"00:19.110 ","End":"00:22.624","Text":"It places an advertisement in a tourists magazine."},{"Start":"00:22.624 ","End":"00:24.650","Text":"The advertisement appeared in"},{"Start":"00:24.650 ","End":"00:30.305","Text":"the December 20X7 edition and the cost of the advert was 500."},{"Start":"00:30.305 ","End":"00:33.590","Text":"But note the amount will only be paid in January of 20X8."},{"Start":"00:33.590 ","End":"00:37.550","Text":"The financial year end of this entity,"},{"Start":"00:37.550 ","End":"00:39.620","Text":"the 31 December,"},{"Start":"00:39.620 ","End":"00:43.340","Text":"and we\u0027re currently preparing financial statements for"},{"Start":"00:43.340 ","End":"00:48.235","Text":"the year ending 31 December of the 20X7 year."},{"Start":"00:48.235 ","End":"00:53.240","Text":"You\u0027re required to state what is the double entry required to record"},{"Start":"00:53.240 ","End":"00:58.070","Text":"the advertising expense for that year ending 31 December,"},{"Start":"00:58.070 ","End":"01:01.520","Text":"20X7, and then the double entry required to"},{"Start":"01:01.520 ","End":"01:06.750","Text":"record the payment of the cash during January of 20X8."},{"Start":"01:06.890 ","End":"01:10.050","Text":"Regarding the placing of the advert,"},{"Start":"01:10.050 ","End":"01:14.340","Text":"because the advert appeared in the December 20X7 edition,"},{"Start":"01:14.340 ","End":"01:21.080","Text":"we need to record the expense for the period ending December of 20X7."},{"Start":"01:21.080 ","End":"01:29.855","Text":"Therefore, we process a journal entry where the debit goes to advertising expense."},{"Start":"01:29.855 ","End":"01:33.083","Text":"You\u0027re going to again emphasize the expense account,"},{"Start":"01:33.083 ","End":"01:37.610","Text":"advertising expense in the amount of 500,"},{"Start":"01:37.610 ","End":"01:40.925","Text":"and the amount has not been paid."},{"Start":"01:40.925 ","End":"01:48.645","Text":"Therefore, the credit will go to expenses accrued account,"},{"Start":"01:48.645 ","End":"01:51.145","Text":"which is a liability account."},{"Start":"01:51.145 ","End":"01:55.255","Text":"Now note here I\u0027ve called this thing an expenses accrued account."},{"Start":"01:55.255 ","End":"02:01.615","Text":"This could also be called advertising accrued account."},{"Start":"02:01.615 ","End":"02:08.775","Text":"It could be called advertising payable account."},{"Start":"02:08.775 ","End":"02:10.990","Text":"There are many different names you could call it,"},{"Start":"02:10.990 ","End":"02:17.980","Text":"the most important aspect is that it is a liability of 500."},{"Start":"02:17.980 ","End":"02:21.485","Text":"When the cash is paid in January X8,"},{"Start":"02:21.485 ","End":"02:24.580","Text":"we can\u0027t record an expense again."},{"Start":"02:24.580 ","End":"02:31.955","Text":"Therefore begin to debit to reduce the liability,"},{"Start":"02:31.955 ","End":"02:36.050","Text":"debit the expenses accrued of 500 and now we will"},{"Start":"02:36.050 ","End":"02:43.185","Text":"credit cash as the asset in the amount of 500."},{"Start":"02:43.185 ","End":"02:46.745","Text":"Again, thinking of the accrual basis of accounting,"},{"Start":"02:46.745 ","End":"02:52.220","Text":"the expenses recognized in the period when the expense is incurred,"},{"Start":"02:52.220 ","End":"02:54.860","Text":"it\u0027s incurred in the December year end,"},{"Start":"02:54.860 ","End":"02:58.280","Text":"and the expense is not recognized here,"},{"Start":"02:58.280 ","End":"03:02.405","Text":"where the amount is paid in the following year,"},{"Start":"03:02.405 ","End":"03:04.990","Text":"in January of 20X8."}],"ID":28449},{"Watched":false,"Name":"Exercise 8","Duration":"5m 20s","ChapterTopicVideoID":27329,"CourseChapterTopicPlaylistID":271756,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:07.635","Text":"Exercise 8 also focuses on the recording of basic transactions."},{"Start":"00:07.635 ","End":"00:11.655","Text":"Emphasis here on the accrual basis of accounting."},{"Start":"00:11.655 ","End":"00:16.575","Text":"You\u0027re told in the question that the company or the business firm Fresh,"},{"Start":"00:16.575 ","End":"00:21.000","Text":"takes out an insurance policy in respect of it\u0027s motor vehicles,"},{"Start":"00:21.000 ","End":"00:24.525","Text":"and the policy covers the period from"},{"Start":"00:24.525 ","End":"00:30.675","Text":"1 January of the X8 year up until 31st December of that year."},{"Start":"00:30.675 ","End":"00:36.960","Text":"The premium is 12,000 and it\u0027s paid in full on 1 January 20X8."},{"Start":"00:36.960 ","End":"00:40.649","Text":"You\u0027re told in the question also that the prepaid expenses"},{"Start":"00:40.649 ","End":"00:44.060","Text":"account was debited with the amount"},{"Start":"00:44.060 ","End":"00:51.340","Text":"of 12,000 and the bank account was credited with 12,000 when the payment was made."},{"Start":"00:51.340 ","End":"00:57.364","Text":"What we\u0027re being told over here is that the accounting entry, I\u0027ll put it down here,"},{"Start":"00:57.364 ","End":"01:07.085","Text":"upon payment of the insurance policy was a debit to prepaid expenses,"},{"Start":"01:07.085 ","End":"01:11.255","Text":"which is an asset of 12,000,"},{"Start":"01:11.255 ","End":"01:16.910","Text":"and the credit went to the cash or the bank account,"},{"Start":"01:16.910 ","End":"01:18.605","Text":"according to here, the bank account,"},{"Start":"01:18.605 ","End":"01:22.775","Text":"also an asset of 12,000."},{"Start":"01:22.775 ","End":"01:28.715","Text":"Then we\u0027re told the financial year end of the entity is 31 March."},{"Start":"01:28.715 ","End":"01:35.320","Text":"We are preparing financial statements for the year ending 31 March of 20X8."},{"Start":"01:35.320 ","End":"01:38.360","Text":"The required is to look at the double entry to record"},{"Start":"01:38.360 ","End":"01:44.800","Text":"the insurance expense for that year ending 31 March of 20X8."},{"Start":"01:44.800 ","End":"01:49.650","Text":"The way to approach the solution is to draw a timeline."},{"Start":"01:49.650 ","End":"01:54.470","Text":"Timelines are always useful when there are expenses or"},{"Start":"01:54.470 ","End":"01:59.315","Text":"income which relate to more than 1 period."},{"Start":"01:59.315 ","End":"02:01.430","Text":"What are the crucial dates here?"},{"Start":"02:01.430 ","End":"02:04.610","Text":"Well, the crucial dates will be the beginning of the year,"},{"Start":"02:04.610 ","End":"02:07.880","Text":"and also the end of the year."},{"Start":"02:07.880 ","End":"02:13.705","Text":"We are told the year ending is 31 March 20X8."},{"Start":"02:13.705 ","End":"02:18.405","Text":"Put that in, 31 March of the X8 year,"},{"Start":"02:18.405 ","End":"02:24.840","Text":"which must mean the year begins on the 1st of April of the X7 year."},{"Start":"02:24.840 ","End":"02:28.530","Text":"Now, when is the policy taken out?"},{"Start":"02:28.530 ","End":"02:30.780","Text":"The policy is taken out,"},{"Start":"02:30.780 ","End":"02:36.110","Text":"we\u0027re told on 1 January 20X8 and"},{"Start":"02:36.110 ","End":"02:42.535","Text":"the premium is paid in full on 1 January of 20X8."},{"Start":"02:42.535 ","End":"02:47.700","Text":"Over here, on 1 January of the X8 year,"},{"Start":"02:47.700 ","End":"02:54.860","Text":"we start the policy which goes for 12 months all the way through"},{"Start":"02:54.860 ","End":"03:03.085","Text":"until 31 December of the 20X8 year and the year end,"},{"Start":"03:03.085 ","End":"03:06.015","Text":"which is 31 March 20X8,"},{"Start":"03:06.015 ","End":"03:12.620","Text":"falls partway through the 12 months of this particular policy."},{"Start":"03:12.620 ","End":"03:20.475","Text":"Now clearly, 3/12 of the policy period falls between 1 January X8,"},{"Start":"03:20.475 ","End":"03:28.745","Text":"and 31 March X8 and 9/12 will fall into the following financial year."},{"Start":"03:28.745 ","End":"03:30.965","Text":"Now remember on this date,"},{"Start":"03:30.965 ","End":"03:32.630","Text":"on the date of payment,"},{"Start":"03:32.630 ","End":"03:37.860","Text":"we know the accounting entry was a debit to the expenses"},{"Start":"03:37.860 ","End":"03:43.805","Text":"prepaid account as an asset"},{"Start":"03:43.805 ","End":"03:49.850","Text":"for the full amount of 12,000 debit,"},{"Start":"03:49.850 ","End":"03:55.270","Text":"and the credit went to cash for 12,000."},{"Start":"03:55.270 ","End":"04:01.480","Text":"We need to recognize now for the year ending 31 March X8,"},{"Start":"04:01.480 ","End":"04:04.700","Text":"need to recognize the accounting entry."},{"Start":"04:04.700 ","End":"04:10.610","Text":"We therefore, need to recognize 3/12 of that 12,000."},{"Start":"04:10.610 ","End":"04:19.350","Text":"Therefore, 12,000 multiplied by 3/12 is an amount of 3,000."},{"Start":"04:19.350 ","End":"04:25.120","Text":"We must now recognize an expense for insurance."},{"Start":"04:25.120 ","End":"04:33.915","Text":"We\u0027ll therefore debit the insurance expense account for 3,000,"},{"Start":"04:33.915 ","End":"04:39.315","Text":"and we credit the expenses prepaid,"},{"Start":"04:39.315 ","End":"04:44.435","Text":"the asset accounts for the amount of 3,000."},{"Start":"04:44.435 ","End":"04:47.765","Text":"Just remember over here that"},{"Start":"04:47.765 ","End":"04:57.660","Text":"this expenses prepaid account that we\u0027ve used could\u0027ve been called insurance prepaid,"},{"Start":"04:57.660 ","End":"05:00.310","Text":"we could call it insurance"},{"Start":"05:00.310 ","End":"05:08.630","Text":"prepaid or we could call it insurance paid in advance."},{"Start":"05:08.630 ","End":"05:14.450","Text":"What it\u0027s called is not as important as the fact that it is, in fact,"},{"Start":"05:14.450 ","End":"05:20.850","Text":"an asset, the right to insurance protection in the future."}],"ID":28450},{"Watched":false,"Name":"Exercise 9","Duration":"3m 12s","ChapterTopicVideoID":27330,"CourseChapterTopicPlaylistID":271756,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:07.080","Text":"Exercise 9 focuses on the recording of basic accounting transactions."},{"Start":"00:07.080 ","End":"00:12.720","Text":"The emphasis here on the recognition of unearned income."},{"Start":"00:12.720 ","End":"00:14.880","Text":"You\u0027re told in the question,"},{"Start":"00:14.880 ","End":"00:19.700","Text":"the company is a airline called Fly Away,"},{"Start":"00:19.700 ","End":"00:26.550","Text":"and the entity receives cash from passenger bookings totaling 30,000 during"},{"Start":"00:26.550 ","End":"00:31.200","Text":"the month of February 20X0 and this cash is in"},{"Start":"00:31.200 ","End":"00:36.930","Text":"respect of flights booked for July and August of that year."},{"Start":"00:36.930 ","End":"00:40.125","Text":"We then told passengers with bookings,"},{"Start":"00:40.125 ","End":"00:43.980","Text":"totaling 20,000 took their flights in"},{"Start":"00:43.980 ","End":"00:49.775","Text":"July and the financial year end of the entity is 28th February."},{"Start":"00:49.775 ","End":"00:52.550","Text":"You\u0027re asked to record the double entry to record"},{"Start":"00:52.550 ","End":"00:58.280","Text":"the receipt of the 30,000 during February of 20X0,"},{"Start":"00:58.280 ","End":"01:05.465","Text":"and then the entry to record the recognition of the passenger fares earned,"},{"Start":"01:05.465 ","End":"01:09.120","Text":"which happened in July of 20X0."},{"Start":"01:09.740 ","End":"01:13.790","Text":"We can do a timeline to help us"},{"Start":"01:13.790 ","End":"01:18.815","Text":"understand and see what is happening in this particular exercise."},{"Start":"01:18.815 ","End":"01:23.515","Text":"We know the year end is 28th of February."},{"Start":"01:23.515 ","End":"01:30.165","Text":"I\u0027m going to call the first year-end the current year-end."},{"Start":"01:30.165 ","End":"01:35.325","Text":"It\u0027s the end of the current year-end,"},{"Start":"01:35.325 ","End":"01:37.044","Text":"and we\u0027ll call that, again,"},{"Start":"01:37.044 ","End":"01:42.425","Text":"at the date of 28th of February of the X0 year."},{"Start":"01:42.425 ","End":"01:45.840","Text":"I\u0027m going to call it here the following year-end,"},{"Start":"01:46.730 ","End":"01:53.550","Text":"which will be 28th of February of the X1 year."},{"Start":"01:53.550 ","End":"01:56.070","Text":"Now, what you\u0027re told in this question,"},{"Start":"01:56.070 ","End":"02:05.000","Text":"that the entity received cash of 30,000 during February of 20X0,"},{"Start":"02:05.000 ","End":"02:06.390","Text":"so somewhere over here,"},{"Start":"02:06.390 ","End":"02:08.815","Text":"the cash is received."},{"Start":"02:08.815 ","End":"02:11.525","Text":"When the cash is received,"},{"Start":"02:11.525 ","End":"02:16.280","Text":"the entity cannot recognize income because we"},{"Start":"02:16.280 ","End":"02:22.055","Text":"know that the flights are booked for July and August of 20X0,"},{"Start":"02:22.055 ","End":"02:27.430","Text":"which is after this year end of February X0."},{"Start":"02:27.430 ","End":"02:31.070","Text":"For this period over here, in other words,"},{"Start":"02:31.070 ","End":"02:34.490","Text":"the month of February of 20X0,"},{"Start":"02:34.490 ","End":"02:37.745","Text":"there\u0027s no income recognized."},{"Start":"02:37.745 ","End":"02:43.415","Text":"Therefore, when we look at the receipts of cash in February 20X0,"},{"Start":"02:43.415 ","End":"02:47.210","Text":"we are going to have to debit cash,"},{"Start":"02:47.210 ","End":"02:55.850","Text":"the cash that was received of 30,000 and the credit cannot go to income,"},{"Start":"02:55.850 ","End":"03:00.890","Text":"as we\u0027ve said, and it goes to the third income or as you know,"},{"Start":"03:00.890 ","End":"03:05.640","Text":"we could call it possibly unearned income."},{"Start":"03:05.830 ","End":"03:12.480","Text":"The important part, a liability account for 30,000."}],"ID":28451},{"Watched":false,"Name":"Exercise 10","Duration":"10m 17s","ChapterTopicVideoID":27331,"CourseChapterTopicPlaylistID":271756,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.410 ","End":"00:02.648","Text":"In Exercise 10,"},{"Start":"00:02.648 ","End":"00:06.000","Text":"the focus is on the borrowing of funds from a lender,"},{"Start":"00:06.000 ","End":"00:08.835","Text":"the computation of the interest expense,"},{"Start":"00:08.835 ","End":"00:12.760","Text":"and the repayment of that borrowing."},{"Start":"00:12.890 ","End":"00:17.190","Text":"The information given to you here is that the business entity"},{"Start":"00:17.190 ","End":"00:20.570","Text":"borrows 10,000 from a lender,"},{"Start":"00:20.570 ","End":"00:25.255","Text":"and the amount is borrowed on 1 October of 20X5 year."},{"Start":"00:25.255 ","End":"00:29.115","Text":"There\u0027s interest at 4 percent per annum."},{"Start":"00:29.115 ","End":"00:33.855","Text":"Note the interest is payable annually in arrear."},{"Start":"00:33.855 ","End":"00:37.960","Text":"I will explain the meaning of in arrear in a moment."},{"Start":"00:38.570 ","End":"00:41.100","Text":"The loan is repaid in"},{"Start":"00:41.100 ","End":"00:45.120","Text":"4 equal annual installments and"},{"Start":"00:45.120 ","End":"00:50.230","Text":"the first installment is due on 1 October of the 20X6 year,"},{"Start":"00:50.230 ","End":"00:53.600","Text":"and the year end is 30 September."},{"Start":"00:53.600 ","End":"00:57.350","Text":"Now what does it mean when we speak about"},{"Start":"00:57.350 ","End":"01:04.030","Text":"an expense which is payable either in advance or in arrear?"},{"Start":"01:04.030 ","End":"01:06.930","Text":"We may refer to expenses."},{"Start":"01:06.930 ","End":"01:13.950","Text":"They could be paid in advance or they could be paid in arrear."},{"Start":"01:13.950 ","End":"01:16.650","Text":"If we look at the timeline,"},{"Start":"01:16.650 ","End":"01:20.690","Text":"we put in here the beginning of the particular period,"},{"Start":"01:20.690 ","End":"01:22.715","Text":"could be a month or it could be a year,"},{"Start":"01:22.715 ","End":"01:26.000","Text":"we put in here the end of that period,"},{"Start":"01:26.000 ","End":"01:28.666","Text":"again, being a month or being a year."},{"Start":"01:28.666 ","End":"01:35.596","Text":"If the interest or any expense is payable in advance,"},{"Start":"01:35.596 ","End":"01:38.165","Text":"that means the amount is paid over here,"},{"Start":"01:38.165 ","End":"01:40.710","Text":"paid in advance,"},{"Start":"01:41.560 ","End":"01:47.050","Text":"for the following period or the period coming up."},{"Start":"01:47.050 ","End":"01:49.448","Text":"If on the other hand,"},{"Start":"01:49.448 ","End":"01:51.940","Text":"the expense is payable in arrear,"},{"Start":"01:51.940 ","End":"01:55.190","Text":"it\u0027ll be paid over here at the end,"},{"Start":"01:55.190 ","End":"01:58.450","Text":"paid in arrear,"},{"Start":"01:58.450 ","End":"02:02.570","Text":"relating to the period just gone past."},{"Start":"02:02.700 ","End":"02:08.290","Text":"The required here is to record the double entry reflecting"},{"Start":"02:08.290 ","End":"02:14.805","Text":"the borrowing of the 10,000 initially on 1 October 20X5 year,"},{"Start":"02:14.805 ","End":"02:23.440","Text":"then recording the interest expense in part b for the year ended 30 September 20X6."},{"Start":"02:23.440 ","End":"02:30.790","Text":"Then record the entry to show the repayment of the first installment which happens on"},{"Start":"02:30.790 ","End":"02:36.880","Text":"1 October 20X6 and then the entry again to record"},{"Start":"02:36.880 ","End":"02:44.190","Text":"the interest expense for the year ending 30 September of the 20X7 year."},{"Start":"02:44.190 ","End":"02:47.000","Text":"We start off with part a,"},{"Start":"02:47.000 ","End":"02:54.275","Text":"the borrowing of 10,000 from the lender on 1 October of 20X5,"},{"Start":"02:54.275 ","End":"02:58.160","Text":"which you are told about in the question over here,"},{"Start":"02:58.160 ","End":"03:03.975","Text":"entity borrows is 10,000 on 1 October of the 20X5 year."},{"Start":"03:03.975 ","End":"03:05.820","Text":"The entity receives cash,"},{"Start":"03:05.820 ","End":"03:07.320","Text":"cash is an asset,"},{"Start":"03:07.320 ","End":"03:09.495","Text":"increases with a debit entry,"},{"Start":"03:09.495 ","End":"03:13.200","Text":"so therefore debit cash as an asset for"},{"Start":"03:13.200 ","End":"03:19.460","Text":"10,000 and the credit will go to an account which I\u0027m going to call here loan."},{"Start":"03:19.460 ","End":"03:22.265","Text":"You could call it a borrowings if you want to."},{"Start":"03:22.265 ","End":"03:26.120","Text":"Remember the name isn\u0027t as important as the fact that it [inaudible]"},{"Start":"03:26.120 ","End":"03:31.115","Text":"liabilities being on the right side of the equation increase with a credit entry,"},{"Start":"03:31.115 ","End":"03:32.405","Text":"so credit loan,"},{"Start":"03:32.405 ","End":"03:35.110","Text":"the liability for 10,000."},{"Start":"03:35.110 ","End":"03:39.380","Text":"For part b, we need to compute the amount of"},{"Start":"03:39.380 ","End":"03:46.070","Text":"the interest expense for the year ending 30 September of the 20X6 year."},{"Start":"03:46.070 ","End":"03:49.340","Text":"Now it\u0027s useful to do a timeline"},{"Start":"03:49.340 ","End":"03:53.105","Text":"to establish what has happened in this particular scenario."},{"Start":"03:53.105 ","End":"04:01.575","Text":"We know the loan is borrowed on the 1st of October of the 20X5 year."},{"Start":"04:01.575 ","End":"04:10.225","Text":"Here on 1 October X5 the 10,000 is borrowed from the lender."},{"Start":"04:10.225 ","End":"04:14.870","Text":"We\u0027re also told that the year end is 30 September,"},{"Start":"04:14.870 ","End":"04:18.155","Text":"so therefore if we put in the following year and date,"},{"Start":"04:18.155 ","End":"04:22.160","Text":"which will be 30 September of X6,"},{"Start":"04:22.160 ","End":"04:25.793","Text":"that, in fact, is the end of the year,"},{"Start":"04:25.793 ","End":"04:34.025","Text":"and the date of 1 October of X5 also clearly happens to be the beginning of the year."},{"Start":"04:34.025 ","End":"04:36.500","Text":"Let\u0027s pop in here the word beginning."},{"Start":"04:36.500 ","End":"04:39.180","Text":"You\u0027re told in the question that"},{"Start":"04:39.180 ","End":"04:45.710","Text":"the interest is payable annually and it\u0027s payable in arrear."},{"Start":"04:45.710 ","End":"04:51.375","Text":"Therefore, from the date that amount borrowed on 1 October X5,"},{"Start":"04:51.375 ","End":"04:55.595","Text":"this entity has had the loan for 12 months up until"},{"Start":"04:55.595 ","End":"05:01.825","Text":"30 September of the X6 year and the interest is payable in arrear."},{"Start":"05:01.825 ","End":"05:05.870","Text":"It\u0027s payable here at the end of the year in relation to"},{"Start":"05:05.870 ","End":"05:11.130","Text":"the 12 months ending 30 September of 20X6."},{"Start":"05:11.130 ","End":"05:14.445","Text":"How do we then compute the amount of the interest?"},{"Start":"05:14.445 ","End":"05:20.580","Text":"Well, it could be the 10,000 borrowed multiplied by 4 percent."},{"Start":"05:20.580 ","End":"05:26.515","Text":"For completeness, I\u0027ll just put in here multiplied by 12/12,"},{"Start":"05:26.515 ","End":"05:29.047","Text":"indicating that the amount was, in fact,"},{"Start":"05:29.047 ","End":"05:32.770","Text":"borrowed for 12 months of the year, other words,"},{"Start":"05:32.770 ","End":"05:39.385","Text":"from the 1 October X5 all the way through to 30 September X6."},{"Start":"05:39.385 ","End":"05:47.305","Text":"Therefore, the accounting entry is a debit to the interest expense."},{"Start":"05:47.305 ","End":"05:51.130","Text":"Remember, the expense increase with a debit because they reduce"},{"Start":"05:51.130 ","End":"05:55.300","Text":"equity in the amount of 400 and the amount is being paid,"},{"Start":"05:55.300 ","End":"05:57.345","Text":"the credit to cash,"},{"Start":"05:57.345 ","End":"06:01.455","Text":"the asset reducing with the credit entry of 400."},{"Start":"06:01.455 ","End":"06:05.000","Text":"But now while we\u0027re here let us just think about what would"},{"Start":"06:05.000 ","End":"06:10.160","Text":"happen if this amount was borrowed not on 1 October but was borrowed,"},{"Start":"06:10.160 ","End":"06:15.085","Text":"for example, on 1 December of X5,"},{"Start":"06:15.085 ","End":"06:18.405","Text":"that\u0027s when the amount was borrowed."},{"Start":"06:18.405 ","End":"06:26.553","Text":"In that case the loans are standing from 1 December X5 through to September X6,"},{"Start":"06:26.553 ","End":"06:31.075","Text":"other words, for 10 of 12 months."},{"Start":"06:31.075 ","End":"06:36.240","Text":"I\u0027ll then compute the interest by taking 10,000"},{"Start":"06:36.240 ","End":"06:42.195","Text":"multiply by 4 percent and multiplied it by 10/12,"},{"Start":"06:42.195 ","End":"06:49.305","Text":"and the journal entry would be the same debit to interest expense,"},{"Start":"06:49.305 ","End":"06:56.360","Text":"but the amount now would be 333.33 and the credit will also,"},{"Start":"06:56.360 ","End":"07:02.850","Text":"obviously, go to cash with the same amount, 333.33."},{"Start":"07:03.950 ","End":"07:09.050","Text":"Part c is looking at the accounting entry for the repayment of"},{"Start":"07:09.050 ","End":"07:14.180","Text":"the first installment of the loan on 1 October of 20X6."},{"Start":"07:14.180 ","End":"07:21.500","Text":"Now we know that the loan is for an amount of 10,000,"},{"Start":"07:21.500 ","End":"07:27.390","Text":"and you\u0027re told in the question it will be repaid in 4 equal installments."},{"Start":"07:27.390 ","End":"07:31.626","Text":"Therefore, 10,000 divided by 4 is each installment"},{"Start":"07:31.626 ","End":"07:36.615","Text":"will be amount of 2,500 which is repaid."},{"Start":"07:36.615 ","End":"07:39.290","Text":"Therefore, the accounting entry to repay"},{"Start":"07:39.290 ","End":"07:44.366","Text":"the loan and thus being the first installment of the repayments,"},{"Start":"07:44.366 ","End":"07:47.190","Text":"will be a debit to the loan,"},{"Start":"07:47.210 ","End":"07:49.910","Text":"remember, we\u0027re reducing a liability,"},{"Start":"07:49.910 ","End":"07:52.445","Text":"so liability is reduced with a debit,"},{"Start":"07:52.445 ","End":"07:57.790","Text":"debit the loan of 2,500 and credits cash,"},{"Start":"07:57.790 ","End":"08:01.633","Text":"cash reduces with a credit because it\u0027s an asset,"},{"Start":"08:01.633 ","End":"08:04.915","Text":"and we credit cash for 2,500."},{"Start":"08:04.915 ","End":"08:08.750","Text":"In part d, we\u0027re asked to look at the entry for"},{"Start":"08:08.750 ","End":"08:15.400","Text":"the interest expense for the year ending 30 September of 20X7."},{"Start":"08:15.400 ","End":"08:20.680","Text":"Let\u0027s go back to the timeline just to recap what has happened."},{"Start":"08:21.130 ","End":"08:28.910","Text":"We know the loan was taken out on the 1st of October of X5 year,"},{"Start":"08:28.910 ","End":"08:34.080","Text":"so put over here on that particular date that 10,000 is borrowed."},{"Start":"08:34.310 ","End":"08:42.470","Text":"In the first year income about over here which was 30 September of X6."},{"Start":"08:42.470 ","End":"08:44.720","Text":"We know the very next day,"},{"Start":"08:44.720 ","End":"08:46.615","Text":"I\u0027m going to indicate like this,"},{"Start":"08:46.615 ","End":"08:51.750","Text":"on the 1st of October of X6,"},{"Start":"08:51.750 ","End":"08:57.830","Text":"we\u0027re told over here that the first installment is repaid."},{"Start":"08:57.830 ","End":"09:02.328","Text":"Therefore, on this date 1st of October X6,"},{"Start":"09:02.328 ","End":"09:07.420","Text":"this 10,000 is reduced by 2,500 and therefore,"},{"Start":"09:07.420 ","End":"09:11.315","Text":"the balance at that date is an amount of 7,500."},{"Start":"09:11.315 ","End":"09:16.210","Text":"When we now come to the current year again and we\u0027re looking to compute the interest for"},{"Start":"09:16.210 ","End":"09:21.275","Text":"the year ending 30 September of the X7 year,"},{"Start":"09:21.275 ","End":"09:28.085","Text":"we have an amount of 7,500 outstanding for these 12 months."},{"Start":"09:28.085 ","End":"09:36.930","Text":"Therefore, the interest computation will be 7,500 multiplied by 4 percent."},{"Start":"09:36.930 ","End":"09:41.440","Text":"Again, because the loan was outstanding for these full 12 months,"},{"Start":"09:41.440 ","End":"09:45.485","Text":"to multiply by 12/12 just for completeness."},{"Start":"09:45.485 ","End":"09:48.425","Text":"The accounting entry therefore,"},{"Start":"09:48.425 ","End":"09:52.690","Text":"will be a debit to interest expense."},{"Start":"09:52.690 ","End":"09:56.510","Text":"Again, remember, it\u0027s a debit because expenses"},{"Start":"09:56.510 ","End":"10:00.885","Text":"decrease equity and equity decrease with a debit."},{"Start":"10:00.885 ","End":"10:08.150","Text":"The 7,500 over 4 percent gives us an amount of 300 debit interest expense and"},{"Start":"10:08.150 ","End":"10:16.560","Text":"the credit again goes to the cash asset to reduce it by the amount of 300."}],"ID":28452}],"Thumbnail":null,"ID":271756}]

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