0:00:01.120,0:00:04.400

All right. How do we differentiate

0:00:03.520,0:00:06.399

between

0:00:04.400,0:00:07.759

manufacture excuse me merchandising

0:00:06.399,0:00:10.400

business and service

0:00:07.759,0:00:11.679

businesses that's where this chapter or

0:00:10.400,0:00:12.960

this video comes into play we're going

0:00:11.679,0:00:14.400

to talk about how do we actually

0:00:12.960,0:00:15.839

recognize these things what do they look

0:00:14.400,0:00:17.760

like in a journal entry.

0:00:15.839,0:00:19.039

Now pretty much from here on out I'm

0:00:17.760,0:00:20.880

going to make the assumption that you

0:00:19.039,0:00:21.119

know how to convert journal entries into

0:00:20.880,0:00:22.080

T

0:00:21.119,0:00:23.680

tables because it's pretty

0:00:22.080,0:00:25.359

straightforward if you haven't go back

0:00:23.680,0:00:28.240

to chapter I believe two

0:00:25.359,0:00:29.519

and re-watch those videos, for right now

0:00:28.240,0:00:31.439

I'm just gonna when I move forward it's

0:00:29.519,0:00:32.719

really going to be on these examples

0:00:31.439,0:00:34.960

just the journal entry

0:00:32.719,0:00:36.399

because that's really where the you need

0:00:34.960,0:00:39.680

to know that hopefully you know how to

0:00:36.399,0:00:41.200

turn them into T tables. So how do we

0:00:39.680,0:00:42.800

recognize the events that happen

0:00:41.200,0:00:44.399

typically in a merchandising business?

0:00:42.800,0:00:46.559

Well let's talk about the first

0:00:44.399,0:00:47.520

the obvious one and that is how do we

0:00:46.559,0:00:49.840

recognize us

0:00:47.520,0:00:51.600

buying the inventory or purchasing the

0:00:49.840,0:00:53.680

inventory, so

0:00:51.600,0:00:56.320

we the company purchase inventory we

0:00:53.680,0:00:57.920

bring in the inventory into our business

0:00:56.320,0:00:59.359

in order to sell so we're just looking

0:00:57.920,0:01:01.600

at that point first

0:00:59.359,0:01:02.399

bringing it in okay so what would that

0:01:01.600,0:01:04.799

look like on

0:01:02.399,0:01:06.799

a journal entry well whatever the date

0:01:04.799,0:01:08.240

is I'm just gonna put one one

0:01:06.799,0:01:10.000

and I'm gonna put merchandise inventory

0:01:08.240,0:01:11.200

or inventory of whatever amount that's

0:01:10.000,0:01:12.080

what I'm debiting because remember that

0:01:11.200,0:01:15.119

is an asset account

0:01:12.080,0:01:17.520

I own that inventory until I sell it so

0:01:15.119,0:01:19.439

my inventory is going up by that amount

0:01:17.520,0:01:20.880

and then I'm going to credit however I

0:01:19.439,0:01:22.080

pay for that inventory maybe it's cash

0:01:20.880,0:01:24.320

maybe it's accounts

0:01:22.080,0:01:26.320

payable it should be payable I'm not

0:01:24.320,0:01:27.600

sure why it says accounts receivable but

0:01:26.320,0:01:30.240

accounts payable because it's a

0:01:27.600,0:01:32.479

liability to us if I go that route

0:01:30.240,0:01:33.920

so that is what just the simple purchase

0:01:32.479,0:01:35.280

of inventory journal entry would look

0:01:33.920,0:01:37.439

like very straightforward

0:01:35.280,0:01:39.759

my inventory goes up my cash from my ap

0:01:37.439,0:01:41.280

goes or my cash goes down or my ap goes

0:01:39.759,0:01:43.680

up my liability goes up

0:01:41.280,0:01:44.960

it's a lot of moving pieces to this 

0:01:43.680,0:01:46.640

but that's the purchase. Now let's look

0:01:44.960,0:01:47.360

at the sale the cell is where the

0:01:46.640,0:01:49.520

difference

0:01:47.360,0:01:51.360

happens the cell is where you're going

0:01:49.520,0:01:54.320

to see a major difference here

0:01:51.360,0:01:55.920

okay so when we sell inventory there are

0:01:54.320,0:01:58.240

a couple things that's happening

0:01:55.920,0:01:59.119

so each cell involves two things two

0:01:58.240,0:02:01.920

parts

0:01:59.119,0:02:03.439

and therefore require two entries, okay,

0:02:01.920,0:02:04.560

and each entry will have its own debit

0:02:03.439,0:02:06.240

and its own credit

0:02:04.560,0:02:07.920

at minimum so we're really talking

0:02:06.240,0:02:08.720

about a minimum of four accounts being

0:02:07.920,0:02:11.039

affected here.

0:02:08.720,0:02:12.000

Okay. The first thing we need to

0:02:11.039,0:02:14.560

recognize

0:02:12.000,0:02:16.080

is the recognition of the revenue we

0:02:14.560,0:02:18.239

sold inventory

0:02:16.080,0:02:20.319

we gave the product or service therefore

0:02:18.239,0:02:22.400

we got inventory or we got revenue

0:02:20.319,0:02:24.800

okay that's the first part so let's go

0:02:22.400,0:02:27.200

ahead and do the journal entry for that.

0:02:24.800,0:02:29.280

My debit is going to be however I was

0:02:27.200,0:02:30.800

paid so it's either going to be cash or

0:02:29.280,0:02:31.920

it's going to be accounts receivable

0:02:30.800,0:02:34.160

that one's right

0:02:31.920,0:02:35.599

uh of however much. Okay. So how much

0:02:34.160,0:02:37.760

however much I sold it for that's what I

0:02:35.599,0:02:39.360

got in cash my cash went up or my ar

0:02:37.760,0:02:42.800

went up whichever one they paid with

0:02:39.360,0:02:45.760

okay that's also the amount that I

0:02:42.800,0:02:47.200

earned so my credit is going to be uh

0:02:45.760,0:02:48.480

sales revenue

0:02:47.200,0:02:51.519

or sometimes you'll just see it called

0:02:48.480,0:02:51.840

sales that's part one that's step one of

0:02:51.519,0:02:54.560

the

0:02:51.840,0:02:56.560

sales of inventory. The second step is

0:02:54.560,0:02:57.280

now we have to recognize the expense

0:02:56.560,0:02:59.519

side of it

0:02:57.280,0:03:01.360

or what we call the cost of goods sold.

0:02:59.519,0:03:03.120

Okay. Remember we purchased this

0:03:01.360,0:03:04.800

inventory with the intent to sell which

0:03:03.120,0:03:06.800

means we're not going to use it remember

0:03:04.800,0:03:08.480

we don't expense things until we use it

0:03:06.800,0:03:10.560

we're not going to use it until we

0:03:08.480,0:03:11.760

actually do sell it and at that point we

0:03:10.560,0:03:13.840

have used the invent for

0:03:11.760,0:03:14.959

inventory for what his purpose was so

0:03:13.840,0:03:16.080

therefore not only do we have to

0:03:14.959,0:03:18.000

recognize revenue

0:03:16.080,0:03:19.360

we have to expense it as well, so the

0:03:18.000,0:03:21.120

second step to this is going to be the

0:03:19.360,0:03:22.640

expense side and we use what's called

0:03:21.120,0:03:24.400

cost of goods sold.

0:03:22.640,0:03:26.560

You can kind of think of it as inventory

0:03:24.400,0:03:27.360

expense but we use the term cost of

0:03:26.560,0:03:30.159

goods sold as

0:03:27.360,0:03:31.840

a account name, so the second part this

0:03:30.159,0:03:33.599

would be I'm going to debit my expense

0:03:31.840,0:03:35.120

account which is cost of goods sold

0:03:33.599,0:03:36.640

so cost of goods sold for whatever that

0:03:35.120,0:03:38.400

amount was to me

0:03:36.640,0:03:40.879

not what I sold it for but what it cost

0:03:38.400,0:03:43.760

me and then not only did I

0:03:40.879,0:03:45.120

gain something I gained cash I also lost

0:03:43.760,0:03:45.760

the inventory because I gave it to my

0:03:45.120,0:03:47.440

customer,

0:03:45.760,0:03:49.280

so my credit for this one would be

0:03:47.440,0:03:51.280

merchandise inventory or inventory

0:03:49.280,0:03:52.959

for the same amount. It is important that

0:03:51.280,0:03:54.959

you recognize the different

0:03:52.959,0:03:57.680

numbers because the cash and the sales

0:03:54.959,0:03:59.519

revenue are what we sold at four

0:03:57.680,0:04:01.040

and the cogs or cost of goods sold and

0:03:59.519,0:04:02.480

the inventory is what it cost

0:04:01.040,0:04:03.519

us, you don't want to have the same

0:04:02.480,0:04:04.799

numbers on there because that means

0:04:03.519,0:04:06.319

you're not making a profit and that's a

0:04:04.799,0:04:07.760

very bad business strategy you will go

0:04:06.319,0:04:10.400

out of business very quickly,

0:04:07.760,0:04:12.080

okay, that's it in concept if you wanted

0:04:10.400,0:04:13.840

more practical sense I would just

0:04:12.080,0:04:15.599

like we've been doing from the beginning

0:04:13.840,0:04:17.199

when we talk about journal entries

0:04:15.599,0:04:19.040

we do all the debits first and all the

0:04:17.199,0:04:20.720

credits last this is what a more

0:04:19.040,0:04:22.000

practical one would look like I do my

0:04:20.720,0:04:24.320

two debits together

0:04:22.000,0:04:26.320

and then I do my two credits together,

0:04:24.320,0:04:28.560

still the same thing most of the time

0:04:26.320,0:04:29.680

it's not that big a deal but that is how

0:04:28.560,0:04:31.840

you recognize

0:04:29.680,0:04:33.880

the purchases and the sales of

0:04:31.840,0:04:36.880

inventory.

0:04:33.880,0:04:36.880

Appreciate it.