analysis just to repeat a few things that I said last lecture transaction analysis is

that first skill I want to make sure you guys master. So as we go through these I want you

to be responsible and start to be able to ask yourselves do I really understand this.

With accounting if at any point and you realize I don't know what he's doing I don't know

how to do this. That's when you to come into office hours come into to tutoring folks at

home email me you can come into tutoring as well, but I want to make sure that you don't

let that go on. You don't want to procrastinate with accounting, because everything builds

on each other alright. I kind of gave you some, but I gave them to you in a little different

order didn't I, I kind of gave you my own unique order. What was the first one I gave

you? One-twelve well then let's do exercise one-twelve ok. Ok exercise one-twelve Zelda

began a new consulting firm on January the fifth the accounting equation showed the following

balances after each of the companies first five transactions analyze the accounting equation

for each transaction to describe each of the five transactions so this is a little similar

to the one that we did in class the other day isn't it? The only difference here is

now you kind of look at the balances and see what the change was its not telling you the

change it's actually telling you what the balance is ok. Now the first one transaction

A this is the very first transaction of the business isn't it so everything was zero before

that now cash is twenty thousand Zelda capital is twenty thousand so obviously what happened

here? That's right Zelda invested twenty thousand dollars of her personal money into the business

very good that's A. In B we see that cash went down by a thousand office supplies went

up by fifteen hundred and accounts payable went up by five hundred ok. What happened

there? Look like she bought some office supplies she bought fifteen hundred dollars' worth

of office supplies by paying a thousand dollars cash and the remainder putting on account

or on credit so there's now a account five hundred dollar payable correct. Good C cash

went down by eight thousand and office furniture went up by eight thousand looks like she used

eight thousand dollars cash to buy some furniture for her office is that correct? D let's see

what changed accounts receivable went up by three thousand and revenues went up by three

thousand looks like she provided services to her client on credit and they will pay

her later so she has an accounts receivable ok she will receive money in the future. And

then lastly looks like cash went up by fifteen hundred oh no by five hundred I'm sorry on

transaction E cash went up by five hundred and revenues went up by five hundred. So it

looks like she provided services to a client and they paid her five hundred dollars right

there for the entire five hundred amount worth of services agreed? Alright any questions

on that one? What was the next one I assigned one-ten ok good? Exercise one-ten provide

an example of each transaction that described the detailed effects of separate cases now

some of these have more than one, some of these have more than one. So transaction A

increases an asset and decreases an asset, what do you guys think? There's one or more

answer. Ok a couple of examples that you gave me good you purchased supplies using cash

or you purchased equipment using cash ok very good. Equipment or supplies would go up those

are assets and cash which is an asset goes down. Any others? How about the collection

of an accounts receivable let's say we have a accounts receivable for five hundred dollars

and they paid us cash well the receivable would go down that's an asset, what would

go up, cash that's an asset right? One asset went down one asset went up ok so that's another

an example. Exercise one-ten uh B decreases an asset and decreases a liability what do

you think? Paid something like paid an accounts payable ok good. Paid something that was already

on the books that was payable ok good. So the accounts payable went down and cash went

down any other examples. Paying a note payable really any sort of payable. Paying taxes payable

salaries payable any sort of liability the liability decreases the cash which is an asset

decreases. D increases an asset and increases a liability what do you think? Did I skip

C sorry? Let's go back to C. C decreases a liability and increases a liability this is

kind of a weird one. You thought he was going to try to skip this one and get out of it

right? Decreases a liability and increases a liability ok what do you think? oK and that

sounds kind of weird, but let's say a company had a taxes payable right the IRS started

banging on their door saying you owe us taxes we have a taxes payable on the books. Well

we don't have the cash right now so we go to our friendly bank and we get a loan. So

we can pay our taxes so taxes payable which is a liability goes down, notes payable which

is also liability goes up ok. I'll give you another example I'll give you a couple of

other examples. My wife and I we just refinanced our home we're actually going through the

process right now so we have a mortgage payable at a certain interest rate and were going

to pay that one off with a new mortgage payable why would we do that? Lower interest rate

think we're moving from like four point two five we are getting rid of that mortgage and

were going to three and five eighths, three and five eighths for a mortgage that's unbelievable

ok. So our old mortgage payable is going down our new mortgage payable is going up. The

advantage is decreased interest. Now a company can have a mortgage payable as well can't

they? They can have a mortgage payable on their office building. Or on a big piece of

equipment that wouldn't be a mortgage but you see what I'm saying. One more example,

one more example lets ay my company has an accounts payable for two thousand dollars

to a vendor we have an accounts payable it's a liability for two thousand dollars to a

vendor well let's say we're having a little cash crunch right now. So I go to that vendor

and we worked with that vendor for a long time, and I say hey we are having cash troubles

I know we have an accounts payable to you I know we owe you this money for two thousand

dollars, but you know is there some way we can set up a payment plan or something. Will

usually vendors are very happy if you go to them with, has anybody here have ever done

collections, no pray that you never have to it's not fun. But when people owe you money

if they're having trouble paying you, and they come to you and they want to set up a

payment plan most people are pretty nice about that. Ok so our vendor might say thank you

for doing that here is what we'll do let's get rid of your accounts payable and let's

set up a note payable. And they might have us sign something and let's say let's have

you pay it off over time let's say a couple hundred dollars every month maybe for ten

or eleven months or something like that, and we're going to go ahead and charge you interest

a little bit of interest four percent and since it's going to be paid off over the next

year we go ahead and sign the note so that they feel a little bit better ok. So you don't

have a real old on their books a receivable ok. You see what I'm saying? So we got rid

of our account payable and we set up a note payable with our vendor alright so that's

another example. Ok good any others? Ok now let's go to D increases an asset and increases

a liability. What do you think? Ok good Kara is it Kara? Ok good I'm getting better with

names. Alright we buy office supplies on credit office supplies which is an asset goes up

accounts payable goes up right. What other ones there's some other ones to? How about

getting a loan? Getting a loan from a bank, cash goes up notes payable goes up that's

an asset that's a liability. And actually buying anything on credit right furniture

on credit or whatever ok good. E decreases an asset and decreases equity, decreases an

asset and decreases equity what do you think? There's a few on here too. Ok withdrawing

perhaps cash from the company ok. Withdrawals goes up but equity goes down from our quiz

that we had from our second lecture second or third right? The owner withdraws cash so

cash which is an asset goes down and withdraws is one of those things that decreases equity

very good any other examples for this? Another one would be paying an expense with cash.

Let's say I pay rent expense for the month ok. Well rent expense isn't expenses one of

those things that decreases equity? OK so I pay that rent expense equity goes down and

the cash that I used to pay that rent expense also decreases right? So that would be another

example ok. Alright F increases a liability and decreases equity. You know I don't want

to really concentrate on that one too much, because that's kind of a chapter three kind

of a chapter three question and we aren't in chapter three are we? Curiously did anyone

come up with anything? I put took out a loan and took cash for their pesonal use. It's

not bad, it's not bad ok not a bad one the only thing is that would probably be two separate

transactions you know cash in cash out what this is and I know it will bother you for

the rest of your life. Is this would be like and this actually happens quite a bit actually

you receive a bill, you receive a bill and so you put it on the books as a liability

you're not going to pay it right now and you put the expense on your books it's called

a accruing on the expense. So don't really worry about that one I mean really don't really

worry about it for now when you're studying for your test don't sweat that one you can

almost ignore it. That will be chapter three, and G increases an asset and increases equity

what do you think? Couple there too. Cash into the- Well you're right but be more specific.

Ok increases an asset and increases equity so you perform a service for a customer and

think about revenue goes up so equity goes up right? If they pay you in cash your asset

in cash goes up right. If we perform this on credit our accounts receivable goes up

which is also an asset isn't it so really preforming services for a client either way

whether they pay us cash right then or we book it as a receivable either way an asset

increases and equity increases ok good. There's one other one. If the owner bought something

with their own money. I have to think through that one see an owner bought something with

their own money I have to think through that one that's not the one I was thinking of ok,

but I would have to think through that one you mean they are going to get reimbursed

by the company or something like that. That may not be I'm not just going to go down that

road just yet and we'll get there and what concept does that kind of violate. Do you

remember I was talking about we haven't talked about the business entity or have we? We're

going to talk about the business entity concept soon. What the business entity concept is,

is if I have a landscaping business I don't want to I want to keep my landscaping business

the check book, the records, and everything separate from my personal life. When I go

to a client when they do something like that Anna is it Anna? Oh getting better. When they

do something like that I'm like please don't make it a habit and you can reimburse yourself

but please don't be using your personal check book to buy things for the company or worse

yet don't be using the company check book to pay your daycare bill or whatever let's

keep those things separate business entity. Marlin? How is that different from making

a personal withdrawal? Well but see it's a good question how is that different for a

withdrawal and that's how well end up treating it as but what I tell my clients is take the

money out of the company book it to withdrawals and then once you have that money in your

personal life then pay that daycare bill, but when you write a check from the company

checkbook to the daycare ehhhh... then you've really got to set up in your accounting system

your daycare as a vendor, and it's just ehh right? You don't want to do it too much or

if a company or if an owner has two businesses keep those businesses separately you know.

You just want to keep everything neat as you can not so much because you're anal retentive

but because a big part of accounting is that somebody can go in and understand what you've

done. Oh the other one was for this one is the one I was trying to get to Anna was an

owner invests personal money into the company right? Owner invest cash into the company

cash goes up and what else goes up equity goes up from our quiz right. Ok good what's

next exercise one-eleven? Ok now this is really where the rubber hits the road as far as do

we know how to analyze these transactions? Do we know how to analyze these transactions?

And I want you to become adept at this If we don't know how to do this if you're totally

confused then we need to get together get to office hours or whatever, because this

is a crucial part of accounting ok. Ok I hope you used your work papers I think I showed

you your work papers last class ok. But lets go to exercise one-eleven Lena Gold began

a professional practice on June one and plans to prepare financial statements at the end

of each month during June Gold the owner completed these transactions. Owner invested fifty thousand

dollars cash in the company along with equipment that had a ten thousand dollar market value.

Ok the first thing you want to ask is what accounts were affected, and then the next

question is did those accounts increase or decrease by how much. In this situation cash

went up by fifty thousand, equipment went up by ten thousand, and this is one of those

things that increases capital or equity isn't it? It went up by sixty thousand. Transaction

B the company paid sixteen hundred dollars cash for rent of office space for the month.

Now I want to change this a little bit but what happened is cash went down right? Now

I don't really like the way that they show this I'm going to zoom in, I really wish they

would have said expenses went up, because that's what they did expenses went up right?