Accounting Cycle for a Merchandising Business - Part 1
What is the Accounting Cycle in a Merchandising Business?
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What is the Accounting Cycle in a Merchandising Business?
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Hey everyone. Welcome to
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chapter four's example and in this
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example we are going to be dealing with
0:00:06.720,0:00:11.280
the entire accounting cycle
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but doing it from a retail stores
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perspective looking at inventory and how
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all those special things dealing with
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inventory
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work in journal entries and t tables,
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as well as doing the adjustments and
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doing the financial statements and doing
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the closings
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as well, so this is I think I believe a
0:00:25.840,0:00:29.920
three-part
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video series on this this example. I
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would highly suggest you to take a
0:00:31.599,0:00:34.239
minute pause
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uh and see if you can do this on your
0:00:34.239,0:00:37.120
own this is a great way to see kind of
0:00:35.680,0:00:38.480
where you're at, I'm a firm believer if
0:00:37.120,0:00:40.559
you need to know what you don't know
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and what you do know and the best way to
0:00:40.559,0:00:43.200
do that is to actually do this on your
0:00:41.920,0:00:44.960
own to figure out what you do and don't
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know, and then come back and watch the
0:00:44.960,0:00:47.600
video to
0:00:46.239,0:00:49.440
see what you got right what you got
0:00:47.600,0:00:50.879
wrong and why you got it wrong so if you
0:00:49.440,0:00:52.800
haven't done it yet please pause it and
0:00:50.879,0:00:54.160
do it, I know it's lengthy I know it gets
0:00:52.800,0:00:55.840
there but it I promise you it'll help
0:00:54.160,0:00:57.199
you out in the long run.
0:00:55.840,0:00:58.719
So for those who are watching this for
0:00:57.199,0:01:00.640
the answer portion of it let's get to it,
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it says charlie company open their doors
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on january 1st of 2000 whatever
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with the intentions of selling widgets
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to customers in their area
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the following events occurred during the
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first year of operations complete the
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accounting cycle for year one for
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charlie company.
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So january 1st charlie acquired 35 000
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cash in exchange for common stock, this
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one should be a no-brainer
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uh we've done this one quite a bit but
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we are going to debit cash because we
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are getting cash remember I like to
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start with cash,
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uh so it's going to be 1 1 cash
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of 35 000 and we are going to credit
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common stock,
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again straightforward we've been doing
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this one from the very beginning,
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so uh also we need to put that into our
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t tables there's our t
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tables cash and common stock t tables,
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1 2 or january 2nd charlie company
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purchase widgets which again are
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inventory
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from a supplier for ten thousand dollars,
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now it doesn't say cash but we can
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assume cash because it doesn't say
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anything else but on account.
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So again one two uh
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but what is my cash doing or is cash
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affected here
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yes it is affected what is my cash doing
0:02:08.080,0:02:10.720
what's going down because we bought
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these with cash,
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so I'm going to credit cash for 10 000
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and then what is my debiting account,
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well I'm getting inventory so I'm going
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to
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debit my inventory by 10 000 as well,
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and then I'm going to put those into the
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t tables I already got cash and create
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an inventory t table.
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Cash again typically is going to be your
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longer t table inventory is going to be
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right up there with it it's pretty
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pretty lengthy too,
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so just give yourself some room. All
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right. Let's look at january 3rd
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uh the purchase made on january 2nd
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had shipping terms of fob shipping point
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and the responsible party paid 250
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cash, so in this one we need to know one
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who's the responsible party.
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And so fob shipping point if you
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remember when we talked about this that
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is the buyer's responsibility
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because remember the buyer assumes
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responsibility or assumes liability
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from the point of shipment all the way
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through transportation
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to the destination, so this is the
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buyer's responsibility
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we are the buyer because remember we are
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the ones that bought the inventory to be
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shipped to us,
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so therefore if it's the buyer's
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responsibility and we are the buyer then
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we're the ones paying it so
0:03:15.519,0:03:19.519
what is our cash or is cash affected yes
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our cash is being affected
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it's going down so I'm going to say 1-3
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credit cash for 250,
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and because we're the buyer and we're
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getting the inventory we haven't sold
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the inventory yet
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but we're bringing it to our facility in
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order to sell it we're going to include
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this into the inventory
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cost so I'm going to debit inventory
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again
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for 250. Had this said the purchase made
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on
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january 2nd then the shipping terms were
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fob destination and the responsible
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party uh paid 250,
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we are the buyer destination is a
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seller's responsibility we would not
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have paid so you would have not
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seen a journal entry for that had it
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said fob destination
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but because it says fob shipping point
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it is our responsibility
0:04:02.400,0:04:06.159
also I need to put that into our t
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tables as well
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so there you go. All right. Let's look at
0:04:09.360,0:04:13.280
february 10th
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charlie company sold widgets that cost
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five thousand dollars to a customer
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at a price of ten thousand so a couple
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things going on here
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we sold these at a you know our sticker
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price is ten thousand dollars
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these things that we sold these widgets
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that we sold cost us five thousand
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dollars
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so we need to do our journal entry for
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this, remember it's selling inventory so
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it's a two-part journal entry.
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So first things first is cash
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affected yes our cash is affected so I'm
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going to start with that our cash is
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going up
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because our customers paid for it so
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cash and we're going to put the
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hopefully higher amount you definitely
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don't want the lower amount to go in
0:04:44.400,0:04:49.919
cash because that's a bad business plan.
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So cash of ten thousand the counterpart
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to cash
0:04:50.560,0:04:53.600
is well we earn this ten thousand so
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what do we do with the things we earn
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will we
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report them as revenue and so we're
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going to call it
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credit sales revenue for the same 10000,
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now that's half of it now I need to
0:05:01.680,0:05:04.720
do the other half
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because we also used the information the
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inventory and lost the inventory
0:05:06.960,0:05:10.000
we sold it and therefore we don't have
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it anymore. So we're
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going to expense our inventory through
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cost of goods sold,
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so we're going to debit that account
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cost of goods sold for the lower amount
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which is five thousand dollars,
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and then also credit inventory because
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we're lowering our inventory account by
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five thousand dollars
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and then need to create some t tables
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add two t tables, so we're going to get
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rid of
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uh or start with uh sales revenue and
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cogs and then also add to the
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existing two tables of cash and
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inventory. Now I do want to make it a
0:05:37.520,0:05:41.440
point
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for you to know that the difference
0:05:41.440,0:05:43.680
between
0:05:42.080,0:05:45.120
these two what we sold it for and what
0:05:43.680,0:05:45.600
it cost us, the ten thousand five
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thousand
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that five thousand granted I know it's
0:05:47.039,0:05:51.120
five thousand but that five thousand is
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not recorded in the
0:05:51.120,0:05:54.720
journal entries or t tables, that's our
0:05:52.560,0:05:55.280
gross profit that's something that
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you're going to be
0:05:55.280,0:05:58.400
it's going to be found in the financial
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statements, so
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you'll never take the difference of
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these two numbers to put into
0:06:01.680,0:06:05.440
the journal entries you will find that
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later on when we get to the financial
0:06:05.440,0:06:10.479
statements,
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so all right. Let's go to february 15th
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it says charlie company paid five
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thousand dollars cash
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uh for land they planned to use as a
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future store,
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so has cash been affected or is cash
0:06:19.520,0:06:23.440
being affected
0:06:20.319,0:06:25.600
yes it is what is our cash doing it is
0:06:23.440,0:06:27.840
going down because we purchased the land,
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so we're going to say 215
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credit cash because it's going down for
0:06:29.759,0:06:32.880
5 000
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and then what are we going to debit will
0:06:32.880,0:06:37.360
we purchased land so we got that asset
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and so we're going to debit it land of
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5000
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and I'm going to create a land t table
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and also put the 5 000
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into cash. All right, so that is 215.
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Now let's look at 315. Charlie company
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purchased 15 000
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of widgets on account the terms of the
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purchase were
0:06:55.039,0:06:59.919
215 net 30, so not only do we purchase
0:06:58.160,0:07:00.400
it we purchase it on account and they're
0:06:59.919,0:07:02.080
offering
0:07:00.400,0:07:03.919
us some credit terms that says if you
0:07:02.080,0:07:04.880
pay quicker we'll give you a two percent
0:07:03.919,0:07:06.000
discount,
0:07:04.880,0:07:07.840
we don't care about the discount right
0:07:06.000,0:07:09.599
now all we care about is we got the
0:07:07.840,0:07:10.960
inventory we purchased the inventory, so
0:07:09.599,0:07:13.199
let's do that.
0:07:10.960,0:07:14.880
First things first is, is cash
0:07:13.199,0:07:16.400
affected
0:07:14.880,0:07:18.560
cash is not affected here because it
0:07:16.400,0:07:21.599
says on account so what are we
0:07:18.560,0:07:23.840
expected to do with the
0:07:21.599,0:07:25.759
uh cash well eventually we're expected
0:07:23.840,0:07:26.639
to pay it so therefore it is an accounts
0:07:25.759,0:07:28.479
payable
0:07:26.639,0:07:30.880
and if remember accounts payable is a
0:07:28.479,0:07:33.280
minus plus and so it would go on the
0:07:30.880,0:07:36.800
credit side so we would say 315
0:07:33.280,0:07:38.560
accounts payable of 15 000.
0:07:36.800,0:07:40.080
All right. That takes care of that and
0:07:38.560,0:07:42.240
what is our debit going to be what do we
0:07:40.080,0:07:45.039
get we got inventory so we're going to
0:07:42.240,0:07:47.120
debit inventory for that 15 000.
0:07:45.039,0:07:48.639
Now notice the discounts didn't come in
0:07:47.120,0:07:49.840
play yet there because
0:07:48.639,0:07:51.599
remember we don't know what the
0:07:49.840,0:07:54.080
discounts are until we actually pay it
0:07:51.599,0:07:55.759
like when what date do we pay it,
0:07:54.080,0:07:58.000
but if you look at the terms it says 210
0:07:55.759,0:07:59.840
net 30 and just to kind of review the
0:07:58.000,0:08:01.039
first one is the discount so
0:07:59.840,0:08:02.879
they're offering us a two percent
0:08:01.039,0:08:05.360
discount on
0:08:02.879,0:08:07.360
whatever we pay off of our accounts
0:08:05.360,0:08:09.840
payable within 15 days but we have to
0:08:07.360,0:08:11.440
pay the entire thing off in 30 days,
0:08:09.840,0:08:14.800
so that's just what that means. All right.
0:08:11.440,0:08:17.599
Let's look at 318,
0:08:14.800,0:08:18.639
uh 318 says oh excuse me we need to put
0:08:17.599,0:08:20.400
those in two tables
0:08:18.639,0:08:21.919
just forget about that. All right. There
0:08:20.400,0:08:24.319
we go now we got it,
0:08:21.919,0:08:25.039
all right, 318 says charlie company
0:08:24.319,0:08:26.319
returned
0:08:25.039,0:08:28.400
thousand dollars worth of widgets
0:08:26.319,0:08:31.039
purchased on 315
0:08:28.400,0:08:32.399
because of defects so we purchased
0:08:31.039,0:08:34.560
fifteen thousand
0:08:32.399,0:08:36.080
but two thousand of them had some issues
0:08:34.560,0:08:38.080
so we returned them,
0:08:36.080,0:08:39.760
so we need to do a journal entry for
0:08:38.080,0:08:42.080
that return and remember
0:08:39.760,0:08:43.519
returning of a purchase is simply the
0:08:42.080,0:08:46.720
opposite of the original
0:08:43.519,0:08:47.760
so the original is inventory ap so for
0:08:46.720,0:08:48.959
us to do the journal entry for the
0:08:47.760,0:08:50.480
return it's going to be the opposite
0:08:48.959,0:08:53.680
which is going to be ap
0:08:50.480,0:08:56.880
of 2000 and inventory of 2000,
0:08:53.680,0:08:57.920
so I just flipped them, put that in my t
0:08:56.880,0:09:00.880
tables
0:08:57.920,0:09:03.839
there we go all right so we're done with
0:09:00.880,0:09:06.080
318. Now let's look at 328.
0:09:03.839,0:09:07.360
Charlie company paid the balance due on
0:09:06.080,0:09:10.560
accounts payable, now that's
0:09:07.360,0:09:12.160
28 we originally did this on 3 15,
0:09:10.560,0:09:13.680
so if you count that out that's less
0:09:12.160,0:09:15.360
than 15 days
0:09:13.680,0:09:18.240
15 days would have been put it right at
0:09:15.360,0:09:21.440
3 31,
0:09:18.240,0:09:22.880
so we are within the discounted period
0:09:21.440,0:09:24.160
which means we're getting the two
0:09:22.880,0:09:27.440
percent discount.
0:09:24.160,0:09:28.720
Okay. So let's go through this we're
0:09:27.440,0:09:30.160
going to take it step by step so I can
0:09:28.720,0:09:32.160
show you kind of how I logically put it
0:09:30.160,0:09:34.399
together to make make sense to me
0:09:32.160,0:09:36.080
and that way I hopefully not read
0:09:34.399,0:09:39.279
hopefully not forget it.
0:09:36.080,0:09:41.279
All right. So I'm paying this off
0:09:39.279,0:09:42.560
and by paying this off by paying off my
0:09:41.279,0:09:44.320
balance I'm
0:09:42.560,0:09:45.360
getting rid of my ap, so the first thing
0:09:44.320,0:09:46.480
I'm going to do is I'm going to get rid
0:09:45.360,0:09:48.399
of my ap,
0:09:46.480,0:09:50.000
now how much am I paying off of my ap?
0:09:48.399,0:09:51.920
Well I had fifteen thousand
0:09:50.000,0:09:53.519
I took back twelve thousand excuse me
0:09:51.920,0:09:54.560
two thousand please don't forget about
0:09:53.519,0:09:55.920
return
0:09:54.560,0:09:57.680
I took back two thousand that means my
0:09:55.920,0:09:59.279
ap balance right now is thirteen
0:09:57.680,0:10:01.519
thousand so that's what I'm getting rid
0:09:59.279,0:10:03.920
of, so I'll say 328
0:10:01.519,0:10:05.839
accounts payable because again it on the
0:10:03.920,0:10:08.800
debit is going to make go away
0:10:05.839,0:10:10.480
13 000, okay, that's part of it. Now how am
0:10:08.800,0:10:13.360
I getting rid of that
0:10:10.480,0:10:16.240
ap well I'm paying cash for it so I
0:10:13.360,0:10:17.519
wanted to credit cash but for how much,
0:10:16.240,0:10:19.760
I'm not going to pay I'm not going to
0:10:17.519,0:10:21.680
pay 13 000 I'm going to pay
0:10:19.760,0:10:23.360
whatever it is minus the discount which
0:10:21.680,0:10:26.600
a 2 discount for 13000
0:10:23.360,0:10:29.519
is going to be uh
0:10:26.600,0:10:32.240
206 there's 260 dollars,
0:10:29.519,0:10:33.279
so if I subtract 260 from 13 000 that's
0:10:32.240,0:10:37.120
going to give me
0:10:33.279,0:10:39.200
a cash that I'm paying of 12 740.
0:10:37.120,0:10:40.959
Now this last piece which is the 260,
0:10:39.200,0:10:42.480
where do I put that? Well
0:10:40.959,0:10:44.480
I have to take it out of my inventory
0:10:42.480,0:10:44.959
because I'm lowering the value or the
0:10:44.480,0:10:46.800
cost
0:10:44.959,0:10:49.360
of what it cost me to obtain that
0:10:46.800,0:10:51.680
inventory, so that inventory is not worth
0:10:49.360,0:10:55.440
3 000 to me anymore it's worth 12
0:10:51.680,0:10:57.680
740, well it's on my books for 13 000 so
0:10:55.440,0:11:00.800
I need to lower it by the 260,
0:10:57.680,0:11:02.640
so I will credit inventory by 260, yes I
0:11:00.800,0:11:04.959
I understand that we're not
0:11:02.640,0:11:06.480
losing physical inventory but we are
0:11:04.959,0:11:07.440
losing value of the inventory and that's
0:11:06.480,0:11:10.320
what we care about in
0:11:07.440,0:11:12.480
inventory in financial accounting. All
0:11:10.320,0:11:14.480
right. So put that in my t tables
0:11:12.480,0:11:15.760
there we go, all right, so that took care
0:11:14.480,0:11:18.560
of that one. Now let's go to
0:11:15.760,0:11:20.480
five four charlie companies sold on
0:11:18.560,0:11:22.079
account widgets with a list price of
0:11:20.480,0:11:22.880
twenty thousand the widgets had a cost
0:11:22.079,0:11:24.880
or had cost
0:11:22.880,0:11:25.920
charlie company ten thousand, the
0:11:24.880,0:11:28.399
shipping terms
0:11:25.920,0:11:30.000
of the sale was fob destination charlie
0:11:28.399,0:11:30.800
company offered a discount to the
0:11:30.000,0:11:33.519
customer and
0:11:30.800,0:11:33.920
on with the terms 110 net 30, we're real
0:11:33.519,0:11:36.160
you know
0:11:33.920,0:11:37.760
generous with our one percent discount
0:11:36.160,0:11:38.959
but let's go through this the the thing
0:11:37.760,0:11:41.040
that I care about right now
0:11:38.959,0:11:42.560
is the fact that I sold some so I need
0:11:41.040,0:11:44.320
to do a journal entry for that.
0:11:42.560,0:11:46.160
And so the first one is is cash being
0:11:44.320,0:11:47.279
affected no cash is not being affected
0:11:46.160,0:11:49.200
here because
0:11:47.279,0:11:50.720
uh it's on account, so what are we
0:11:49.200,0:11:52.880
expected to do with that
0:11:50.720,0:11:54.720
cash at a later date, well we're expected
0:11:52.880,0:11:55.279
to receive it because somebody owes us
0:11:54.720,0:11:57.360
the money,
0:11:55.279,0:11:58.639
so it's an accounts receivable, so I'll
0:11:57.360,0:12:00.480
say five four
0:11:58.639,0:12:02.079
accounts receivable and again for the
0:12:00.480,0:12:03.519
higher amount twenty thousand it better
0:12:02.079,0:12:05.680
be the higher amount
0:12:03.519,0:12:07.360
for twenty thousand. All right. The other
0:12:05.680,0:12:09.200
side or its counterpart is well we
0:12:07.360,0:12:10.560
earned that twenty thousand we actually
0:12:09.200,0:12:12.720
did something for we rendered the
0:12:10.560,0:12:13.839
product uh so that's going to be our
0:12:12.720,0:12:16.320
sales revenue for
0:12:13.839,0:12:17.680
twenty thousand, and I skipped the line
0:12:16.320,0:12:18.480
there's a reason why this this is more
0:12:17.680,0:12:20.160
practical
0:12:18.480,0:12:22.639
uh this is how you would actually see it
0:12:20.160,0:12:24.160
so um again we follow the rules all
0:12:22.639,0:12:25.519
debits go first and all credits come
0:12:24.160,0:12:28.160
later so
0:12:25.519,0:12:30.160
but that's half of it. Now we need to do
0:12:28.160,0:12:32.000
the expense side of it which is the cost
0:12:30.160,0:12:34.000
of goods sold so our cost of goods sold
0:12:32.000,0:12:35.040
is 10 000 that's what we used of our
0:12:34.000,0:12:37.120
inventory,
0:12:35.040,0:12:38.639
so we will debit cost of goods sold for
0:12:37.120,0:12:40.639
ten thousand,
0:12:38.639,0:12:42.880
and then its counterpart is well we we
0:12:40.639,0:12:44.320
got rid of the inventory we sold it so
0:12:42.880,0:12:46.079
we're going to lower our inventory by
0:12:44.320,0:12:48.880
that ten thousand,
0:12:46.079,0:12:49.279
and so that is our journal entry for the
0:12:48.880,0:12:53.120
uh
0:12:49.279,0:12:56.000
sale for five four. All right,
0:12:53.120,0:12:57.519
Now let's go to five five it says that
0:12:56.000,0:12:58.079
the responsible party paid three hundred
0:12:57.519,0:13:00.160
dollars
0:12:58.079,0:13:01.839
for shipping costs in regards to the
0:13:00.160,0:13:02.959
sale on five four well if we go back up
0:13:01.839,0:13:06.320
to five four
0:13:02.959,0:13:08.720
it says the shipping terms uh were fob
0:13:06.320,0:13:10.560
destination and fob destination is the
0:13:08.720,0:13:12.720
seller's responsibility
0:13:10.560,0:13:15.040
and we are the seller in five four so
0:13:12.720,0:13:16.320
therefore we it is our responsibility we
0:13:15.040,0:13:17.680
are the one paying it
0:13:16.320,0:13:19.680
so we need to do a journal entry for
0:13:17.680,0:13:20.800
that so we would say five four excuse me
0:13:19.680,0:13:22.800
we did not put those
0:13:20.800,0:13:24.639
into yeah we need to put those last ones
0:13:22.800,0:13:25.760
in t table there we go five fours and t
0:13:24.639,0:13:27.519
tables.
0:13:25.760,0:13:30.000
All right. So five five it is our
0:13:27.519,0:13:32.240
responsibility so is cash being affected
0:13:30.000,0:13:34.560
it is is our cash we're having to pay
0:13:32.240,0:13:36.160
for it so our cash is going down by 300,
0:13:34.560,0:13:39.920
so I'll say five five
0:13:36.160,0:13:42.560
credit cash for 300
0:13:39.920,0:13:44.399
and then the debit well I can't put it
0:13:42.560,0:13:46.399
into inventory because I've already sold
0:13:44.399,0:13:48.480
the inventory I have to expense this in
0:13:46.399,0:13:51.519
its own account so I'll just
0:13:48.480,0:13:55.279
call it delivery expense of
0:13:51.519,0:13:56.880
300. All right, so that takes care of
0:13:55.279,0:13:58.880
five five let me put them in my t
0:13:56.880,0:14:01.440
tables there's my delivery expense
0:13:58.880,0:14:04.320
account and then put it into cash
0:14:01.440,0:14:04.720
or take it out of cash if you will. All
0:14:04.320,0:14:07.760
right.
0:14:04.720,0:14:10.480
514 charlie company
0:14:07.760,0:14:11.120
uh or excuse me 500 five nine skip to
0:14:10.480,0:14:13.839
date
0:14:11.120,0:14:14.639
five nine customers from the five for
0:14:13.839,0:14:17.120
sale
0:14:14.639,0:14:19.199
returned two thousand dollars of the
0:14:17.120,0:14:21.839
widgets the widgets cost charlie
0:14:19.199,0:14:23.279
one thousand dollars so of the stuff
0:14:21.839,0:14:24.639
that we sold the twenty thousand dollars
0:14:23.279,0:14:26.320
worth of inventory or twenty thousand
0:14:24.639,0:14:27.519
dollars worth of revenue that we sold on
0:14:26.320,0:14:29.279
five four
0:14:27.519,0:14:30.720
they brought back two thousand of it and
0:14:29.279,0:14:35.360
that 2000 cost us
0:14:30.720,0:14:38.399
a thousand originally. So again this is a
0:14:35.360,0:14:40.800
return we need to do
0:14:38.399,0:14:42.720
the normal which is opposite of the
0:14:40.800,0:14:44.160
original with one minor difference we're
0:14:42.720,0:14:45.199
not going to take it directly out of
0:14:44.160,0:14:46.720
sales revenue
0:14:45.199,0:14:48.320
we're going to put it into a different
0:14:46.720,0:14:49.760
account and then eventually it will
0:14:48.320,0:14:52.000
affect sales revenue
0:14:49.760,0:14:55.279
we're going to call it sales returns, so
0:14:52.000,0:14:57.680
let's do the journal entry for that.
0:14:55.279,0:14:59.199
Five nine again normally we would put
0:14:57.680,0:15:01.040
sales revenue but we're going to put
0:14:59.199,0:15:02.639
sales returns and allowances again this
0:15:01.040,0:15:04.079
gives us a clearer case of kind of
0:15:02.639,0:15:05.600
what's going on
0:15:04.079,0:15:07.600
you know, we sold it we just we brought
0:15:05.600,0:15:09.199
it back we had to bring it back
0:15:07.600,0:15:10.240
uh and its counterpart is going to be
0:15:09.199,0:15:12.480
accounts receivable because we're going
0:15:10.240,0:15:14.160
to take it off of their account for 2000
0:15:12.480,0:15:15.519
and then inventory we're going to debit
0:15:14.160,0:15:16.480
for the 1000 because we're getting it
0:15:15.519,0:15:19.120
back
0:15:16.480,0:15:20.399
and then cogs we're going to credit
0:15:19.120,0:15:21.760
because we're taking it off of our
0:15:20.399,0:15:23.199
expense.
0:15:21.760,0:15:25.279
All right. So that takes care of five
0:15:23.199,0:15:26.720
nine that's the return,
0:15:25.279,0:15:28.959
all right, let's uh we need to put it
0:15:26.720,0:15:30.320
into t tables,
0:15:28.959,0:15:33.360
all right, there we go. Now we've got
0:15:30.320,0:15:34.800
everything going well let's go to 514.
0:15:33.360,0:15:38.480
Charlie company
0:15:34.800,0:15:40.320
uh I guess it says uh obtained
0:15:38.480,0:15:41.920
I should say obtained at nine thousand
0:15:40.320,0:15:45.120
nine hundred dollars cash as a
0:15:41.920,0:15:47.199
uh as yeah it's all out of whack uh
0:15:45.120,0:15:48.399
was received nine thousand has received
0:15:47.199,0:15:49.680
nine thousand nine hundred dollars as a
0:15:48.399,0:15:52.720
partial settlement which has an
0:15:49.680,0:15:56.320
ap I should say ar value of
0:15:52.720,0:15:58.480
uh not a ten thousand for the sale of
0:15:56.320,0:15:59.680
on five four I just completely butchered
0:15:58.480,0:16:01.680
that one what happened there
0:15:59.680,0:16:03.360
but you kind of get the idea the
0:16:01.680,0:16:04.880
customer is paying off ten thousand
0:16:03.360,0:16:06.800
dollars of their ar
0:16:04.880,0:16:08.560
uh by giving us nine thousand nine
0:16:06.800,0:16:10.160
hundred dollars cash, because remember we
0:16:08.560,0:16:12.399
gave them that one percent discount
0:16:10.160,0:16:15.199
remember it's 110 net 30,
0:16:12.399,0:16:17.279
and so we need to uh journalize that. So
0:16:15.199,0:16:18.160
is cash being affected yes cash is being
0:16:17.279,0:16:19.759
affected
0:16:18.160,0:16:21.199
it's going up because they're giving it
0:16:19.759,0:16:21.680
to us so we're going to start with that
0:16:21.199,0:16:25.519
of
0:16:21.680,0:16:28.560
4 excuse me 514 it's going to be cash
0:16:25.519,0:16:31.680
and 9900.
0:16:28.560,0:16:33.040
Now by giving us that they are also
0:16:31.680,0:16:34.399
getting a discount they got their one
0:16:33.040,0:16:37.040
percent discount
0:16:34.399,0:16:37.519
their a uh excuse me their ar was ten
0:16:37.040,0:16:39.759
thousand
0:16:37.519,0:16:40.560
so one percent off of ten thousand is
0:16:39.759,0:16:42.480
going to be
0:16:40.560,0:16:44.240
100, so I'm going to call that sales
0:16:42.480,0:16:47.040
discount
0:16:44.240,0:16:48.399
100 and then finally my credit is going
0:16:47.040,0:16:52.160
to be
0:16:48.399,0:16:54.399
accounts receivable for 10 000,
0:16:52.160,0:16:56.399
so that takes care of paying off 10 000
0:16:54.399,0:16:58.639
of their account they only paid me
0:16:56.399,0:16:59.839
9900 in cash because they got a 100
0:16:58.639,0:17:02.480
discount so that's
0:16:59.839,0:17:03.279
accounting for all those pieces. I'll put
0:17:02.480,0:17:04.880
that into our t
0:17:03.279,0:17:07.120
tables this is what it looks like we
0:17:04.880,0:17:11.600
have a sales discount t-table there
0:17:07.120,0:17:14.000
all the other stuff ar and uh cash.
0:17:11.600,0:17:16.000
All right. Let's look at six one says
0:17:14.000,0:17:17.520
charlie company receive the remaining
0:17:16.000,0:17:20.559
accounts
0:17:17.520,0:17:23.839
should be your receivable payment uh due
0:17:20.559,0:17:27.679
from the 5-4 sale.
0:17:23.839,0:17:30.160
So yes they originally owed us 20 000
0:17:27.679,0:17:31.120
in ar then they took back 2000 so they
0:17:30.160,0:17:34.400
owed us
0:17:31.120,0:17:36.720
uh 18 000, then they paid off
0:17:34.400,0:17:39.200
10000 of it but they get the discount so
0:17:36.720,0:17:41.360
they still owe us 8 000,
0:17:39.200,0:17:42.720
and because it's after the discount the
0:17:41.360,0:17:44.960
discounted period they get us
0:17:42.720,0:17:46.400
they get no discount whatsoever so
0:17:44.960,0:17:48.640
they're gonna have to pay it in full.
0:17:46.400,0:17:50.640
So is cash being affected yes it's going
0:17:48.640,0:17:51.760
up so cash can be debited
0:17:50.640,0:17:53.280
and it's going to go up by eight
0:17:51.760,0:17:55.039
thousand that completely gets rid of the
0:17:53.280,0:17:58.160
rest of their ar
0:17:55.039,0:17:59.679
and again we're going to credit ar,
0:17:58.160,0:18:03.360
so that same eight thousand put that
0:17:59.679,0:18:07.600
into our t tables.
0:18:03.360,0:18:09.520
Okay. So now we're going to go to 7 15,
0:18:07.600,0:18:10.799
says charlie company paid 3 000 of
0:18:09.520,0:18:12.799
selling an admin expense
0:18:10.799,0:18:14.000
so this one's pretty straightforward 715
0:18:12.799,0:18:16.799
we've got selling an admin
0:18:14.000,0:18:18.000
expense as our debit of 3 000 and
0:18:16.799,0:18:19.039
because it doesn't say anything we're
0:18:18.000,0:18:22.400
assuming cash so
0:18:19.039,0:18:26.320
cash of 3 000 put that into our t
0:18:22.400,0:18:26.320
tables looks like that
0:18:26.720,0:18:33.120
there we go. All right. Let's look at
0:18:30.000,0:18:34.960
uh 831. Charlie company sold the land it
0:18:33.120,0:18:37.280
purchased on 215
0:18:34.960,0:18:39.360
for 7 500, so remember on 215 we
0:18:37.280,0:18:40.880
purchased land for 5 000
0:18:39.360,0:18:42.320
but now and we we thought we were going
0:18:40.880,0:18:44.080
to hold on to it and use it for a future
0:18:42.320,0:18:45.520
story but maybe the values got too good
0:18:44.080,0:18:46.080
and we decided to go ahead and sell it
0:18:45.520,0:18:49.280
and make the
0:18:46.080,0:18:50.400
the difference. So we need to journalize
0:18:49.280,0:18:52.320
that,
0:18:50.400,0:18:54.240
so the first question is is cash
0:18:52.320,0:18:55.919
involved yes cash is involved what is
0:18:54.240,0:18:57.440
our cash doing, well it's going up
0:18:55.919,0:18:58.160
because we sold it somebody gave us that
0:18:57.440,0:19:02.320
cash so
0:18:58.160,0:19:04.080
we're going to say cash debit of 7 500,
0:19:02.320,0:19:05.919
now what do we get rid of, well we got
0:19:04.080,0:19:06.559
rid of the land so we're going to credit
0:19:05.919,0:19:08.000
the land
0:19:06.559,0:19:09.440
but we're only going to credit land for
0:19:08.000,0:19:10.000
what we have it in its t table if you
0:19:09.440,0:19:11.600
look at the land
0:19:10.000,0:19:13.200
t table we only have five thousand in
0:19:11.600,0:19:13.919
there so we can only take five thousand
0:19:13.200,0:19:16.640
out,
0:19:13.919,0:19:18.080
so I'll credit land for five thousand
0:19:16.640,0:19:19.840
but we know that we're off because
0:19:18.080,0:19:21.440
remember our debits and our credits have
0:19:19.840,0:19:21.919
to equal and right now seventy five
0:19:21.440,0:19:24.640
hundred
0:19:21.919,0:19:26.240
and five thousand does not equal so we
0:19:24.640,0:19:27.679
need to come up with something to show
0:19:26.240,0:19:29.520
the difference we know it's going to be
0:19:27.679,0:19:30.799
2 500 on the credit side, so what are we
0:19:29.520,0:19:33.840
going to call that?
0:19:30.799,0:19:36.640
Well this is not a normal revenue
0:19:33.840,0:19:37.440
this is what we call a capital gains
0:19:36.640,0:19:39.600
it's a and
0:19:37.440,0:19:42.000
what we're going to record it as is a
0:19:39.600,0:19:45.440
gain on the sale of land,
0:19:42.000,0:19:47.440
so 2500. Notice it's not sales revenue
0:19:45.440,0:19:49.039
because we're not selling inventory this
0:19:47.440,0:19:52.160
is not our day-to-day business
0:19:49.039,0:19:53.520
if we're a real estate company maybe but
0:19:52.160,0:19:55.799
we're not in the business of selling
0:19:53.520,0:19:58.720
land so this is something that's this
0:19:55.799,0:19:59.919
non-operating this is not normal, uh so
0:19:58.720,0:20:02.159
we're going to call it gain on the sale
0:19:59.919,0:20:04.880
of land.
0:20:02.159,0:20:06.400
All right. That takes care of 8 31. Let's
0:20:04.880,0:20:07.039
go to the next one only got three more
0:20:06.400,0:20:08.480
left.
0:20:07.039,0:20:10.159
Charlie company borrowed ten thousand
0:20:08.480,0:20:12.480
dollars from the bank so
0:20:10.159,0:20:13.280
we probably had to to sign a promise or
0:20:12.480,0:20:14.960
a note
0:20:13.280,0:20:16.640
uh so this is going to be something
0:20:14.960,0:20:17.360
dealing with notes and because we owe
0:20:16.640,0:20:20.400
this
0:20:17.360,0:20:22.720
this is this is a money that we owe this
0:20:20.400,0:20:24.240
is going to be a notes payable, so we're
0:20:22.720,0:20:28.400
going to start with
0:20:24.240,0:20:31.280
uh 9-1 oh sorry there's the t-tables
0:20:28.400,0:20:32.240
forget about that one. 9-1 we're going to
0:20:31.280,0:20:34.240
say cash
0:20:32.240,0:20:35.520
because we are getting cash of ten
0:20:34.240,0:20:36.799
thousand
0:20:35.520,0:20:38.720
uh and then on the other end we're going
0:20:36.799,0:20:40.640
to call it notes payable for the credit
0:20:38.720,0:20:42.559
of ten thousand,
0:20:40.640,0:20:46.720
so our cash goes up our liability goes
0:20:42.559,0:20:49.520
up and here is our t tables.
0:20:46.720,0:20:50.799
All right. The first 12 31 or the first
0:20:49.520,0:20:52.159
adjustment that we have it's not really
0:20:50.799,0:20:53.679
adjustment because we're not this is
0:20:52.159,0:20:55.360
we're actually paying this
0:20:53.679,0:20:58.080
this is not like something is dealing
0:20:55.360,0:21:00.559
with receivables or payables remember
0:20:58.080,0:21:01.520
cash is never in an adjustment into the
0:21:00.559,0:21:03.200
adjustment,
0:21:01.520,0:21:05.120
so this just so happens to be an end of
0:21:03.200,0:21:06.880
the year entry but it says charlie
0:21:05.120,0:21:10.080
company paid 250
0:21:06.880,0:21:11.360
for interest on the notes payable from
0:21:10.080,0:21:14.000
9-1
0:21:11.360,0:21:14.799
and so we're actually paying in cash. So
0:21:14.000,0:21:17.039
is our cash
0:21:14.799,0:21:18.000
affected yes it is what is it doing it
0:21:17.039,0:21:21.280
is going down
0:21:18.000,0:21:23.120
so we will say cash of 250
0:21:21.280,0:21:24.799
is the credit and then what are we going
0:21:23.120,0:21:27.120
to call it as the debit
0:21:24.799,0:21:28.799
it is not going to be notes payable
0:21:27.120,0:21:30.559
because we are not changing the
0:21:28.799,0:21:32.480
principle of the note
0:21:30.559,0:21:34.960
what we're doing is we're this is just
0:21:32.480,0:21:37.039
the interest that we have to pay
0:21:34.960,0:21:38.720
in order to use the note and that's why
0:21:37.039,0:21:40.480
we're going to expenses because this is
0:21:38.720,0:21:41.600
what we have to pay in order to use it,
0:21:40.480,0:21:45.039
so we're going to call it interest
0:21:41.600,0:21:47.600
expense for 250.
0:21:45.039,0:21:48.400
Okay. So that takes care of all of our
0:21:47.600,0:21:52.000
normal
0:21:48.400,0:21:54.880
uh journal entries our you know our year
0:21:52.000,0:21:56.559
annual operations entries. The last
0:21:54.880,0:21:58.000
one says charlie company completed their
0:21:56.559,0:21:59.039
end of the year inventory account and
0:21:58.000,0:22:00.880
found that
0:21:59.039,0:22:04.480
they had eight thousand eight hundred
0:22:00.880,0:22:07.039
and ninety dollars of inventory on hand.
0:22:04.480,0:22:10.240
So this is actually one this is the only
0:22:07.039,0:22:13.679
uh adjustment that we're going to have,
0:22:10.240,0:22:15.039
and so normally we would do a unadjusted
0:22:13.679,0:22:16.400
trial balance but because there's only
0:22:15.039,0:22:18.320
one
0:22:16.400,0:22:20.559
adjusting entry we're just going to do a
0:22:18.320,0:22:24.080
post adjusting or an
0:22:20.559,0:22:26.720
adjusted trial balance but
0:22:24.080,0:22:28.960
let's figure this out. So it says that we
0:22:26.720,0:22:29.679
have right now on our shelves eight
0:22:28.960,0:22:31.280
thousand
0:22:29.679,0:22:33.120
eight hundred and ninety dollars worth
0:22:31.280,0:22:35.039
of inventory, we need to go through and
0:22:33.120,0:22:37.200
figure out what we have in inventory
0:22:35.039,0:22:38.720
on our books, so if we add up all the
0:22:37.200,0:22:39.919
debits and add up all the credits and
0:22:38.720,0:22:43.280
subtract the two in our t
0:22:39.919,0:22:46.080
table it should come out to be uh
0:22:43.280,0:22:48.159
eight thousand nine hundred and ninety,
0:22:46.080,0:22:49.600
so we're off by a hundred.
0:22:48.159,0:22:50.960
What we have in our books is a hundred
0:22:49.600,0:22:52.320
dollars higher than what we actually
0:22:50.960,0:22:53.600
have on our shelves and we need to bring
0:22:52.320,0:22:54.559
it to what we actually have on our
0:22:53.600,0:22:55.760
shelves,
0:22:54.559,0:22:57.679
so what we would do is we would do a
0:22:55.760,0:23:00.799
journal entry that says
0:22:57.679,0:23:02.000
um oh excuse me the interest I
0:23:00.799,0:23:03.039
completely forgot about the interest
0:23:02.000,0:23:06.240
t-table
0:23:03.039,0:23:08.000
there we go. So 12 31 we're going to
0:23:06.240,0:23:11.200
expense the inventory that we lost
0:23:08.000,0:23:13.520
we're going to call it cogs again
0:23:11.200,0:23:15.200
inventory loss because it's not because
0:23:13.520,0:23:16.880
this is not expense because we sold it
0:23:15.200,0:23:18.320
this is just because we lost value or we
0:23:16.880,0:23:19.600
lost it somehow some either somebody
0:23:18.320,0:23:22.880
stole it or whatever
0:23:19.600,0:23:25.280
but we lost 100 and then our
0:23:22.880,0:23:27.039
credit is going to be inventory because
0:23:25.280,0:23:28.960
we're lowering our inventory by that
0:23:27.039,0:23:30.480
100,
0:23:28.960,0:23:32.159
so it would look like that put that in
0:23:30.480,0:23:35.600
my t tables,
0:23:32.159,0:23:38.320
looks like this there we go.
0:23:35.600,0:23:39.360
Okay. So that takes care of all of our
0:23:38.320,0:23:40.799
operational
0:23:39.360,0:23:42.720
journal entries, that takes care of our
0:23:40.799,0:23:44.400
adjusting journal entry, the next thing
0:23:42.720,0:23:46.159
we need to do is to
0:23:44.400,0:23:47.520
find the account balances for all of
0:23:46.159,0:23:49.279
these accounts, so again
0:23:47.520,0:23:51.200
add up the debits add up the credits
0:23:49.279,0:23:52.320
subtract the two and the numbers should
0:23:51.200,0:23:54.240
go on the
0:23:52.320,0:23:56.400
uh plus side or the normal side of the t
0:23:54.240,0:23:58.720
table, so just to kind of give you
0:23:56.400,0:23:59.919
uh a heads up or a head start kind of
0:23:58.720,0:24:01.520
save some time I'm just going to post
0:23:59.919,0:24:04.159
these real quick.
0:24:01.520,0:24:05.200
Our cash ending inventory is four
0:24:04.159,0:24:08.159
thousand
0:24:05.200,0:24:10.080
uh forty eight thousand eight sixty, our
0:24:08.159,0:24:12.000
ending inventory for
0:24:10.080,0:24:13.520
uh ending balance for inventory is going
0:24:12.000,0:24:15.039
to be eight thousand eight ninety which
0:24:13.520,0:24:17.520
makes sense because remember our
0:24:15.039,0:24:19.279
uh adjusting entry said that we still
0:24:17.520,0:24:21.440
had 8890
0:24:19.279,0:24:22.720
on hand and I'm just gonna put the rest
0:24:21.440,0:24:24.400
of them up here if you want to
0:24:22.720,0:24:25.679
pause it copy those down this is a
0:24:24.400,0:24:26.960
really good thing to be doing kind of in
0:24:25.679,0:24:30.000
your notes, so
0:24:26.960,0:24:31.919
there you go and that is how we
0:24:30.000,0:24:33.279
do this. I will say I just noticed
0:24:31.919,0:24:34.400
something that retained earnings should
0:24:33.279,0:24:36.080
not be there
0:24:34.400,0:24:37.440
um we haven't done anything with
0:24:36.080,0:24:40.480
retained earnings yet so just
0:24:37.440,0:24:42.400
erase you forget that right now, but uh
0:24:40.480,0:24:45.600
hopefully this part of this made sense
0:24:42.400,0:24:48.640
um the next video we will be doing
0:24:45.600,0:24:49.279
the uh trial balance and we will be
0:24:48.640,0:24:52.480
doing
0:24:49.279,0:24:54.159
the financial statements so
0:24:52.480,0:24:55.919
uh and then after that the third video
0:24:54.159,0:24:58.240
we'll be doing the closings, so and then
0:24:55.919,0:24:59.679
the final post-closing draw balance.
0:24:58.240,0:25:01.760
But this is the first one hopefully
0:24:59.679,0:25:03.279
you've made it this far uh and the next
0:25:01.760,0:25:04.559
one we will be doing the other pieces so
0:25:03.279,0:25:06.000
if you want to take a pause
0:25:04.559,0:25:07.600
and try to do this on your own please
0:25:06.000,0:25:12.000
please feel free to do that but you'll
0:25:07.600,0:25:12.000
have a good one.
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