Accounting 1: Program #2 - "Basic Accounting Concepts" - VoiceTube: Learn English through videos!

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Hello, I hope everybody's semester is starting out well. This is the first official lecture
of Accounting 01. Now, everybody should have had a previous session where we talked about
class policies. For you face to facers we did that last time we didn't film that, and
for you people at home I did a separate filming and taping of going through the class policies
for you, so please make sure those folks at home are taking this as an online class that
you watch that don't just skip it thinking it's not going to be important. It's very
important to succeed in this class I want you to know how we're going to do things so,
for the people watching at home on You-Tube or on DVDs, or on that cable TV channel never
skip the lectures ok, watch them in sequence watch the whole thing. If you try to shortcut
it you'll do yourself harm so, at this point everybody knows the class policies and procedures
and everything we're going to go ahead, and start the subject of accounting now, I always
like to say at the very beginning some people have to take this class, and it's like "oh
I wish I didn't have to take this, but I have to it's required" some people want to take
it. Truth be told out of the fifteen of you here there's maybe only one or two who want
to be a full-time accountant someday so sometimes the question comes up "why do we have to take
accounting", and I'll tell you. Several reasons, but one of them is statistically speaking
about half of you are going to own, or co-own a business sometime in your life. Now it may
not be your sole source of making money, but it may be just an ancillary income, but you
will own or co-own a business. Now I've talked to some of you, and a lot of my students they
want to be entrepreneurs, they want to own a business someday. Well if you do that you
need to know accounting at least at some level, and you might say "well I'll just hire somebody
to do my accounting", but what's the problem with that? Anybody know? It costs money, and
what's the other one? you might get ripped off. You can look at the business section,
and see what happens when a business owner gives all of their accounting responsibilities
to somebody else. It's like "will we trust that person?" I could tell you horror story
after horror story from my days as a Financial statement Auditor of small businesses that
somebody ripped them off, because that person didn't know accounting at all. So, maybe you
won't do all the book keeping, but you at least at some level need to know accounting.
Accounting is the language of business, plus, wherever you all end up working there's going
to be a bottom line. There's going to be a net income that you need to meet, right, I
mean JCCC isn't out for profit, but we concentrate on that bottom line too. We have to stay afloat
don't we? In your own homes you have financial situations right? So, the language of business
is accounting, it's very important to know, so I know there are a lot of reasons for being
in this class, but I want you to remember that there's basic concepts of business, and
how important it is to apply to accounting. The first thing I want to do is go over and
you should have the PowerPoint slides for you folks here in the face to face. I handed
these out to you, and for you folks at home, I have these on ANGEL under the lessons tab.
I thinks it's very beneficial to have these so, you don't have to copy everything down
that's on the screen, and you can just take notes to the side, or however you'd like to
do it. Let's go ahead and go through the very first slide for chapter one, and that is going
to be kind of the definition of accounting. I spend a lot of time on this slide so don't
think that every slide we do we'll spend this much time on, but I think this is a real nice
definition, and I'm not the type of teacher who's going to give you a test question that
says "write out the definition of accounting", because truth be told you can find another
text-book, and it probably would be slightly different, but this one has a lot of good
aspects, and I want to concentrate on that a little bit. It says accounting is a system
that identifies, records, and communicates information that is relevant, reliable, and
comparable to help users make better decisions. Let's go off the PowerPoint, and come back
and I want to step away from that for a second, and take you to a different example I think
will help flesh out that definition. Let me write something down here that has absolutely
nothing to do with accounting, and tell me if anybody knows what I'm doing? I'll give
you a clue it has to do with sports. I'm sure you're all like what is he doing? Right, any
idea what that is? Anybody want to make a guess? It has to do with basketball. Anybody
here play basketball? You've watched basketball right? You know what a free throw is right?
It's when a player gets fouled they go to the line, and they shoot free throws, right?
Well, one of the things I did in high school (I love basketball still do), but I couldn't
make the basketball team at my high school. So, what I did and this sounds like a geeky
future accounting professor thing to do - I kept stats for the basketball team. Traveled
around with them, and kept stats. So, let's go back to this do you see how this applies
to free-throws. What this meant is player twelve got fouled, and he went to the line
for two free-throws he missed the first one, so I didn't color in that bubble, and he made
the second so I colored that in, you with me? Okay then player seventeen got fouled
for two shots he made both of them so I colored in the bubbles. Number nine player got fouled,
and that looks a little different doesn't it? Anybody want to venture a guess what that
is? Not a technical - do you know what a one and one is? Certain types if you get fouled
you don't get two free-throws, but if you make the first one you get a second attempt.
Does that make sense? So I would draw that kind-of like a little cherry. So, this guy
got fouled and he made the first one, so he got a second attempt, right? If he wouldn't
have made the first one it would have just looked like that. This one has just one bubble,
what does that mean? Anybody want to guess? He made the shot, but he got a free-throw
so, if you get fouled while making a shot you make the basket, you get one free-throw.
Now, why do I show you this, because this has nothing to do with accounting? Well this
is one of the things as a basketball statistician that I kept track of for the coaches. Now,
the next day when I would come to school do you think the coach wanted me to hand him
this report, with the bubbles? Go back to the screen do you think that this is what
they wanted? What did they want? They wanted a condensed report, and I made out just a
sample report ok, this is kind-of what they wanted. This is a free-throw report for Northwest
vs. Southeast on October 20, 2011. This is the player Jones. This is the free-throws
attempted eight, and he made 4 free-throws, so he shot fifty percent. Smith went to the
line, and attempted ten free-throws only made eight, and shot eighty percent, do you see
what I'm saying? This was the report I gave the coach. Now, why would the coach care about
having this information? To know who the best free-throw shooters are may be there's a technical
during the game, and who would you want to put to the line, probably your best free-throw
shooter, right. You'd want to know who needs to work on free-throws, who's getting better,
who's getting worse, right. Do you agree if you were a basketball coach a report like
this would help you make better decisions, is that correct? Let's go back to the PowerPoint
definition, and let's apply this to the basketball example I just gave. That was a system that
identified, recorded, and communicated, wasn't it? For instance I would hear the whistle
blow, and it would identify that I need to record something, correct? It identified that
somebody was going to go to the line, and I needed to record it with that little bubble
method, and there's nothing magical about that little bubble method. I didn't make it
up as a common way to keep track of free-throws. Eventually I would need to communicate that
to my coach, right. Now, I would communicate it so it would help him make better decisions.
However, for it to be able to help him to make a better decision, it had to be relevant,
reliable, and comparable, what does that mean? Let's talk about that, what does it mean to
be relevant? To be relevant means it needs to be in regards, to the game that he's concerned
about, right? What if I were to give him the free-throw statistics for the 1972 Olympic
Games between Russia and U.S.A., is that relevant? Is that going to help him make a better decision?
No. So, it has to be relevant, it has to be related to what he's concerned about. It has
to be reliable. What if I don't know what I'm doing as a statistician - is it going
to help him make better decisions? No. What if I told him "hey coach, here's your report
for last night, but I'm going to be honest with you I was pretty drunk when I did it,
there's a lot of mistakes, I fell asleep during the third quarter... don't know how reliable
it is. Is it going to help him at all? No, and I did not drink as a high school student.
Note that if my mom is watching. The third one - it has to be comparable, what does that
mean? What that means is there has to be a consistent method that we are using to keep
track of this stuff, there has to be rules. For instance we always count a free-throw
made if it goes through the hoop, right? What if I said "I changed the rules I started to
count the free-throws even if it just hit the rim and even if it didn't go through,
well I changed the rules." Is that the way we've been doing it? No. Ok so it's no longer
comparable to previous games. Is it going to help him make a better decision? No. Go
back to that one more time this was a system that identified, recorded, and communicated,
and if it was relevant, reliable, and comparable it would help him make better decisions. Accounting
is the same way; now let's stay on this for a second. We identified things that needed
to be recorded these will be transactions that need to be recorded such as, buying office
supplies, or selling services to a customer, or paying our employees, or getting a loan
from the bank. We record that information, and eventually we're going to communicate
it through a report, through a summation like you were saying. And if that information is
relevant, and if it is reliable, and if it is comparable we're following the rules, it
will help our users make better decisions. What sort of decisions would you see in the
business world that would be aided by financial information presented to them in a report?
Do I want to invest in this company? Maybe, Do I want to extend credit, or make a loan
to this company? How's the business doing? Are we going to have enough cash to pay salaries
next month? Right, if you have a business you want to have accurate financial information,
financial reports - that's what accounting is about. Does that flesh that out a little
bit for you? Let's move on a little bit, I like to have our lectures be a mixture of
me talking, and then maybe taking a break and doing some exercises and then going over
those. I don't like it just to be me talking, but like I always have to say this first lecture
is a lot of me talking, because we really haven't done anything yet. So please don't
be concerned if you're going "gosh... are we just going to have to listen to this guy
every fifty minutes every time?" No, we'll be doing stuff that's why I want you to bring
your textbooks and your calculator to class. There will be a lot of times where we take
breaks, and you'll work on it for a while, but this lecture is kind of me jumping around
and giving a lot of basic business concepts, so we can start to build our foundation. Alright
let's go on, there are two sets of users of accounting information. There are external
users, and there are internal users. External users are those that do not work at the company.
They work outside of the company such as, lenders, or banks, or credit unions, or share
holders, or stock holders, or potential share holders and stock holders, the government,
consumer groups, customers, external auditors. Do you know what an audit is? An audit is
when you go in and you look at the records of a company, and you verify it. Sometimes
people think of an IRS audit. All of those individuals are external to the company, correct?
They don't work there, they're just they're outside the company. Now, external user's
financial accounting is the accounting that serves external users primarily, and that's
this class. Now, there are also internal users, these are the people that work at the company
such as, managers, or the sales staff, or the internal auditors. Some companies are
so big for instance; Sprint, they have their own internal audit department they're internal
within the company. There's also the controller, do you know what a controller is? The controller
is the chief accounting individual. He or she is in charge of all the accounting - they're
called the accounting controller, but all of those individuals are internal to the company.
Now, the type of accounting that is mainly concerned with internal users is managerial
accounting. Have you heard of managerial accounting? Does anybody already know they're going to
have to take managerial accounting? A lot of people will take financial accounting which
is mainly concerned of the external users, and then they eventually take managerial accounting
which is the internal users. Alright, let's go to the next slide just like there are rules
of basketball that must be followed there are rules of accounting that must be followed,
and this will help insure that the information remains relevant, reliable, and comparable,
and we know it has to be those three things for it to be useful. So, there are what's
called generally accepted accounting principles sometimes we abbreviate that GAAP (G double
A P) these are the rules that have been put into place that we have to follow for accounting.
We'll start learning some of those. Now, who sets those rules? Those are set by what is
called the Financial Accounting Standard Board, and we abbreviate that sometimes the FASB.
This is the private group that sets the rules of accounting. Now, they take input from a
lot of different groups such as the SEC the Security and Exchange Commission, have you
heard of that group? They're the government body that has the reporting rules for companies
that trade stock, and issue stock to the public they certainly have input to the FASB on what
GAAP is. There's also something called the International Accounting Standards Board,
and they deal with international standards ok, so they certainly have input to the FASB
as well. Now, one thing about international standards is that we're becoming a much smaller
world in some ways, aren't we? Have any of you going to these classes, have any of you
ever Skyped, do you know what Skyping is? Have you ever Skyped to somebody overseas?
Have you ever purchased something over the internet overseas? If I were to ask this in
an accounting class twenty years ago I probably would get responses like this - first of all
you would say: what is Skype, second thing you wouldn't think about buying something
from somebody in Germany for example, because it's just not possible. But with technology,
with communications we're becoming a smaller world aren't we? It's always interesting with
these accounting lectures being on YouTube I'll get emails from people in Poland, Saudi
Arabia, London, all over the world that somehow they stumble upon these lectures, and for
some reason they watch them. Maybe they're taking an accounting class and it kind of
helps them, but it's kind of fun to hear from those if somebody out there is watching it
shoot me an email I'd love to hear from those people, but it's a small world isn't it? Well,
because of that we have to start having some international standards, because companies
are becoming global with operations not in just the United States, but other countries
as well. So, you might hear of something called IFRS that stands for International Financial
Reporting Standards, and they identify the preferred accounting for companies ok. We
won't get too much in this, but I want you to be aware of it that IFRS is more and more
concerned each year with how are we going to make the accounting operations in London
comparable with the ones in Georgia ok. How are we going to do that, we want to try to
find a common set of rules, and that's what IFRS is. Ok, I want you to read about next
now were into a different subject, and I want you to read about this in your books. The
Business Entity Forms and this is on page eleven and twelve in your textbook. Now, I'm
not going to go through every aspect of this, but I want to hit some high points, it's on
page eleven and twelve in your textbook. And what I want to do is, and I going to double-check
that make sure I gave you the right pages. Yes I did ok eleven and twelve in your textbook.
Now, if you start a business one of the first things that you have to decide is, how do
I want to set up my business? And there's three main ways you can set up that business.
You can set it up as a sole proprietorship, as a partnership, or as a corporation ok those
are the three main ways. Now there is kind-of different sub-ways under each one of those,
but for the purposes of this class we're going to kind-of concentrate just on those three
ways. Now, there is a nice chart in your book I'm not going to talk about every little row
and column on here, but I want you to read about this and to know this. Let's highlight
a few of those ok proprietorship versus a partnership versus a corporation ok. Now let's
come off the slides for a second, and it's Jake right? Let's say you started a landscaping
business Jake you can set it up as a sole proprietorship where you are the only owner,
and you don't incorporate anything you're just a sole proprietorship, right? Or what
you can do is let's say there are two owners, and it's Jake and Matt let's say there were
going to be two owners, and you're not going to incorporate but you're going to be a partnership
you can set it up that way, or the other thing you can do is incorporate now going back to
the previous slide looking back at it real quick. You might think sole proprietorship
means one owner, partnership just a few, and corporation means a lot of owners that slide
kind-of indicates that, but that's not totally true, because going back to you Jake even
if you were the only owner you could incorporate what it means to incorporate is you set your
business up as a separate legal entity, a separate legal entity if you're a corporation.
Not so much a contractor, but like Sprint is a separate legal entity but even your landscaping
business you can be a separate legal entity and set that up completely separate from you
as a human you as a person. As a matter of fact if you die the corporation is still alive,
right? Or if you're a partnership you can incorporate so I don't want you to think corporation
always mean hundreds of hundreds of owners, because there's actually a lot of corporations
with just one or two owners. A corporation means you have gone through the paperwork,
and fees, and procedures to set it up as a separate legal entity, does that make sense?
Ok going back to this slide no matter how you set up your business you're going to be
a separate business entity which means you're going to keep your business books separate
from your personal books. You don't want to comingle those records ok. Jake you don't
want to keep track of your landscaping business in the same check book and records as you
do in your personal life, or if you have more than one business you want to keep those separate
as far as record keeping. But only a corporation is a separate legal entity ok. Now the nice
thing about a corporation is that a corporation has what is called limited liability. A proprietorship
and a partnership have unlimited liability. Unlimited liability is a bummer it's a bad
thing for example, let's say Jake that you have a landscaping business, and you are set
up as a sole proprietorship and let's say that you have a lawn mowing incident and you
run over somebody and they die, tragic, lawn mowing incident well since you have unlimited
liability proprietorship they can come and sue you, and take your personal assets your
home, your savings that grandma left you all that sort of stuff. If you're a partnership,
and you're not incorporated and let's say Jake has a tragic lawn mowing incident right?
Well let's say Jake didn't have any money, but Matts loaded they could actually come
and take your assets you have unlimited liability that's a bummer isn't it? He did it and they're
taking my assets, right? Unlimited Liability is a bummer. You want to have limited liability
that's why you might incorporate what that would mean is this is if you incorporate,
and that situation happens they can come try to take the assets of the business, but they
can't take your personal assets. It's kind of a shield sometimes we call it a corporate
shield, does that make sense? That's why one person might incorporate or two people might
incorporate ok, so, unlimited liability bad thing, limited liability good thing. The process
of getting to be a corporation? Well to be in this framework to be if you want limited
liability you have to incorporate in some way which means that there's certain policies
that you have to follow, paperwork that you have to fill out, fees you have to pay to
the government, maybe records you have to provide to the government. Sole proprietorship
is easy you really don't have to do much you know you'll just be a sole proprietorship
ok. Ok unlimited life a proprietorship a partnership they have a limited life that means if you
die the business is over, but a corporation has a unlimited life. If you are an owner,
or a shareholder of Sprint for example think about that if you die is Sprint going to be
going on they probably won't send you a card or flowers or anything, will they? They keep
going a corporation has a unlimited life, is the business taxed? Well that's a bummer
about being a corporation a great about a corporation is that it has limited liability
the bummer is that a corporation is taxed. Now, let's explain this real quick let's say
you are a sole proprietorship does that mean you get to enjoy a tax free life, No. That
just means that you get to fill out an informational tax return and you pay your taxes at the personal
level. Same thing with a partnership the partnership is not taxed, but a corporation is taxed.
Let me explain that in real elementary terms, Sprint has a pile of money, then they have
to pay taxes, and that pile of money is now less right? Then they pay dividends to their
owners, or their shareholders do the individual shareholders and owners have to pay taxes
again on those dividends. Yes they do. That's called double taxation that's a bummer isn't
it? It doesn't seem fair does it? Corporation pays taxes, and then they distribute money
to their owners, and the owners have to pay taxes again that's the big bummer about being
a corporation. Do they have to pay like payroll taxes? Yes that's a great comment I'm not
talking about payroll tax or sales tax I'm talking about income tax ok? Good question.
Is one owner allowed like I said yes you can have a one owner corporation, proprietorship
is just one owner, if you are a partnership you can't have one owner you have to have
two or more. Now, there is something called a Limited Liability Corporation an LLC, have
you ever heard of that? That's a great way to start a business, because let's say the
two of you start as a LLC you would have the advantages of limited liability that's good,
and you also would not pay taxes at the business level only at the personal level. The question
might be "why doesn't everybody be an LLC, why doesn't Sprint be an LLC?" Sprint would
love to be an LLC, but there are rules that you can only be such a certain size or less
to be an LLC once you have a certain amount of owners you have to incorporate basically.
But if you were going to start a business I would bet you that your lawyer would advise
it to be an LLC, but you'd have to talk to him or her. I had a business I was an LLC,
because I wanted the limited liability, and I did not want to pay taxes at the business
level cool. Alright, we're going to talk about a few more things that's really important.
This is your new buddy the accounting equation, What is the accounting equation? The accounting
equation is assets equal liabilities plus owners' equity ok. Now I want you to remember
something here come off the slides real quick. When you first learn something you're going
to have somebody like me who's going to teach you something, and you're going to have to
trust me a little bit right, like when I taught my son to play baseball when he was just a
real little kid I told him how to hold a baseball bat right. Now he doesn't know he's just got
to trust me that that's the way you hold a baseball bat if I want to be mean I could
show him so weird way now, he wouldn't know would he? Now I'm not going to do that to
you ok there are some things I'm going to teach you in chapter one, and throughout this
whole course that you're not going to understand the full implications of it, but I want you
to memorize it. Are you with me? Trust me. And the implications will come into play as
the semester progresses, but going back to the accounting equation for now I want you
to memorize that the accounting equation is assets equals liabilities plus equity. Are
you with me? Now, let's flesh that out a little bit what are assets we've heard the term assets
these are the resources you own or control, aren't they? Such as, cash that's an asset
that's a resource if you have vehicles, or supplies, land, or equipment, or buildings,
supplies those are assets right? Those are assets that you own. A couple of these require
a little more explanation such as accounts receivable. Jake let's go back to your business
let's say you mow my lawn and you charge fifty dollars for a lawn mowing, and I just I'm
going to pay you later I'll pay you next week ok and you say that's fine I trust you, you
would have a accountant receivable from me the customer, because you're going to receive
cash in the future. Does that make sense? That is an account receivable on your books
ok. Anybody here work at a bank by chance? No ok. Well I have a car loan at Bank of America
they have a note receivable from Dave Krug a note is similar to a account receivable,
but a note is little bit more formal. It's usually written down "hint notes receivable",
and there usually interest involved, but an account receivable or a notes receivable is
an asset. You're going to receive cash in the future, does that make sense? It's usually
dated have you ever had a loan, student loan, car loan, good for you keep living that way
ok. When I did my car loan though for those of you who have car loans, or student loans
did you have to sign, and date a bunch of stuff did they say an interest rate it was
more formal Than me just saying "hey you can just pay me next week" you see what I'm saying
we're not signing there's no interest that's an account receivable with a bank it's a note
receivable, good question. Alright what about liabilities, well unfortunately most of us
know about liabilities, this debt this is things we're going to have to pay in the future
ok. Going back to Jake you have an account receivable for fifty dollars in your books
from me well on my books I have an account payable to you right? That's a liability on
my books. Bank of America has a notes receivable from Dave Krug for the car loan, I have a
note payable to Bank of America ok. There's also things like taxes payable going back
to the slide. Taxes payable are taxes that I owe I'm going to have to payout cash for.
Wages payable or salaries payable anything ending in payable is I owe this person, company,
or whatever I'm going to have to pay them in the future that's debt right. Some of you
have student loans payable. Anybody here own a house, ok you have a mortgage payable right?
So, those are liabilities ok. Now, let's talk about equity, what is equity? Now most people
understand what assets are, and most people understand what liabilities are generally
speaking, but then they get to this equity thing and they go "oh what's equity" we've
heard about it before, but it's not quite, it's hard to get your arms around what equity
is. I think the best way to learn about what equity is, is to talk about equity increases,
and equity decreases but this is the owner's investment in the company. So I want you to
know this so as a matter of fact for you face to facers we are going to have a quiz at the
very beginning of the next period, and it's going to be right at nine-o-clock so if you're
late you'll miss it, but the quiz is going to be number one what is the accounting equation,
and that is assets equals liabilities plus owner's equity. The next question I'm going
to ask you is how does owner's equity increase, and how does owner's equity decrease? So you
folks at home even though you cannot take this quiz I want you to act like it's a quiz,
because I have found through teaching this class many times that this is a fundamental
principle that I want to get into everyone's head and I want to make everything easier
ok. So, know the accounting equation don't just abbreviate either assets equals liabilities
plus owner's equity, and now let's talk about how owners' equity Changes. How does owner's
equity increase will there's two ways. The first way is investments of assets by the
owner into the business, investments of assets by the owner into the business. Going back
to Jake and your business let's say that grandma died and left you ten-thousand dollars in
her will she gave it to you personally. And you decide to take that ten-thousand dollars
and you start your business with it well you are investing personal assets into the business
that increase your owner's equity. Let's say you own a truck and you decide to put into
the business that's putting a different type of asset into the business, and that increases
owner's equity. You with me so, putting assets into the business increases owner's equity.
The second thing that increases owner's equity is revenue, what is revenue? You kind of know
what revenue is right? When you said you were going to mow my lawn, and I'm going to give
you fifty dollars later. That fifty dollars is revenue, and you really don't have to wait
until I pay you that's revenue as soon as you're done mowing the lawn and will talk
here in another lecture. If you go buy a twenty dollar DVD at best buy after class today that's
twenty dollars of revenue for best buy. If you pay fifteen dollars to get a haircut that's
fifteen dollars of revenue to the barber correct, right? We'll talk about that we're going to
kind-of ignore taxes for now, because the taxes that really aren't that something you
have to give the government, but ignoring taxes if you pay fifteen dollars for a haircut
that's fifteen dollars of revenue for the barber right? Makes sense if you go buy a
five dollar meal at McDonalds that's five dollars of revenue for McDonalds. So, these
are the two things that cause owner's equity to increase: investments of assets by the
owner into the business, and revenue. Now, I'm telling you right now face to facers this
is the quiz this is the question these are the answers. Sometimes people will give me
the answers that sound right, but there not such as they'll say "cash", well no cash doesn't
always cause owner's equity to increase. If I go get a fifty-thousand dollar loan in cash,
but does that cause owner's equity increase? No. The questions and the answers to the quiz
are on this slide here the two things that cause owner's equity increase investments
of assets by the owner into the business, and revenue. It's just that simple I know
you don't understand the full implications of this, but trust me and just memorize this
for now. Now, let's talk about two things about how owners' equity decrease, and this
is going to be the flip side of what we just discussed. If putting assets increasing taking
assets out of the business decreases equity that makes sense doesn't it? Why might you
take assets out of the business Jake? Well let's say you need some money to pay your
apartment rent or to buy groceries that's why you have a business right? So you can
take money every now and support yourself. Well that's fine that's expected when you
take those assets out of the business that decreases your owner's equity. Make sense?
That's expected that's normal assets increases, assets out decreases. Marlin? How would that
work for like a corporation like somebody taking assets out. What that would be is how
do assets leave a corporation and go to the owners through dividends primarily ok. So
it's a little different when you think Jakes landscaping business versus Sprint. but the
principals still apply good question. Alright now if revenues cause owners' equity to increase
what do you think causes owner's equity to decrease? Expenses you're exactly right you
have salary expense you have advertising expense you have gasoline expense expenses cause owner's
equity to decrease. So I told what's on the quiz didn't I? If you like find a chair for
your salon would that be an expense but once it's in your salon it would be a revenue.
No great question, and the there's a lot of different concepts wrapped in that question
and it's a great question and I'm not going to be able to fully answer it today, because
it's going to involve some principles I'll talk about the next couple lectures. First
of all if you buy a huge asset we don't expense it's an asset and that's not an expense now
we'll depreciate over time we'll expense it slowly and that's when it causes owner's equity
to decrease. And then there was second part of that question if forgot already oh does
it become revenue? No. No revenue is when you provide product or services to customers
and you can book that as revenue and you will eventually receive payment ok. The chair's
never going to pay you for anything it's not a customer does that make sense? Great questions.
So there's the whole quiz what's' the accounting equation assets equals liabilities plus owner's
equity what causes owners' equity to increase going back to that slide investment of assets
by the owner into the business and revenue. What causes owner's equity to decrease withdraws
of assets by the owner out of the business, and expenses. Would it still be a positive
thing for equity if it was a non profit company? Yes now I want you and it's a great question
you're asking about not for profits and you asked about a corporation Marlin. These are
excellent questions; however, I'm not going to fully be able to answer them it's kind
of like baseball its like if I was teaching my son how to play baseball and I would teach
him when you're on first base and they hit the ball you run. If he's four or five years
old I'm just trying to get the concepts that run this way around the bases run from first
base to second base not first to third not to mom in the stands, but from first to second
now for those of us who know baseball you know that there's a lot of other implications
right on a fly ball you go half way right there's a lot of different things but I'm
not going try to teach my four or five year old all those implications just yet. Corporations
not for profits they use these same principles, but in a slightly different way I don't want
to go down that road just yet it will kind of confuse us. As a matter of fact the majority
of our class financial accounting that you take this semester is going to be in regards
to a sole proprietorship we'll talk a little bit about corporations we'll talk a little
bit about not for profit trust me these concepts apply but it's a little different. So I think
it will be easier to try think about Jake and his landscaping business as you learn
these fundamental principle make sense? Walk before you run. What I want to do right now
is we have a few minutes and I want to do in your book and I'll do this often. Is we'll
work on something in class for a few minutes. For you folks at home there going to play
this snazzy jazzy JCCC music and I want you to do these problems as well and I want you
to come back and go over the answers, and if it takes you more time folks at home just
pause it, and play when we go over the answers when you're ready, but what I want to do is
go over quick study one-three in your book that's on page thirty one and exercise one-three
ok let's just do those right now quick study one-three on page thirty-one and exercise
one-three on the bottom of page thirty two. I'll give you some time to do that for you
folks here you can work together if you want you can share your answers, but I'll give
you about four minutes and then will go through the answers. So let's do that right now. (music
44:20-48:15) ok I wanted to give you a little bit more time face to facers, but were running
out of time here so if you at home are not done just pause it start it when you are done.
But let's go through the answers real quick now first of all notice in your text book
there are quick studies, there are exercises, and further on there's problems. So when I
give you homework if I say to do quick study one point two don't do exercise one point
two don't do problem one point two do quick study so you can't just concentrate on the
numbers you have to know if it's a quick study an exercise or a problem. Quick study one-three
on the top of page thirty one external or internal a lender is what external, what about
the controller internal, shareholders are external, the sales staff is internal, the
FBI and the IRS are external, and so are consumer groups consumer groups are external, consumer
groups are external, brokers like stock brokers external, suppliers are external, customers
are external, the managers of a business internal, business press like the Kansas city star or
the Kansas city business journal are external, and the district attorney is external, any
questions there? Alright. Let's jump over real quick and go over exercise one-three
what type of accounting is most involved? Review of reports for SEC compliance is mainly
financial accounting, because it's for external users who might be considering in investing
in the company or something like that. So number one is B financial accounting on exercise
one-three on the bottom of page thirty-two. Planning transactions to minimize taxes would
be tax accounting ok we didn't talk about that but there's tax accounting as well so
number two is tax accounting. Number three investigating violations of tax laws is also
tax accounting C. Preparing external financial statements what's that? B, financial accounting.
What about budgeting? That's more of an internal thing right? So that would be managerial accounting
number five is A. Number six cost accounting that's more of an internal situation as well
that's also internal that's also managerial accounting so six is A. Number seven external
auditing is financial accounting like we discussed earlier so number seven is B. Number eight
is internal auditing that is managerial accounting so number eight is A, any questions on that?
ok I know we went through that a little quick sorry about that. Last thing I'm going to
do is give you your homework please do this for next period you who've taken accounting
know is the way you learn this stuff is by doing it. So the only homework I'm giving
you and once again keep track if this is a quick study or an exercise, and eventually
well have problems, but I want you to do quick study one point eight, quick study one point
seven, and exercise one point seven. I know this was a little bit of a longer lecture,
but I wanted to get some stuff in thanks a lot and we'll see you next time bye-bye.