沃顿商学院全套笔记-十八-
沃顿商学院全套笔记（十八）
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P53：5_1 3 2 借贷记账法 II.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
Hello and Professor Brian Boucher。 Welcome to the second part of our Debit and Credit Extravaganza。
In the last video we introduced a lot of terminology and concepts and in this video we're going。
to practice applying those。 I'm going to start with a series of examples to help review the key concepts from last。
video and then we'll move on to practice doing journal entries so that we get used to writing。
things using this Debit and Credit language。 Let's get started。 Okay。
let's reinforce everything that we've learned with a series of four examples。
In the first example we're going to increase an asset and then increase either a liability。
or equity。 In this case we receive $100 cash from a bank loan。
The accounts involved are cash and notes payable both of which increase by $100。
On the balance sheet equation we would see that assets would go up by $100 that's the。
cash。 Liabilities would go up by $100 that's the note payable or obligation to the bank and。
equity is unchanged。 For the journal entry first we need cash to go up by $100。
Cash is an asset。 Assets are Debit accounts so we would debit cash to get it to go up by $100。
And what I'll do is I'll put in parentheses plus A to indicate that this debit is increasing。
the cash account。 We're going to credit notes payable for $100。
Notes payable is a liability。 These are credit accounts so we increase a credit account with a credit entry。
If we looked at this with T accounts we would have a cash T account which would have an。
entry on the debit side。 A notes payable T account which would have an entry on the credit side。
If we did a balance sheet equation， sort of drew a line， added up the balance in each， account。
Our balance sheet would balance。 We'd have cash of $100 on the asset side。
Now let's look at decreasing an asset and decreasing a liability or owner's equity account。
So here we're going to repay $20 of a bank loan。 So the accounts involved are cash and notes payable。
Both are going down by $20。 On the balance sheet equation we would see assets go down by $20。
That's the cash。 Liabilities going down by $20。
That's the notes payable and there's no effect on equity。 For the journal entry。
the cash is going down by $20。
There's no effect on equity。 For the journal entry we're going to debit notes payable for $20。
We need a liability to go down。
Liabilities have credit balances。 We reduce a credit balance with a debit。 Debit notes payable $20。
Then we're going to credit cash for $20。 Cash is an asset。
Assets are debit balances。 We reduce a debit balance account with the credit so a credit to cash for $20。
We'll reduce it。
You notice I have minus L and minus A in parentheses to indicate that these two are both reducing。
liabilities and assets。 For T accounts we would have a credit entry in the cash T account。
a debit entry in the。
notes payable T account。 If we drew a line for the balance in each。
our balance in cash is 80 on the debit side。
Balance in notes payable is 80 on the credit side。
Our balance sheet equation would balance where we have 80 of cash， 80 of notes payable。
and no stockholders equity。
Okay okay I know we're not off to a rousing start but just two more examples and then。
we'll do some journal entry practice。 Next example。
let's look at increasing one asset and decreasing another asset。
The example transaction is that we pay $10 in cash for inventory。
The accounts involved here are cash and inventory and cash is going down by 10。
Inventory is going up by 10。 Our balance sheet equation would look like this。
All the actions on the left hand side where we have one asset going down and one asset。
going up by the same amount so they cancel。 For the journal entry we need inventory to go up。
Inventory is an asset so we debit inventory by 10 to make it go up by 10。
We need cash to go down。
Cash is an asset。 You make a debit balance。 Asset account go down with a credit so we credit cash for 10。
In terms of the T accounts we would have another credit to cash of 10。
We would put an inventory T account with a debit balance of 10。
If we drew lines and added up the balances we've got 70 in cash and 10 in inventory on。
the left hand side so that's 80 of assets。
We have 80 of liabilities and the notes payable， no stockholders equity。
Our balance sheets balance and our debits equal our credits。 Final example。
we're going to increase the liability or equity and then decrease another。
liability or equity。
In this case we're going to issue $80 in common stock to pay off the bank loan。
The two accounts are common stock and notes payable。
Common stock is a stockholders equity account going up by 80。
The bank loan is a liability going down by 80。 In the balance sheet equation we'd have nothing on the asset side。
These would go down for paying off the bank loan， equity would go up for issuing the common。
stock。 For the journal entry we want a debit notes payable for 80 because notes payable is a liability。
that we want to reduce。
Liabilities of credit balances， we reduce them with a debit so debit notes payable。
We want common stock to increase。 Common stock is an equity account which has a credit balance。
We increase a credit balance account with a credit。
We credit common stock to increase stockholders' equity by 80。
And then with our T accounts we would have a reduction of 80 to notes payable， the reduction。
being a debit。
And increase the common stock of 80 with the increase being a credit。
If we drew lines and came up with the totals we'd have 70 in cash， 10 in inventory that's。
80 on the asset side。 We have no notes payable。 It goes to zero because we've fully paid it off and a balance in common stock of 80。
So our assets equal our liabilities plus stockholders' equity， balance sheet balances。
debits equal credits。
So let's practice some journal entries。 It would be the same procedure that we've used in other videos where I'll give you a。
transaction。 Put up the pause sign so that you can pause if you want to give a shot。
Then I'll give you the answer and we'll talk through how we got it。
Here's the first one。 BOC issues， $10，000 shares of $5 Power Value stock for $15 of cash per share。
In this transaction we're receiving cash。
Cash is going to increase。 And we're going to increase common stock accounts。
Cash is an asset。 We make cash go up with a debit。
So we're going to debit cash。 The dollar amount is $150，000 which is $15 cash times $10，000 shares。
We need the common stock accounts to also go up by $150，000 but we have to split it between。
the par value and the additional paid in capital。
So we're going to credit common stock at par for $50，000 which is $5 par value times。
$10，000 shares。
And then we'll credit additional paid in capital for the rest which is $100，000。
So now we have $150，000 of debits， $150，000 of credits。
We're in balance and we've done the journal entry correctly。 Whoa。
you can have more that one credit in a journal entry。 Could you also have more than one debit？
And what is this also shown in his power value？ Yes， you can have more than one credit。
You can have more than one debit。 The only requirement is that your debits equal your credits within the journal entry。
And yes， accounting professors are obsessed with par value。
It's one of those difficult things that you can only come to a trained professional like。
me to understand so you're going to see it a lot。
BOC acquires a building costing $500，000。
It pays $80，000 cash and assumes a long-term mortgage for the balance of the purchase price。
The accounts involved in this transaction are buildings which are going up， cash which is。
going down， and mortgage payable which is going up。
It's a liability that's increasing as we take out the mortgage。
So starting with buildings， they're going up。
Buildings are an asset so we debit buildings by $500，000 to increase the asset。
We want cash to go down。 Cash is an asset。
Cash has a debit balance so to make it go down we need to credit it。 We need to credit cash for $80。
000 to reduce that asset。
And then mortgage payable is a liability。
Has a credit balance。 We want to increase it so we're going to credit mortgage payable to increase the liability。
We're not given the amount but we know it has to be $420，000 because we know our debits。
have to equal our credits。
Once we credit mortgage payable for $420，000 we have $500，000 of debits， $500，000 of credits。
and we're in balance。 BOC obtains a three year fire insurance policy and pays the $3。
000 premium in advance。
In this transaction we're getting fire insurance coverage for three years。
That's an asset that we're going to call prepaid insurance and it's going up。
We're paying cash so cash is going down。
So starting with a prepaid insurance it's an asset。
We make an asset go up through a debit so we debit prepaid insurance for $3，000。
Cash is an asset also but it's going down。 So to make cash go down we credit cash to reduce the asset by $3。
000。
BOC acquires on account office supplies costing $20，000 and merchandise inventory costing $35，000。
In this transaction we're acquiring office supplies and inventory。
Both of those are assets so we're going to make them go up with debits so we debit office。
supplies to increase that asset by $20，000。
We debit inventory to increase that asset by $35，000。 Now we're not paying any cash。
Instead we owe our supplier $55，000 because we got this stuff on account。
When we owe money to our supplier it's a liability called accounts payable。
It's increasing。 We make a liability increase through a credit so we credit accounts payable for $55。
000。
So we have $55，000 of debits， $55，000 of credits and we're in balance。
Next， BOC pays $22，000 to its suppliers。
In this transaction we're paying our suppliers which reduces how much we owe them which is。
going to reduce accounts payable。
And since we're paying cash it's going to reduce cash as well。
Accounts payable is a liability。 It has a credit balance。
If we want to reduce it we need a debit so we debit accounts payable $22，000。
Cash of course has a debit balance。
If we want to reduce it we credit cash for $22，000。
And this by the way is the journal entry you're going to do anytime that you pay cash to reduce。
a liability。
Debit the liability to reduce it， credit cash to reduce it。
BOC exchanges a building valued on the books at $200，000 for piece of undeveloped land。
In this transaction we're trading one asset for another asset。
We're getting land land is going to go up。
So to make land go up we debit land $200，000。 We're getting rid of a building。
Building is going down。 Building is an asset。 We make an asset go down with the credit so we credit building $200。
000。
How do you know that the land is worth $200，000？ Given the information we have we have to assume the land is worth $200。
000 so our debits equal， our credits。 And the assumption makes sense because if we're giving up a $200。
000 building and just， getting land the two values should be equal。
Now later on in the course we'll look at situations where they're not equal and we end。
up having a gain or a loss in the transaction but that's for another day。
BOC retires 1 million of debt by issuing 100，000 shares of $5 power value stock。
In this transaction we're reducing a liability。
Anytime we reduce the liability we need to debit the liability to make it go down so we。
debit notes payable for a million dollars to reduce it by a million。
Now we need to increase stockholders equity by a million but we have to split it into。
the common stock and the additional paid in capital。
So common stock at par goes up by the par value so we credit common stock to make the。
stockholders equity go up for $500，000 which is 100，000 shares times $5 par value。
Then we credit additional paid in capital to make that stockholders equity account increase。
and we know the amount has to be $500，000 because we know our debits have to equal our， credits。
Sorry， I'm going to make you do par value a lot。 Get over it。
BOC receives an order for $6，000 of merchandise to be shipped next month。
The customer pays $600 at the time of placing the order。
In this transaction we're receiving $600 cash。 Anytime we receive cash we debit cash to increase the asset so we debit cash $600。
We're also getting an obligation here because now we either owe the customer $600 back or。
we have to deliver the merchandise。 So we're going to create a liability called advances from customers so we credit advances。
from customers to increase the liability for $600。
What about the $6，000 of merchandise we ordered？ Don't we have to account for that？ No。
we only account for the $600 because that's the only part where there's been a transaction。
exchange because we received $600 cash。 For the other $5，400 that's all future stuff。
That's all promises。 We don't have a liability yet because there's no obligation that's based on benefits or。
services that we've received。 Not until we exchange cash goods or services equal to $5。
400 in the future where we have， to record that part of the transaction。 Finally。
BOC declares and pays $8，000 of cash dividends。
Let's start with cash in this transaction。 So cash is going down by $8，000。
Anytime cash goes down， we credit cash to reduce the assets。 So we credit cash for $8，000。
So now we know we're looking for a debit。
The other part of the transaction is dividends。 We're paying dividends。 Now remember。
dividends are a reduction in retained earnings。
Retained earnings are a stockholder's equity account。
Stockholder's equity accounts have credit balances so we reduce them with a debit。
So we reflect the dividend by debiting retained earnings for $8，000。
That was a lot of good practice at taking transactions and trying to represent them as。
journal entries using debits and credits。 You're going to get a lot more practice。
Starting next video， we're going to do an extended case that follows a startup company。
all the way through its first transactions to its first set of financial statements。
And along the way， you're going to get a lot of practice doing journal entries and see a。
lot more debits and credits。 I'll see you then。 See you next video。 [BLANK_AUDIO]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P54：6_1 4 1 文物寻宝案例部分 1.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
Hello， I'm Professor Brian Boucher。 Welcome back。 Starting with this video。
we're going to look at an extended case study which will， illustrate the accounting cycle。
The accounting cycle is all the steps that you have to follow to go from recording transactions。
all the way through preparing financial statements。
The case is going to be spread out over a number of videos interspersed with new topics。
that we introduce which will then illustrate in the case study。 Let's get started。
Let's start off with a quick review。 So we've seen in the last couple of videos how journal entries and T accounts can be used。
to track and record the effects of transactions。
And the key is to make sure that our debits equal our credits when we record these journal。
entries。 And if we do so， then we know that the balance sheet equation will hold when we add everything。
up。 So the debits and credits substitute for the balance sheet equation。
We talked about how debit means left side entry and credit means right side entry。
So when I buy something at the store and the cashier says nivet or credit， should not point。
out that he is really asking left or right。 Please don't say that。
You're going to get me in trouble。
To make sure that debits and credits will preserve the balance sheet equation， we set。
assets and expenses to have debit balances which means that debits will increase these。
types of accounts and credits will decrease them。 We set liabilities， shareholders。
equity and revenues to have credit balances so that credits。
will increase these accounts and debits will decrease them。
We also looked at a visual picture that we could use to remember this。
The super T account which shows why are their debits or credits increase or decrease the。
various type of accounts and talked about how you should print this out， keep a handy。
until you memorize it or tattoo it on your arm whatever your inclination may be。
Now we're going to talk about the accounting cycle。 Oohoo。
let's take a ride on the accounting cycle。 Uh， it's not that kind of cycle but it should be just as fun。
We're going to go through the entire accounting cycle with an extended case which follows a。
startup company from its first set of transactions all the way through its first set of financial。
statements and that's what the accounting cycle is set up to do。
First， as the business is operating during a fiscal period， transactions happen and then。
you have to analyze those transactions to figure out how to come up with journal entries and。
then post those journal entries to T accounts。
Once the period is over we do something called an unadjusted trial balance to make sure we。
haven't made any math mistakes or transposed any numbers。
Then we do something called adjusting entries which are needed to get the books correct。
before we do financial statements。 After another trial balance we prepare the financial statements。
When we're done with those we have to do something called closing entries which gets us all set。
to start the new period so that we can do this over and over and over and over and over。
and over again through the whole life of the business。
We're going to start the case with the first part of the accounting cycle where we analyze。
transactions and then figure out how to journalize them which is record each transaction as a。
journal entry and something called the general journal。
Then we're going to post that journal entry to T accounts or general ledger where we'll。
keep a running total of the balance in all the accounts。
So now let's take a look at the facts of the case。
In March of 2012 Rebecca Park identified an excellent business opportunity while she's。
a first year MBA student at Wharton。 She read a story about an MBA student who tripped while jogging in Fairmont Park and found。
an ancient gold coin in the underbrush。
It was an old Viking coin that was appraised at $77，500。
She realized she could set up a profitable business that rented out poor metal detectors。
to people that wanted to search Fairmont Park for more Viking relics。
Also Park had the idea of stocking her store with sundries such as water bottles and energy。
bars that she could sell at a huge markup to renters before their expedition into the， park。
Park prepared a business plan and approached a fellow student Jay Girard who had a sizable。
trust fund in who she believed would invest in this new venture。
Due to his myriad of other investments and his heavy course load， Girard agreed to invest。
as a silent partner and allow Park to run the business which she named Relik Spoder Inc。
Now what we're going to do is go through a number of transactions for the company。
After each transaction is read， you should pause the video and try to do the journal entry。
Think about what accounts are involved， did they increase or decrease and then do we debit。
or credit， then resume the video to see the answer and the explanation and that's when。
we'll post the journal entry to T accounts。 First transaction。 On April 1st 2012。
Girard decided to invest $200，000 and Park put up $50，000 to purchase。
a total of 25，000 shares in the new company。
The par value of the shares was $1。
In this transaction， we're receiving $250，000 of cash for issuing equity。
Cash is increasing by $250，000。
Cash is an asset。 We increase assets through debits。
So we're going to debit cash for $250，000 to increase this asset。
We also have a $250，000 increase in contributed capital which is stockholders equity。
But remember we have to split this into two parts， the par value and the additional paid。
and capital。 So first we have common stock at par which is going up by 25。
000 shares times $1 or $25，000。
We make stockholders equity go up with a credit so we credit common stock for $25，000。
And then we credit additional paid and capital for the rest $225，000 which is the number we。
need so that our debit sequel are credits。 Excuse me。
Are you allowed to have more than one credit in a journal entry？ Z-PAL-VELU again。
Yes you can have more than one credit and/or more than one debit。 As we talked about last time。
the only requirement is that your debit sequel your credit。
And it looks like the par value guy is back again and you have to deal with par value。
a lot so get used to it。 After we do the journal entry。
we need to post these amounts to T-accounts where we can。
keep a running total of the balance in each account。
So we created T-account for cash， put the $250，000 on the debit or left hand side。
We put a little one there so that we can trace this number back to the original journal entry。
in the general journal。 We create a similar T-account for common stock。
of course the balance is on the credit side。
and the same thing for additional paid and capital。
Transaction 2。 Lacking the funds for her initial investment， Park borrowed the $50。
000 from the Imperial Bank。
of Philadelphia in April 1 using her parents' house as collateral。
The journal entry for this one is， well there is no journal entry because Rebecca Park is。
borrowing the money personally。 It's not relic spotter that's borrowing the money。
In other words， relic spotter doesn't have to pay this loan back。 Rebecca Park does。
So there's something called the entity concept which says the only thing that should go in。
a company's books are transactions for the company， not transactions for the employees。
So we want to keep this separate Rebecca Park's loan， personal loan does not show up in the。
relic spotter books。
Now having said that， this is the only time I'm going to do this trick and the rest of。
the case I'll talk about Rebecca Park does this， Rebecca Park does that， but for the rest。
of the case she's doing things on behalf of the company。
So you're not going to see this trick again。
Since there's no journal entry there's nothing to post a T account so we can go right on to。
transaction number three。 On April 2， Park hired a lawyer to have the business incorporated。
Because this was a fairly simple organization， the legal fees were only $3，900。
So let's take a look at the journal entry。 I always recommend starting with cash if there's cash involved in the transaction because。
you'll quickly memorize whether to debit or credit cash based on whether you receive。
or pay cash。 So in this case we're paying $3，900 of cash for legal fees。
which seems quite exorbitant。
but I guess it's lawyers so what are you going to do？ Anyway， if we're paying cash。
cash is going down， cash is an asset so assets go down through。
credits， so we're going to credit cash for $3，900。
Now notice even though I started with cash and it was a credit， I don't write it first。
in the journal entry。 As we talked about in a prior video。
you always want to write debits first so I had。
to skip some space， write the credit second and indent it。
So now we need to find a debit。 So what are we getting for this cash？
We're not really getting an asset。
This is more of just a cost of doing business。 So it's going to be legal fees expense。
Remember that expense is getting increased through debits。
So we're going to debit legal fee expense， which will increase expenses and reduce stock。
holders equity by $3，900。 Excuse me。 Why isn't this an asset？
I guess you could say this is an asset because the future benefit is that we get to operate。
the business forever once we've incorporated it。 It's a pretty lame rationale。
but there were companies that used to call this an asset。 Now the rules are explicit。
This kind of expenditure has to be expensed immediately。
Let's post this to T-account。 So we bring back our cash to account。
You put $3，900 on the credit side or the right-hand side with the little three to indicate that。
it's transaction number three。 And we created T-account for legal fee expense with $3。
900 on the debit side or the left side。
Next transaction， number four。
To house the business， park bought an abandoned pizza parlor near Fairmount Park for $155，000。
on April 7。 The building was old and needed renovation work。
The purchase documents allocated $103，000 to land and $52，000 to the building。
Park paid for the building with $31，000 cash and a $124，000 mortgage from the Imperial bank。
Wow， this is a big transaction so it's going to require a big journal entry。
Always like to start with cash if we can。 We paid $31，000 of cash。
Cash is an asset。 Let's go down with the credit so we credit cash for $31，000。
We acquired land and building。
Land and building are both assets。 Assets go up with a debit so we want a debit building for $52。
000 and debit land for $103，000。
to make those two accounts go up。
Now at this point our debits don't equal our credit so we can't stop。
We're missing one more piece and that piece is the mortgage。
A mortgage is a liability。
These go up with a credit so we need to credit mortgage payable for $124，000 and now our。
debits equal our credits。
Why do we need to have separate accounts for land in four buildings and why don't we record。
interest payable as well？ Won't we have to pay interest on the mortgage？ Huh。
those two look like twins。 Anyway， both good questions。
We keep land and building in separate accounts because later on we're going to do something。
called depreciation and these two accounts will be treated differently。
As for the interest question， I think we talked about this in a prior video but it's good。
to review it。 We don't owe any interest when we take out the mortgage。
We can pay back the mortgage immediately and not have to pay any interest。
Only as time passes and we owe interest without paying it will we have to record an interest。
payable。 We've got a lot of posting to do for this journal entry。
We bring back our cash T account and put another credit on the right hand side， create T accounts。
for building and land and one for mortgage payable。
Transaction five。 Park felt that some renovation work would extend the life of the building to 25 years。
with an expected salvage value of $10，000。
She ordered the renovation work costing $33，000 to begin immediately。
The work was completed on May 25th at which time she paid in cash the amount owed for。
the renovations。
For this transaction， the first thing we're going to do is ignore the stuff about salvage。
value in 25 years。 We'll come back to that in a later video。
Instead we're going to focus on the transaction that happened on May 25th which is when Park。
paid the cash。 We paid $33，000 of cash。 Cash is an asset。
We make an asset go down through a credit so we credit cash for $33，000。
Now we're looking for a debit。 What did we get for this cash？
We added to the building and so we're going to debit building for $33，000 to increase the。
balance in the building account。 Remember we make assets go up through debits。
Excuse me。 Why isn't this an expense instead of an asset？
All of the expenses seem like assets to me and the assets seem like expenses。 Oh bother。
Great question。 The general rule is if you spend money on maintenance and expected cost of maintaining。
the asset then you would expense it。 But if you spend money for a capital improvement which would be something that would increase。
the value of the building or how long you plan to use it then you get to add that to。
the building account。 But don't worry about this now。
This is something we're going to talk about in a lot more detail later in the course。
Then we post the Citi accounts。 We add another credit to the right-hand side of the cash account and a debit to the left-hand。
side of the building account。 So now the balance in the building is $85，000。
I would tell you what the balance in cash is but I can't do math in my head so you'd。
have to figure that on your own。 Next transaction， transaction number six。
Work phone a number of metal detector vendors until she found one that was willing to give。
her volume discount。 On June 2nd， park purchased 240 metal detectors at an average cost of $500 per unit so that's。
$120，000 total。 The innovation in the industry is so rapid that park felt the units would only last for。
two years at which time they would have no remaining value。
In this transaction we're going to again ignore the two years no remaining value will。
come back to that in a later video。 We need to record the transaction where we paid $120。
000 cash to get metal detectors。
If we're paying cash， cash is going down。
Cash is an asset， goes down with the credit so we credit cash for $120，000。
What are we getting？ What's the debit？ Well we're getting metal detectors。
Metal detectors are an asset。 We make assets go up with a debit so we debit metal detectors for $120。
000。
We aren't the metal detectors considered inventory。 Yes。
I thought any merchandise that a company purchases is called inventory。
We only use the inventory account for goods that we buy with the intention of selling as。
quickly as possible at a markup。 We don't call the metal detectors inventory because we intend to keep them for two years。
and use them over and over and over and over again to generate rental revenues。
So the metal detectors are more like a piece of equipment than what we would traditionally。
think of as inventory。 Then we post this to T-accounts。
We add another credit on the right hand side of cash。
Good thing that we raised $250，000 because we're spending it pretty quickly。
And we create a T-account for metal detectors which now has a debit balance as an asset。
So we're about halfway done at this point。 So why don't we go ahead and stop this video and we'll pick up the case in the next video。
with the next transaction。 I'll see you then。 Excuse me， see you next video。 Bye。 [ Silence ]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P55：7_1 4 2 文物寻宝案例部分 2.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
Hello， I'm Professor Brian Bache。 Welcome back。 In this video。
we're going to pick up where we left off last time and continue to do the。
initial transactions for the Rolex water case。 Got a lot to get to， so let's get started。
Let's start back up with transaction number seven。
On June 15th， Park ordered $2，000 of sundry's inventory， for instance water bottles， energy。
bars， et cetera， to be delivered on June 30th。 Park was able to purchase the inventory on account。
which meant she had up to 30 days。
after delivery to pay the supplier。
So I'd like to start with cash， but there's no cash in this transaction。
We're receiving inventory and we owe the supplier money for the inventory within 30 days。
So let's start with inventory。
Inventory is an asset。 Assets go up through debits， so we're going to debit inventory for 2，000。
We owe money to our supplier。 That's a liability。
Liabilities have credit balances， so we increase them with a credit。
So we're going to credit something called accounts payable for 2，000。
Counts payable is the term we always use when we owe money to a supplier。
Hey， where's the date for the transaction June 30th and not June 15th？ Good spotting。 On June 15th。
we place the order， but there's no transaction yet because we haven't had， an exchange of cash。
goods， or services。 It's not until June 30th when we take physical delivery of the inventory that we have to。
record a transaction。 We post this one to T-accounts。
There's no cash to the account this time。 Instead。
we create an inventory T-account with a debit balance and create an accounts。
payable T-account with a credit balance。
Transaction 8。 On June 30th， Park paid $2，100 for a three-year site license to use geo-contour mapping software。
in the metal detectors。
For the journal entry， we're back to paying cash。
So we'll start with cash。 Cash is an asset。
Cash is going down。 We make assets go down with credit， so we credit cash for $2，100。
Now what are we getting？ What's the debit？ So the debit here is that we're getting software。
Now I never knew that metal detectors ran on geo-contouring mapping software， but I guess。
they apparently do。 Anyway， software is going to be an asset because it's something that we can use to run the。
metal detectors over three years。
Assets go up with debits， so we debit an asset called software for $2，100。
Excuse me。 I hate to sound like a broken phonograph record。 But why was this an asset？
And not an expense。 I don't feel bad for asking the question。
One of the trickier things to pick up an accounting is when you spend money， do you recognize an。
asset or do you recognize an expense？ In this case。
we did an asset because we're going to get three years of future benefits， from buying the software。
And in future videos， we'll talk about what has to happen for this asset to then turn into。
an expense as it will down the road。 We post this journal entry to T-accounts by putting another credit on the right-hand side。
of the cash account and creating a new T-account for the software asset。
Transaction 9。 On June 30th， Park signed a contract with a local advertising agency to provide various。
forms of advertising for a period of one year。 She paid $8。
000 upfront for advertising through June 30， 2013。
In this journal entry， we are paying $8，000 of cash。
Cash is an asset。 We make an asset go down with a credit。
So we credit cash for $8，000。 And by this point， you should be able to credit cash in your sleep because we've done it so。
often。 Every time we pay cash， it's a credit to the cash account。
Now we need a debit。 So what are we getting for this cash？ Well。
we're getting a year's worth of advertising without having to pay any additional cash。
That's an asset。
We're going to create an asset called prepaid advertising。 And since it's an asset。
we increase it with a debit。
So we debit prepaid advertising $8，000。
Do we also get to record the value that this advertising will create as an asset？ I mean。
this advertising could bring in extra $100，000 to the bottom line。 Sounds like an asset to me。
It's important to note that the asset here only represents the cost of the advertising。
that's been prepaid。 It doesn't represent any of the potential value that the advertising could bring us in。
the future。 We don't record that value as an asset because the benefits cannot be measured with a reasonable。
degree of certainty。 It's just like the brand name example we looked at in a prior video。
If there's too much uncertainty about the value of the brand or the value of the advertising。
we err on the side of reliability and don't include it as an asset。
We post this transaction to T-accounts， so we've got another credit to cash on the right。
hand side and we create a T-account for prepaid advertising with a debit of $8，000。
Transaction 10。 On June 30， Park needed cash to make a payment on the imperial bank loan that funded her。
purchase of Relics Potter stock。 She borrowed $5，000 from Relics Potter at 10% interest。
with the principal and interest。
doing a lump sum on June 30， 2013。
This transaction looks complicated， but let's just start with what we know。
So what we know is that Relics Potter paid $5，000 cash to Rebecca Park。
We're paying cash。 Cash is going down since cash is an asset。
Assets go down with credits。 We credit cash for $5，000。
So what is Relics Potter getting for this cash？ That's the debit。 Well。
essentially they're making a loan。
That loan is going to be an asset because they're entitled to receive $5，000 of cash。
back from Rebecca Park at some point in the future。 Since it's an asset。
we want to debit the asset to increase it。
We're going to call it notes receivable and debit notes receivable for $5，000。
Note that we call it notes receivable and not accounts receivable。
Accounts receivable is only used for customers when customers owe us money。
If an employee owes us money for a loan， we're going to call it a notes receivable。
Hey， wait a minute。 The last time Park dorrohed money for herself。
We didn't record it in the company's books。 Yes， is this another trick question？
You're correct that in both cases Rebecca Park was borrowing money on her own account。
What's different was that in the first example we saw she was borrowing it from the Imperial， Bank。
In this transaction she's borrowing it from Relic Spotter。
That means that Relic Spotter is giving some of its cash to Rebecca Park and Relic。
Spotter has to record a transaction for that disbursement of cash to Rebecca。
We post this to T-accounts with another credit to cash and we create a T-account for notes。
receivable。
Transaction 11。 On June 30th Park also hired two employees， Linda Carlisle and Charlotte Cafferley。
to。
run the shop。 They signed employment contracts promising each salaries of 32，000 per year。
The journal entry here， well let's stop and think for a minute。
Is there actually a journal entry needed？ Has there been a transaction？
We haven't paid any cash yet to these two employees。 They haven't done any work for us yet。
All that's happened is they've signed a contract but that's the kind of promise that we don't。
account for。 There's going to be no journal entry。
There's no journal entry for this employment contract because they haven't worked for us。
yet。 We haven't paid cash yet and so we don't consider this a transaction。
We don't account for this type of promise。
Alright， so here's your trick question。 Where I come from， when you promise something。
it becomes an ironclad obligation。 So wasn't this a liability？
I'm starting to cause so much stress but we did talk about this in the liability video。
Remember one of the criteria for recording a liability is the obligation it has to be。
based on some benefits received currently or in the past。
We haven't received any benefits from these employees yet because they haven't worked， for us。
In fact they could quit tomorrow and we wouldn't know them anything。
So it's not until they work for us without being paid that we would record a liability。
Since there's no journal entry， there's nothing for us to post so let's go on to transaction， 12。
On June 30th， Gerard called from Sontro a pay to check in on the business。
Upon hearing that Relics Potter only had $47，000 of cash left in the bank， Gerard became concerned。
about his investment。 Now there's more to this transaction but I want to cut in here for a second to show you。
how we could figure out how much cash Relics Potter has in the bank。
If we bring up the cash to the account， at this point we could draw a line， add up the， debits。
add up the credits， subtract the credits from the debits and we'd have a balance of。
$47，000。
So at any point you can draw a line and figure out a balance and at this point we have $47，000。
in the cash account。 Okay back to the rest of the transaction。 Thinking fast。
Park stated she was so confident of Relics Potter's prospects that she was。
declaring a 10 cent per share dividend to pay it on August 31st。
That's $25，000。
This dividend seemed to reassure Gerard。
So for the journal entry， is there a journal entry here？
Because we haven't actually paid any cash yet。 Has there really been a transaction？
Well as we talked about in a prior video， the custom is that when a company declares a。
dividend you make a journal entry at that point even though the cash will be paid later。
So on June 30th we need to reduce stockholders' equity， reduce retained earnings to recognize。
the dividend。
Reduce stockholders' equity at credit account with a debit entry so we're going to debit。
retained earnings for $2，500 to take out the dividend。
The other side of this is that as we talked about in a prior video， once you declare a。
dividend essentially you're holding the cash that belongs to the owners until you write。
the checks。 So we have this obligation to write those checks and deliver the cash。
That obligation is a liability called dividends payable。
We make liabilities go up with a credit so we're going to credit dividends payable for。
$2，500。 Whoa， I thought you said liabilities were obligations to non-owners。
The dividend are owed to the owners。 How can you possibly justify having a dividend payable here？
And how can you record dividends on the date they are declared？
I thought you said that we don't account for promises。
Would it make more sense to wait until they are paid？ Whoa， let's settle down。
Someone needs to take a chill pill or something。 We did talk about this in a prior video。
I agree it's not very intuitive and that's why I wanted to review the transaction again。
By convention when a company declares a dividend it takes it out of retained earnings at that。
point even if the cash is going to be paid later。 And at that point the owners become creditors because the company is holding their cash。
until the dividend checks are sent。 So just memorize this one because again it's not very intuitive。
We post this to T-accounts so we create a T-account for retained earnings。
A stockholder's equity account and we have a balance on the debit side and a T-account。
for dividends payable liability where we put in the credit entry。 What？
If you have retained earnings have a debit balance according to my notes it is a stockholder's。
equity account and should have a credit balance。 Wow， you've been taking notes？
That makes me feel good。 You're correct that retained earnings is a stockholder's equity account and stockholder's。
equity accounts have credit balances。 But to make sure that the balance sheet equation always stays in balance we need at least one。
account that can be either a debit or credit balance。
Imagine if we had more liabilities than assets。 The only way we could get the balance sheet equation of balance would be with negative。
stockholders' equity。 And so we make an exception for retained earnings and allow it to have either a debit。
or credit balance because it's the one account that makes sure that the balance sheet equation。
always stays in balance。 If retained earnings does have a debit balance oftentimes we change the name and call it something。
like accumulated deficit or accumulated losses。 In 2013， Relicspot are open for business on July 1。
2012 just in time for the big independence。
they weekend。
On July 31st， Park paid the supplier the $2，000 it was owed。
For this journal entry we're paying $2，000 cash anytime we pay cash we credit it so we。
credit cash $2，000。
The debit here is that we're paying what we owe the supplier。
What we owe the supplier is an accounts payable which is a liability。
So for paying the supplier the liability is going to go down and we make liabilities go。
down through a debit。
So we debit accounts payable for $2，000 which reduces the obligation by $2，000。
I think we actually understand this one。 Go on。
We post this to T-accounts。 There's another credit entry on the right hand side of the cash to account and a debit to。
accounts payable。 And notice at this point the balance and accounts payable would be zero which makes sense because。
we don't owe our supplier any money anymore。
We've fully paid off the liability。 Transaction 14。
On August 31st， Park paid the $2，500 dividend that had been declared in June。
For the journal entry here we're paying $2，500 cash so that's a credit to cash for $2，500。
The debit is going to be to dividends payable because we're paying off what we owe the shareholders。
for the dividend。 Thus we're reducing the dividend payable liability。
We reduce liabilities with a debit so we debit dividends payable for $2，500。
Excuse me。 So it looks like every time you pay cash to settle an obligation。
You debit some payable and credit cash。 Is that correct？ Yes， that's exactly correct。
Every time you pay down a liability you debit the liability and credit cash。
Looks like it's starting to sink in。 We post this one to T-accounts with yet another credit to cash and a debit to the dividends。
payable liability account which as you can see zeros out this account which makes sense。
because we don't owe our shareholders any more money for the dividend。
And that's a wrap for the first part of the case。 We'll pick up the case again after we learn about revenues and expenses which will allow。
us to start generating some profits for relics' butter。 I'll see you next time。 See you next video。
[ Silence ]。
