hey everyone this video is going to continue with chapter one which is part of module one and we're going to continue on with the accounting equation so I will jump straight into the notes and the exercises that we can look at so what we learned last time and to continue on is the basic accounting equation and that is assets equals liabilities plus Equity assets are resources owned by the business and and um Li what liabilities are they are the creditor's claims so the people that would loan US money people that would um we would be in debt to so liabilities are creditor claims on those assets that we own and we can also refer to those as debts and obligations to be paid in the future any account we have with the word payable is going to be a liability so I've put the word payables and quotes there then we have equity which is owner's claims on assets and um that would be things that we hold within the company based off of earnings um and it can also be money we put in ourselves all right how do business transactions affect the equation so when a certain transaction happens what makes it go up what makes it go down on the last video we just kind of made sure the numbers always equal the left equals the right but here uh we're going to look at you know not even look at numbers and just look at the concept behind what makes an asset go up or down what makes Equity or liabilities go up or down so these transactions are all in your book as well but I just try to explain them really quickly here on this video also so the first one an investment by an owner that's when we might put money into the corporation so the cash of the corporation is going up it's increasing in which makes assets increase and our Equity is also going up our equity in the corporation so the account common stock would increase another transaction example these are all just example you could have hundreds thousands of examples but um we have like the top 10 so um the second one purchase supplies for cash supplies things like paper toner toilet paper for the bathroom just supplies like that for cash so we're going to give up cash cash goes down and we're going to add supplies supplies goes up so no change in assets total assets would be unaffected no effect on the right side of the equation all right how about if we buy a piece of equipment for cash so our cash is going to go down and our equipment is going to go up it's going to be exactly the same so that's why I drew an arrow for both two and three total assets and affected no affect on liabilities or Equity we just moved our assets around all right well what if that changes and we purchase supplies on credit we go into Staples and we have a an account with them and we're going to pay them in 30 days then when that happens we're paying with accounts payable so we we're still getting supplies which are an asset so that asset goes up but accounts payable is also going to go up because we didn't use cash so accounts payable goes up up assets increase liabilities go up also so the right and the left side go up and it stays in Balance all right so we'll deal with accounts payable coming back down in just a little bit provide services for cash so here's where we generate our Revenue when we provide a service that creates service revenue and we get cash for it so our cash goes up now service revenue is not an account directly in equity but what happens to it affects Equity so it's the r in red and revenues make Equity increase they're good so my assets would increase and My Equity would increase because I generated Revenue all right six and seven are going to go together so like I said these are the examples from the book so I put these two together because they were both expenses and both of these expenses are being paid in cash cash so anytime you pay an expense in cash your cash is going to decrease because you're paying it so your assets decrease and then expenses the more you have are going to make your Equity go down so this six and seven any expense paid with cash assets decrease Equity decreases but it stays in Balance all right number eight we provide services and facilities for credit so um when we provide our services this is the same wording that we had right here here we provided service for cash service Revenue here we're going to provide service and somebody's going to owe us later a good example of this is going into a hospital and having to pay later so they're going to record service revenue and maybe they're renting a facility as well so that generates rent Revenue but they're not getting cash yet so asset up which would be accounts receivable the customer is going to pay you in the future that's an asset account assets increase what increases on the other side is equity through these Revenue accounts service revenue and rent Revenue okay so if the customer is going to pay us in the future what does it look like when they do pay us that's number nine receipt of cash receipt is think of it as the same thing as receiving cash from accounts receivable from the customer so this is your collecting from the customer a lot of times they call it collections so your cash goes up that makes assets go up but the asset that comes right back down is accounts receivable so all your assets stay um unchanged the total number but your cash increased and your accounts receivable decreased okay remember I said we would get back to this account payable so you bought these supplies on account well when you get the bill to weeks later you got to pay it so that's what's happening on number 10 payment of accounts payable you're going to pay it with cash your cash goes down and you're making your liability go down which is great so left and right side down and you don't owe that payable anymore all right number 11 payment of cash dividends your cash goes down and um a dividend is another one of these items that affects Equity but it's not directly listed in equity so it's the D in Red so Dividends are going to cause Equity to decrease and your cash is being decreased Dividends are paid to stockholders at the end of the year if there's um excess cash after income has been determined and the board decides to pay the dividend so honestly those 11 are going to be your most common transactions that you're going to have to deal with look at them in the book I've gone through them very quickly to give you a quick description here but you definitely want to read about each of them in the book because you're going to see these repeatedly and you'll get new ones but those 11 are definitely going to be the most common so let's look at some examples of these in exercises and what we call the expanded accounting equation so um this is quick study 10 and we are looking at some transactions and um I added in this table right here so you could see this better on this problem and we have assets equal to liabilities plus equity and then I have my account titles under each category so cash and accounts receivable are assets accounts payable is a liability common stock is equity and then the reason they call this the expanded equation is because see here my r d revenues expenses and dividends those are extras that are not truly part of equity but they affect equity so the first transaction the company completed and you can see I just kind of rewrote that there but just so you could see it more clearly um and more organized so for part A the company completed Consulting work that's the revenue that they do they also complete their service in B so A and B are both going to have an increase of Revenue a 5500 B 4,000 but in a and b they get different assets asss for generating that Revenue in a they immediately collected 5,500 cash so My Equity went up in a and my cash has got to go up which makes my assets increase left side up right side up we're happy the company completed commission work for a client and sent a bill whenever we send a bill we are not getting the cash immediately so we're going to record accounts receivable so this is like sending an invoice in QuickBooks if You' ever ever done that you're sending someone acknowledgement that they need to pay you so you're getting the asset accounts receivable and you're recording Revenue with it so your assets are still increasing but through accounts receivable instead of cash all right then in C the company paid an assistant 1,400 cash anytime we pay cash you're always making Cash go down so we we want to master that like in a we received cash so cash goes up and in C we pay cash so our cash decreases and I'm showing that decrease with parenthesis so the other thing that decreases over here is equity because we're recording wages expense the more expenses we have the less Equity we have okay in D the company collected cash ding ding ding my cash goes up so my assets increased by that 1,000 but the reason we collected it it's a partial payment for the amount owed by the client in transaction B so they had owed us 4,000 and they're sending us part of it and that's fine that happens a lot there's payment plans now so we make accounts receivable go down by just a th000 so we know we would still have 3,000 left over the company paid 700 cash for this period's cleaning services my cash goes down and that's an expense which makes My Equity decrease assets decrease Equity decreases all right we have another one let's keep rolling this is just five more transactions just to keep repeating these to get these in your head the owner invested 15,000 cash in the company in exchange for stock so my cash goes up and my common stock goes up which is part of equity assets increase Equity increases the company purchased supplies for 500 cash so my cash goes down and my supplies go up total assets unaffected the owner invested 10,000 of um of equipment in the company in exchange for more common stock so this one has nothing to do with cash I'm underlining the account titles in each one so equipment goes up we got equipment and common stock goes up by 10,000 so the company in D purchased 200 of additional supplies on credit the supplies go up and accounts payable goes up so my assets up and my liabilities up um just to go back to the equipment and common stock one assets increased and common stock is directly part of equity so that made Equity go up and that c is just like a you're just investing a different asset you're investing the piece of equipment on E the company purchase land for cash I don't have these accounts underline but your two accounts would be the land land and cash which are both asset accounts so my cash goes down and my land goes up total assets unaected all right exercise 13 um more of these exact same transactions and they just want us to match which one goes with which so um I already have the letters in here of course since I've already done these so let's look at number one F let's kind of look across the row and then go see what it says so my cash went down it decreased they have a minus sign in front of it and my land went up so I must have purchased land for cash so I go to F the company purchased land for 4,000 cash and then a um what is happening on number two which gets the answer a my supplies go up and my account payable go up so what's happening there the company purchased a thousand of supplies on credit credit so my accounts payable goes up and my supplies go up assets up liabilities up all right let's look at number three my accounts receivable go up so somebody owes me and then my revenues increase so I must have provided a service on account and that's number uh G letter G so the company build a client 1900 for services provided when we build clients that's accounts receivable and I wrote that over here in the margin and I put these numbers out here to the side these correspond to the number transaction examples I went through above so what's happening on number four which gets the letter H my cash goes down and my accounts payable go down so I must have paid a bill that I owe and that's exactly what it says the company paid a th000 toward an account payable and then um on the last one number five it gets the letter B cash up accounts receivable down so someone must have paid me for what they owed me and that's exactly what it says on B the company collected 19900 cash from an account receivable all right so on the next exercise we are identifying um it's another matching and what's the impact on the accounting equation like what's going up and what's going down no numbers here so this is big concept make sure you're reading and understanding this um in the book so for transaction a the company pays cash toward an account payable so they're paying that bill that they owe and you can see it's number three so this decreases an asset and decreases a liability left and right side going down on B the company purchases equipment on credit so my assets go up and my liabilities go up so I'm writing in these letters from the equation to try to help you with this too so that's number two that increases an asset and it increases the liability on C the owner invests cash in the business so that's number five the assets of the business are going to go up and so does Equity then e the company purchases supplies for cash so remember that's the third time we've seen this assets are just moving around and that's number four increase in asset and decrease in asset at the same time and then F the company provides services for cash providing Services is service Revenue that makes our Equity go up and then we get cash so assets increase increases an asset and increases Equity all right here are the things summarized under Equity that affect it the things that increase Equity are stock or you know Capital contributions and revenues the things that decrease Equity are dividends and expenses which conveniently starts with a de just like decrease okay here's another quick exercise quick study n determine whether each of the following increases or decreases Equity the owner invested cash in the company that's an increase so that's following my little chart I had just shown you up there we incurred maintenance expenses the word incurred means it happened but you've not paid it yet so if it's an expense it decreases equity no matter what we perform services for a client that increases Equity because that's a revenue so that's an increase and then incurred employee wage expense so we're going to have to pay them later we've definitely incurred the expense so that decreases Equity all right so we can put all of