thank you for being here today for you folks watching at home, and for you folks here face

to face. I was slowly getting over my cold so for the thank you for the flowers and the

get will cards that have been sent my way I will pull through this thing, and I do appreciate

your well wishes. For you folks at home what we just did here for the face to facers was

what we just took a quiz, and obviously I can't give you the quiz at home. The quiz

that I gave why don't you show this on the screen, and if you're at home why don't you

just pause it , and see how well you would do on this quiz just pause it, and when you're

done taking that quiz so to speak just start it up again and you can go over the answers.

So we will go over the answers right now. So let's switch it over and I'll just what

is the accounting equation assets equals liabilities plus owner's equity or equity right. Assets

equal liabilities plus owner's equity and that always has to remain in balanced for

a company at any given point in time the assets have to equal the liabilities plus the owner's

equity. What makes equity increase? Investments of assets by the owner into the business,

and revenue right, investments of assets by the owner into the business, and revenue are

the two things that cause owner's equity to increase. The two things that cause it decrease

are just the flip side of that. Withdrawals of assets by the owners out of the business,

and expenses so I want you to have those facts real firmly cemented into your brains, because

it's going to help us, and especially today ok this is a really important lecture so I'm

glad you're watching it. One thing I wanted to remind you all of and especially for you

folks at home but even for you face to facers is you can always re-watch these I know you

loved them the first time the second time they're even better right. So if you're ever

struggling with a concept sometimes if you watch it a second time it's going to become

a lot more clear so don't hesitate to do that, that's one of the benefits of teaching in

this sort of manner. Alright, before we go over the homework I'm going to clarify something

real quick. I'm going to try to change my verbage a little bit so that it's not as confusing.

The connect the connect assignments, how many people have signed up on connect? Most of

you there's a couple that still haven't we talked about that before class at home I want

you to sign up for connect and again go to the lessons tab go to the lessons tab on angel

and you should see something there that refers to the URL and the information for homework

connect. But I want to start not calling it connect homework I'm going to try my best

and you can correct me I want to call it the connect assignments ok. So when I talk about

you need to do your connect assignment I'm not going to say connect homework I'm really

not going to try to do that I'm going to say connect assignments, because the homework

is like what I assign at the end of the hour or the end of the lecture each time and then

we go over it like what we're about to do. So I don't want you to getting you confused

you see what I'm saying? So when I talk about doing your homework that's what I assign I

usually put it up on the screen right before you leave you do it pencil and paper, textbook,

use your work papers perhaps in the back of your book, and then we go over it that's the

homework. Connect assignments are something totally separate and we actually do not go

over the connect assignments in class. They give you feedback on the computer make sense

ok? Let's go over the homework that I assigned I don't think it was real mind blowing homework

was it? So let's go over quick study one-eight boy that was a toughie wasn't it? Did you

pull an all nighter on that one? Ok we know that assets have to equal liability plus equity

so for company one on quick study one-eight on page thirty-one what do liabilities equal

ten-thousand dollars. On company two what do assets equal eighty thousand dollars? Company

three what does equity equal? Also eighty-thousand dollars correct ok good. Quick study one-seven

total assets of Caldwell Company equals forty thousand, and its equity is ten thousand so

what its liabilities thirty thousand again assets have to equal liabilities plus owner's

equity. B total assets of water world equal fifty five thousand and its liability and

its equity amounts are equal to each other. So how much are its liabilities so how much

are its liabilities twenty seven five how much is its equity twenty seven five same.

Alright so any questions on those two? Ok I think the other one I gave you is exercise

one-seven is that correct? And this is in regards of to the different types of ways

you can organize your business. So they want us to determine from the description if it's

a sole-proprietorship, a partnership, or a corporation. And when I read these I'll emphasize

in the phrasing what the giveaway was in for what type of what organization it is. A-one

pays its own income taxes and has two owners it's a corporation a corporation pays its

own income taxes. B ownership of Zeller Company is divided into a thousand shares of stock

it is a corporation, corporations have stock we didn't talk about that, but it was in your

book so I want you to be reading your book as well. C Waldren is owned by Mary Malone

and she is personally liable for the company's debts, sole-proprietorships one owner she's

personally liable sole-proprietorships. D Mike Douglas and Nathan Logan own financial

services a financial services provider neither Douglas nor Logan have personal responsibility

for the debts of financial services it's a corporation there not personally liable. E

Baily and Kay own squeaky clean a cleaning service both are personally liable to the

business so there's two owners they're personally liable partnership. Well LLC wasn't really

an option so it was just sole-proprietorship, partnership, and corporation if you had to

choose one of those three there was only one right answer, but you are correct for D LLC

would satisfy that as well if that as well if that were an option ok good. Are we on

F? Plasto products does not pay income tax and has one owner, sole-proprietorship, and

G I'm not sure why they call it E and LLC but this company does not have separate legal

existence apart from the one person who owns it it's a sole-proprietorship it's kind of

a little misleading with the name of the company, but it is a sole-proprietorship. Alright any

questions on that, any questions on that? ok great. What I want to do now I'm going

to give you a little preview of things to come on today's lecture. But once again I

want to emphasize the accounting equation let me write it here up on the screen for

you. And if I'm ever writing and you can't see it please let me know. Ok assets equal's

liabilities plus owner's equity I will abbreviate here ok and that always, always, always has

to stay in balance ok what we're going to do today and you'll see this is we're going

to start analyzing business transactions and seeing how it affects that accounting equation.

Let me give you an example start looking back at this let's say that a company got a loan

from a bank for five thousand well how will this be affected well cash which is an asset

will go up by five thousand, and what else will go up by five thousand your liabilities

correct. You went into to the bank they loaned when you are done with them you're going to

have five thousand dollars more of cash which is an asset, but you're also going to have

a liability of five thousand dollars right. Ok does that accounting equation stay in balance?

It does right if it was balanced before it is still balanced ok now let's say with that

new money let's say we purchased a one thousand dollar photo copy machine a piece of equipment

well how will that effect this accounting equation? Well our cash which is an asset

would go down by one thousand what else would change? Not an expense, because it's a fixed

asset it's a piece of equipment and our equipment would actually go up by one thousand dollars.

So one asset our cash goes down by a thousand think about that you gave them a thousand

so you have a thousand dollars less cash than when you entered the store, but you also have

this new big piece of equipment cash goes down equipment goes up looking back at that

does everything stay in balance is the accounting equation still in balance. We didn't do anything

on this side but then that effect was zero over here right everything stays in balance

that's a little preview of what we're going to talk about today, but before we do. I want

to go to a slide here and the slide is right here there are certain principles and assumptions

of accounting and all the rules of accounting are kind of based on these principles and

assumptions ok now we're not going to go through those all today, but we are going to go through

the revenue recognition principle. The revenue recognition principle ok, what is the revenue

recognition principle? Well that states that we're going to recognize revenue when it is

earned. When is it earned when the product or service has been delivered to the customer.

Now I have a little cash sign with a cross through it, because it is not necessitated

by when the cash changes hands. We recognize revenue when it is earned when is it earned

when we have provided the product or service. let me go through a little demonstration on

this this is such an important principle that I want to make sure that I want to get it

in your brains ok. Jessica let's say you're my customer and lets say I want to sell you

one of these nifty red calculators, and the price for one of these is five dollars ok.

So let's just make the transaction yes five dollars right there let's just make the transaction.

Let's get a good side shot from the camera. I want to get a good side shot ok I've given

you the product I can recognize five dollars of the revenue, but now we're going to change

it up a little bit alright. We're going to change it up a little bit let's keep with

that side shot. Let's say Jessica says "hey I really need a calculator I heard you sell

these really great five dollar calculators", and I say "oh there are wonderful" and she

says I want to buy one, doggonit I didn't bring them today, and she says well I tell

you what I'm going to give you the five dollars right and I go yes she goes I'm going to give

you the five dollars today, and can you just bring it to me on Monday. I say no problem

and she gives me the five dollars now can I recognize this as revenue? No I cannot,

now this strikes some people as odd now she's a customer I'm a business she just gave me

five dollars, and I cannot recognize that as revenue, because it is not yet earned I

haven't given her the calculator. So she gives me five dollars and the way I actually record

this on my books is as unearned revenue which is a liability, because what do I owe her?

I either owe her money back or a calculator right. So going back to that example she give

me five dollars ok the weekend comes and goes I say hey its Monday I have I got that calculator

for you Jessica she goes great I can't wait to get it ok. So hold your hands out like

this I still have not earned the revenue, I have not earned the revenue, I have now

earned the revenue it does not necessitate cash is not the impetuous for when we recognize

the revenue it's all when I give you that calculator cool. Let's do one more of these

I put the five dollars in my pocket, and I lost it in there one more of this let's rewind,

and start this whole thing over she says hey I want to buy one of those calculator from

you and I say oh they're great you're going to really like them they're five dollars,

and she says I tell you what I don't have the money right now for it and she goes can

I just pay you the money for it on Monday and I say that's no problem she goes I really

need it today for the rest of my classes so I go ahead and give you the calculator I have

earned the revenue now has she paid me for it no doesn't matter I can recognize the revenue,

because it is earned I have given her the product or service I now have on my books

what is called an accounts receivable I have a receivable from Jessica, because I'm going

to receive cash in the future but I can and will recognize that as revenue ok very important.

The weekend comes and goes its Monday and say hey how's that calculator going and she

says it may be the best calculator I've ever had in my whole life and I say do you have

the five dollars you owe me? And she says yes and she give me the five dollar now do

I recognize this as revenue no I already recognized it as revenue you see what I'm saying I don't

recognize revenue again I recognized it when I gave her the product or service so all I

do at this point is my receivable goes down and my cash goes up. There's no revenue recognize

when she pays me the revenue is all predicated on when I give the product or service and

this can happen the same way if I were a landscaper and I was mowing your lawn for fifty dollars

I would recognize the revenue as soon I was done mowing your lawn regardless of when you

paid me for it. There are certain companies and businesses that are known for you pay

cash before you receive the service for instance how many of you drive a car most of you I

hope you all have car insurance right you have to prepay your car insurance right well

the insurance company gets all this money in, but they have not provided the service

of insurance coverage yet have they? So let's say you pay twelve hundred dollars Jessica

for six months of auto insurance ok well they get that twelve hundred dollars that's unearned

revenue correct every month that they provide you with coverage they can recognize two hundred

dollars of that right, because they provided that service right, does that make sense?

Other companies that usually have money before they provide product or service a magazine

subscription let's say you have paid twenty four dollars for twelve issues for reader's

digest magazine well they have the money, but they haven't provided the product yet

have they? Every month when they send out that wonderful magazine they can recognize