Hi, welcome back. In this video, I want to go over debits and credit, and then journal entries with you. This is found in Learning Objectives 2 and 3 in your textbook. So you should be able to see my spreadsheet here. And this is what we went through in Chapter 1. So, we're gonna build on this, go through these same transactions in Chapter 2, and, actually, add a few more to that. Alright. So, recall we have our basic accounting equation here. Assets equals Liabilities plus Stockholders' Equity. So, remember any time that we book a transaction, we always have to book through at least two accounts. And why is that? Well, we have to do that so that this equation balances, because if you only book to one account, it's not going to balance. Okay. And when I say account, I mean these, right here, which we already booked to in the last chapter. Alright. So, each account has what's called a T-account. Now, why do--why is it called the T-account? Well, it looks like a giant T. Now. The T-account has a left side and a right side. So I'm just going to put left here and right. Now, instead of simply calling it left and right, in accounting, we call it debit and credit. So, all the word debit means is left. And all the word credit means is right. Okay? So if things start getting confusing to you as we go through this, I want you to just stop and think to yourself debit means left and credit means right. That's all it means. So, now each account has a left side and a right side. That's how we identify an increase or decrease because each account will have an increase side and a decrease side. So, some accounts will increase on the left and some accounts will increase on the right. You have to know which side an account increases or decreases on. And you might say how in the world am I supposed to remember that? Well, I have this mnemonic that I like to use called DEAD CLEAR. So DEAD stands for Debits increase, Expenses, Assets, and Dividends. So, what this means is these accounts increase on the left side, and the opposite is true. So, if they increase on the left, then that means they would decrease on the right. Now, I'll go--you can--if you can just remember DEAD, you'll be doing really good because everything else increases on the right side. But I'll go ahead and expand on that. So, my CLEAR stands for Credits increase, Liabilities, Equity, Accumulated depreciation, and Revenues. And I added another R for Retained earnings. They didn't want you to forget. Why is that? Because Equity is really made up of two-- two primary components, which you can see right here. Under Equity. It's made up of contributed capital, and I'll just go ahead and put common stock because that's all we've talked about so far. Plus--let me put an equal sign here because I think that'll be better for you-- it's made up of common stock and then retained earnings. Okay. So, when I say Equity, it's really made up of these two parts here. Alright. So let's look at an example because I think that might help. And let's start with cash. So, remember our first transaction here, Sheena, the owner of Smart Touch Learning, she contributed $30,000 to the business. In exchange for that $30,000, we issued her common stock. Which is just evidence of her ownership in our business. So, let's create a T-account for Cash. Now, we know cash is an asset. It is the main asset. And if you look over here, you can see, assets increase on the left side. So, I'll go ahead and create my T-account. I like to put my symbol there to help me remember that cash increases on the left side. So this very first transaction, we had $30,000 come in. Well, that's an increase to cash, so I would put it on the left side of my T-account. That is how I show an increase to the cash account. Now, if you put something on the left side of an account, you also have to put the same amount on the right side of another account. And in this particular example, we booked the common stock. Common Stock is part of equity. Okay? And--or let's--more specifically, it's part of contributed capital. And it increases--and I put it here as common stock. It increases on the right side. So, if we had a T-account-- let's go ahead and make one for our common stock--so let me get rid of this information. So, let's make a T-account for Common Stock. Now, it increases on the right side. Common Stock. It increases on the right side, so, for that first transaction, we would put 30,000 on the right because we increase cash by $30,000. And it's an asset, which increases on the left side. And then Common Stock, which is part of Stockholder's Equity, increases on the right side. Okay? Now, don't worry we're going to go through all of these transactions from Chapter 1, and we're going to put them in T-account format, and in our journal entry format. But before we do that, I want to go through a template that's also in your notes, that might--you might find really helpful to look at as you're trying to identify whether an account increases on the left or the right. So what you can see here is I have a list of T-accounts-- and you have this exact template in your notes. So what I want you to do is go through and list some different accounts and write down the increase side and the decrease side. And you might find this helpful as you're going through each of these transactions. Okay, so, obviously, it's really important that you know what category an account goes into. So let's start with assets. The--THE main asset is cash. So, for our cash account, you can see that assets increase on the left. Now, how do I know that? Because of my D.E.A.D. C.L.E.A.R. So I went ahead and put my DEAD CLEAR here on the right. So that'll help us as we go through each one. Okay, cash is the main asset and assets increase on the left side. So I'm going to go ahead and put my + (Plus) on the left. That also means it decreases on the right side. Okay? So let's go through another asset. An example would be Accounts Receivable. That is where we book when somebody owes us money. Okay. So. Accounts Receivable is an asset and assets increase on the left side. So that means it decreases on the opposite side. Okay? Another example of an asset would be Inventory. These are items that a business purchases with the intent to resell. And we call that Inventory. And they are also an asset. So that means they increase on the left and decrease on the right. Okay, another example would be a Building. If we were to purchase a building, it's an asset. And I think you're getting the hang of it. Increases on the left, decreases on the right. And let's add Notes Receivable. That's another account we'll get to. and just like the previous one, when you see the word Receivable, that means somebody owes us money. This is a more formal agreement. Like if you, um, let's say we were to lend somebody money. We would book it to this account. So, again. Increases on the left and decreases on the right. So, you can see--all of these right here-- increase on the left and decrease on the right. So now let's go to Liabilities. So we booked to Accounts Payable. That's when we owe somebody money. So when you see the word Payable, that means we owe somebody money. It's a liability. So liabilities-- you can see over here, on my DEAD CLEAR. Liabilities increase on the right side. So that means they decrease on the left. So another type of liability account that we'll book to is called Notes Payable. That's if we were to borrow money... and, again, liabilities--they increase on the right side, so that means it decreases on the left side. So this would be if we were to borrow money, we would have to sign a formal written agreement and we would book to Notes Payable. Now another liability account that we'll book to is called Unearned Revenue. This is the tricky one because, as you can see, most of our liability accounts, almost all of them will have the word Payable in there. So, that's your clue that it's a liability. But Unearned Revenue tends to throw people off because it has the word Revenue in the account. But it's if it's "unearned"-- it's a liability. So, this would be if somebody paid us in advance-- before we've provided any service... We don't really own that money. If we were not to fulfill that obligation, we would have to give that money back. So that would be considered Unearned Revenue. And, um, of course, we'll see some more examples of that. Just know, Unearned Revenue is a liability account until we earn it. Okay. So, um... That's, uh, our liabilities. Now let's go to our Equity Account. Remember, Stockholder's Equity is made up of two parts-- Contributed Capital and Retained Earnings. So, so far, all that we've discussed under Contributed Capital is Common Stock. When we get to Chapter 13, we'll go over some other items that fall under Contributed Capital. Now, Common Stock is an Equity Account. And it increases on the right side. So, that means it decreases on the left side. Okay. Retained Earnings is made up of--just like you saw on that spreadsheet that we went through in Chapter 1-- it's made up of Revenues. So, I'm just gonna list the broad category Revenues. You'll see, in this chapter, for each Revenue that we earn we'll actually book it to its own account. But, for now, Revenues, you can see, increase on the right side and they decrease on the left side. And then we have Expenses. And Expenses decrease Equity. So even though, overall, Equity increases on the right, you'll see expenses decrease on the opposite side. Why is that? Well, that's because Expenses decrease our Equity. So it has to increase on the opposite side of our Revenues. And the same thing with Dividends. Dividends also decrease Equity, and you can see from our DEAD here, or DEAD CLEAR, that Dividends increase on the left side. So that means they decrease on the right side. And it's because they have the same effect on Equity--or impact on Equity-- that expenses have. So, my hope is that you will use this as you go through your transaction to identify the side that an account increases or decreases on. [End note/no audio]