Hey everyone welcome to chapter two's
example this is
part one of the example, so in this video
we're going to be doing the journal
entries and the T tables
and in part two the next video we're
going to be taking everything that we
did in this video and putting it into a
drawback, so this is going to give you a
couple steps in the accounting cycle
a little bit of practice so let's go
ahead and begin. And the problem it says
bravo company provides consulting
services to its customers the company
began the year with the following
account balances.
So we began the year with a cash balance
of twenty thousand dollars that means we
ended last year with twenty thousand
dollars
the ending of one year becomes the
beginning of the following uh we had a
beginning balance of supplies of four
hundred,
a beginning balance of common stock of
ten thousand,
and a beginning balance retained
earnings of ten thousand four 400 so
again this
implies that this is not the first year
of the company we actually do have
beginning balances,
so in order for us to begin this problem
or get this problem started
we need to go ahead and get the t table
set up for those accounts,
so there's the pages for our t tables
and our journal entry.
So let's go ahead with the cash t table we
need to create one so it's just again
cash with a t
capital t cash tends to be a little bit
longer because we use it more often
it's exchanged more often so you want to
give yourself a little bit more room on
this one the size of your t table may
want to be a little bit bigger
but cash t table is an asset t table so
it follows the plus minus
on the debits and credits so our debit
is plus and remember all of our balances
should go on the normal side the normal
side of a t table is the plus side
so for us the beginning cash balance is
going to go on the debit side
and so we'll put beginning balance of
20000.
Supplies is next so I want to create a
supplies t table and again supplies is
an asset so again I'm going to put the
400,
balance on the debit side because that's
the plus side or the normal side
so beginning 400. Common stock common
stock
is a type of equity account and it
follows the minus plus on the t
table so I'm going to create my common
stock t table and the balance of 10 000
is going to go on the credit side
because again that is the plus side for
common stock,
and lastly retained earnings files the
same thing will create a retained
earnings t table
and put it on the credit side of a
balance of 10 4.
Now I know this looks really odd because
I've spread all these
accounts in different areas on the paper,
but there's a reason behind it this is
just something I do you don't
necessarily have to do this you can kind
of
go with that your own way I just like to
have mine kind of clean and set up
that makes organization a little bit
easier for me to be able to see it,
everything on the far left is going to
be my assets so all my assets are going
to go in this kind of yellow area
all of my liabilities will kind of go in
the upper middle which is the red area
we don't have any right now but that's
where they will go,
and then all of my equities on the far
right that's kind of again my system
you don't have to follow it if it's not
asked of you but it's just an easy way
to look back and say hey
you know what is this where is it you
know where's it going to go and all that
good stuff so
again my method to my madness. All right.
So let's get into the transactions
now that we've done the t tables now
also too I want to point out,
notice we didn't do any uh journal
entries for the beginning balances
because those have already been
journalized last year
beginning balances are not journalized
for the next year because they've
already been
they're already on the books so we
didn't do any journal issues with for
those,
so now let's get into the transactions.
On one one it says bravo company
acquired an additional 30 000
cash by issuing common stock that means
somebody gave us money to invest in us
in exchange for common stock that we
gave back to them,
so let's put this into a journal entry.
Our date is 1-1 and we're going to
follow the same
strategy that we did in the last chapter
where I asked myself the question
is cash involved and in this situation
it is our cash
our cash is involved we received thirty
thousand dollars cash
and what is our cash doing, well in this
situation it's going up
so we're going to debit cash so I will
start with my cash as the debit
for thirty thousand dollars and what is
on the other side what's its
in exchange of uh or for and that's
going to be common stock so we're going
to credit common stock for 30000,
that is our first journal entry
but now that we've done our journal
entry we need to put it into our t
tables now we already have these
t-tables so we're just going to
add them onto the already existing ones
so on the debit side I'll put one one of
30 000
for cash and on the credit side of
common stock I will do
the same thing, and that's transaction
one
so let's go to transaction two. Bravo
company completed a consultation for a
client
for 165 000 an invoice was sent to the
client but not yet collected in cash,
so in this one we've done the work we've
sent the client the bill they just
haven't paid for it in cash yet they
still owe us.
So again first question is cash involved,
well no
cash is not involved here because they
haven't paid it yet so then we ask
ourselves the question
what are we expected to do with that
cash at a later date well that cash
we're expected to receive
at a later date so this makes it
accounts receivable,
we will go 210 as the date and accounts
receivable is an
asset so we're going to start with the
debit of accounts receivable
because we're making our asset go up and
465 thousand,
and then what is the other side what is
the credit well we've done the work
we've earned this value uh so because
we've earned it we're going to put it
into a
revenue account and we're going to call
that just consulting revenue
of 165 000 as a credit, so I don't have
either one of these
accounts as a t table so I need to
create these t tables so I'll put ar
I'll put it again on the debit side for
165
and then consulting revenue put on the
credit side
again for 165, and that's transaction 2.
Now if you want to and I would highly
suggest this if you want to pause the
videos and go to the next one
and try the next one on your on your own
and then come back and check it and then
the next one
that's a great system just to kind of
see what you do and what you don't know,
so if you want to pause it here and go
to the next one then come come back and
check it that's
great please do that I'm going to go
ahead and go on now.
228 bravo company paid 20 000
cash to its employee for work done on
the consulting contract,
so 228 is our date is cash involved here,
yes cash is involved it says 20 000 cash
what is our cash doing,
our cash is now going down because we
paid this to our employee so our cash is
going down and in order to make cash go
down
we need to put it as a credit, so let's
go ahead and credit cash
for 20 000. Now we need to know what the
debit is going to be
well we've used our employees services
and what we do the things we use we
expense them so this is going to be an
expense account and I'm just going to
call it,
salaries expense because I'm paying for
their salary for twenty thousand
uh so I need to again make another t
table for salaries expense
this time it's going to go on the debit
side because it is an expense expenses
are plus minus
it is going to be 20 000 as a debit for
salaries expense
and then 20 thousand as a credit for
cash because again our cash is going
down.
All right. Transaction four on four one
bravo signed a one year lease and paid
twenty four thousand dollars up front to
rent office space
the one year lease began april 1,
so in this one we're paying for the use
of something but it's for the future use
of something we're just paying for it up
front we're prepaying for it,
okay, so let's go through our steps is
cash involved
yes cash is involved because we paid
24000
cash it doesn't say cash but it also
doesn't say on account so we assume cash
right now,
our cash is going down so that means
we're going to credit it
so I'll start with the date for one and
credit cash for 24 000.
Now the debit it's not an expense
because we haven't used yet
what we're doing is we're paying for the
right or the ownership to use it
and so therefore this is going to be an
asset and it's pretty much exactly what
it says this is going to be called
a prepaid rent, we prepaid for it up
front
and it is specific to rent a lot of
times you'll see these
with prepaid insurance or prepaid rent
the most common ones. I need to create a
t table for prepaid rent again it is an
asset so it is plus minus
so I'll put it with the assets put on
the debit side
of 24 000 and then add the 24 000 to the
credit side of cash,
that is transaction four.
Now let's go on to the next one on 415
bravo company collected 141 000
cash from its customers as a partial
settlement for the consulting job
completed on february 10th. All right. So
we know
again the date is 4 15 is cash affected
here,
yes they're paying us so our cash is
going up
so we're going to debit cash for 141 000
and then what is the credit going to be
well they're paying us for what was an
accounts receivable so they're lowering
their accounts receivable so in order to
lower it we're going to credit it so I
want to credit
accounts receivable for the same amount
141
I need to put that in my t tables so I'm
going to debit cash
for 141 and credit ar for 141,
all right that's transaction 5. All
right, let's go to six.
Bravo company was paid 18 000 cash in
advance from a client
for consulting services to be completed
over the next 12 months
beginning immediately. All right. So our
date 6-2
is cash being involved here or affected
here,
yes cash is being affected what's
happening to our cash our cash is going
up because they're paying us in advance
so if you remember back on 4-1
we prepaid for something in this one
they're prepaying
us for something, so it's kind of on the
the other end
but our cash is going up so we're going
to start by crediting cash
uh excuse me we're going to start by
debiting cash of 18 000
and then the credit this is
money that they're paying us for work to
be done but it hasn't been done
yet so we haven't earned it yet we will
when we do the work but we haven't
earned it yet so what we're going to do
is we're going to credit
unearned revenue which is liability we
still owe that service
so it is a liability unearned revenue
for 18 000 and then I'm going to again
make my t tables I'm going to add the 18000
to the debit side of cash
and I'm going to create an unearned
revenue t table
and put 18 000 on the credit side.
All right that is the sixth transaction,
let's go to the next one
I got to move some paper up.
7-1 bravo company purchased 1500
worth of supplies in cash, again
is cash involved yes cash is being
affected how,
it is going down because we purchased
the supplies
so our cash is going to go down so if
cash goes down
our date 7-1 is going to go on the credit
so cash
credit for 1 500. What is our
debit going to be well in exchange for
the cash we're getting supplies
that's going to be an asset so we will
increase our supplies by 1500
put these on our t tables
1500 on the debit side of supplies and
then 1500 on the credit
side of cash. All right. On to 7
15. on 7 15 bravo company paid
44 000 of miscellaneous expenses on
account,
so 715 is our date is cash being
involved
no cash is not being involved because it
says on account,
so that lets me know that I'm putting it
on my tab.
So what am I expected to do with this
cash at a later date well I'm expected
to pay cash at a later date for this
so this is going to be in accounts
payable accounts payable is a liability
so we're going to in order to increase
liabilities it needs to go on the
credit side so we're going to credit
accounts payable
for 44 000 and then on the other side
what are we going to debit,
well this is an expense it tells us an
expense it actually tells us the name so
we're just going to put miscellaneous
expense
for 44 000. I'm going to create a
miscellaneous expense t-table
for 44 000 on the debit side and I'm
also going to create an accounts payable
t table because I don't have one
with 44 000 on the credit side.
All right that's that transaction, let's
go to 720. Bravo company
purchased some land worth a hundred and
twenty thousand dollars for
a hundred thousand dollars cash for
future expansion,
now there's two numbers here and it's
it's here for a purpose because again we
want to go back to our accounting
principles
one of the accounting principles is the
cost principle that says that we have to
keep things recorded
at cost what it cost us. All right. So our
date
let's go ahead and get into the journal
entries our date is 720,
is cash involved yes cash is involved
what's happening to our cash it's going
down because we purchased it so we paid
the cash
cash goes down but by how much I care
about the 100000
not the 120 I don't care what it's
worth I care about what I actually paid
for it in cash
that's the cost principle so I'm going
to keep it on my books for what it costs
me in cash. So a hundred thousand dollars
and then on the debit side what am I
getting a return I'm getting land
and that land I'm gonna put again keep
it as a hundred thousand dollars I want
to make sure my debit and my credit
equal in every single one of these,
so that's what it looks like I need to
create a land t table
so there's my land t table with a
hundred thousand dollars
debit and I also need to put a hundred
thousand dollars on the
credit side for cash. All right. 815
bravo company paid 30 000 cash as a
partial settlement for its
accounts payable all right so 815
is cash involved yes because we're
paying off our accounts payable
our cash is going down therefore cash
will be credited
and also we'll put credit cash 30 000
and the other side of that is we're
paying off our accounts payable in order
to get
accounts payable decreased it needs to
go on the debit side so we're going to
debit
accounts payable for the same amount
30000,
now we need to post them to our t tables
debit accounts payable
430 000 and then credit cash for thirty
thousand.
All right. Twelve one bravo company paid
five thousand dollars in cash dividends
to its
stockholders so we've declared dividends
now we're paying them,
is cash being affected yes what's
happening to our cash it's going down
I'm going to credit cash for 5 000
again 12 1.
And then what's the other side to what's
the debit this is going to be dividends
because again it tells us dividends uh
for five thousand
I need to create a dividends t table,
so dividend t table five thousand on the
debit side and then I'm going to credit
cash t
table for the same five thousand.
The last one 12 31 bravo company signed
a contract for 187
000 in consulting services to be
completed
over the next 12 months beginning
january 1st of the next year,
so we need to figure out what the
journal entry is
well what is happening here essentially
what this is saying is,
I'm promising to do work for 12 months
and the customer is promising to pay
187000
for that work but all of that happens
next year.
Remember one of the parts of the
accounting cycle is
your ability to analyze when we need to
actually journalize
when we need to record and in this one
we're saying
I'm promising to do work and you're
promising to pay cash but all these
promises are going to be done next year
nothing is actually changing hands
nothing is actually
moving it's just simply if you want to
think about this
it is simply a handshake that says yeah
we'll do business later
and you don't recognize handshakes,
so for that reason it is going to be no
entry
it's not applicable so you would
essentially leave this one blank there
would be no journal entry if it's asking
for a journal street then you would just
put non-applicable or
or whatever the answer may be but you
can't journalize this because nothing's
happening cash is not going up,
ar is not going up or down,
ap is not going up or down, ar implies
that
we have done work and somebody owes us
money for that work
well we haven't done anything for this,
ap implies that
we owe money because we've already got
something we haven't got anything we
don't know any money,
there's no revenue because we haven't
earned anything so
this is just a non-applicable you can't
journalize this, so this is one of the
things with accounting is your ability
to look at it
and understand when you do and when you
don't have to journalize.
That's how we do the journal entries in
the t tables
for this problem, in the next video we
will be taking all this information and
putting it
into a trial balance. I hope this was
understandable to you I hope you enjoyed
it you all take care.