Principles of Accounting - Lecture 03

because it's a reporter all right so we can give you this is now lecture number three everybody last began okay lecture number three in accounting okay this is now the most important lecture for you to understand hello to the last weekend this is now for the dirty of the most important class for you to understand the basic accounting equation so that you can do proper accounting in future okay this is the most basic one and you have to be very careful to understand the example which is coming today it's going to be in lecture before because that's the foundation of how you do accounting if you don't understand today you are in trouble okay in a you will not understand anything from the rest of the clause so you need to be absolutely sure that you understand now lecture 3 and lecture 4 which is all of today so we begin the basic accounting equation with assets which equal liabilities and owner's equity and I will repeat and explain again what assets mean assets are resources which the business always and resource is something of value which you can use to generate business or to generate revenue in other words something you used to make money okay again is an example the camera is an asset the projector is an asset this whiteboard is an asset okay but as pewter isn't answer so all these things are used to generate rarity second it provide future services or bands for example the computer provides a service not only today but also service he got a lamp up here provides service now this provides the future service the projector provides a service now with a provider future service ok a computer provides service now could also provide a future service so it's a resource you use it to generate business it is providing future services and benefits and examples in good cash supply equipment I also gave examples of further furniture is chairs tables things like that equipment will be what with a mobiles cameras projectors monitors computers he more mountainous ok and the rest will be like realistic like the building over here okay so we got a special one called the old angles ok so this building is a big asset ok and the key to the building is whether you can attach it or you cannot attachment example will be air conditioned air conditioner will count as part of the buildings because it's not easy to detach okay same thing with the door yeah I can take the door out but it's part of the building's okay the chair not part of the bill can easily move around from one room to another core technology same thing with the equipment okay so these are the essence now we explain the liabilities so liabilities are claims against Passman the way to think about liabilities obligation an obligation another way to think there are many ways to think about liabilities is that liabilities are or represent creditors this is the party to whom money is oh one example of a creditor will be employee employee works in the company and at the end of the month the business meaning for example the university of the hotel owes money to employees so while employees work in the hotel until debate they are also predators another type of creditor will be supplier supplier isn't special type of credit the example will be the electricity which the electric company provides the University okay the University will pay the electric bill at the end of the month okay but in the meantime the electric company is a supplier of electricity to the University okay we workers employees are suppliers of Labor on the thread on credit until the end of the month when university pays us okay and you also have accounts pair account payable is when someone can have to remember this someone sells you something on credit and you promise to pay later okay for example supplier of fruits okay as a contract I don't know I'm just making up to 7-eleven every week we can and give you some supply on fruit okay and when they bring it in grams of fruit to 7-eleven 7-eleven doesn't pay cash immediately now all right they will just deliver the fruit and 7-eleven pay one minute later it doesn't work like that 7-eleven will pay at the end of the month so in the meantime they say today 10 kilograms of fruit I don't know mm tomorrow 20 kilograms of food four thousand so you add this ball up it becomes account and at the end of the month you may pay okay so this is all about money which the business owes it may go to suppliers it may go to the electric company it may go later on taxes to the government okay it may go salaries to the employees and maybe it will no dividends to the owners with all these big investors okay well common capitals so liabilities tell you Eric which is old to creditors and here is the last piece is the owner's equity let's explain this part owners equity means ownership claim on total task to win other means effectively to make any profit you keep for yourself if there's any loss you take the loss yourself so the owner takes all the business risk or the major business so all our ship is associated with high risk if there is a profit the profit is for me if there is a loss I have to pay it out of my oh gosh the owner's equity is as I explained last time the same sort of all the investors equity it is represented like shares or it is represented by strong for it is represented by what we call before partnership shares or partnership ownership or sometimes if it's one person from rioter so refers to residual equity now let's explain this word residual the word residual means anything which is left after everyone else is satisfied so owner's equity means all assets minus all my abilities so you have all the assets let's say all the essence is 1 million to pay workers you pay the electric company you pay the company you pay the government you pay somebody else to pay suppliers and whatever is left out of facets is called a residual equity or residual claim so the older can claim only after everybody else gets they call these predators ok so after all creditors get paid first the holder gets paid last whatever is left if there is money left he gets paid if there is no money he does it okay and of course the payment we call dividend okay now profit I will be explaining in the next lecture when business he can take all the president's spending or can they have the profit is a dividend and reinvest the other half in the business okay so when the business makes a profit two things happen part of it goes to the owner which is fans its cash in the other part goes in the business is it we call it really invest so that's the owners act in the owner's equity we call we like to call capital so this owner's equity is confusing because it's got three or four different names one it's called equity the other one is called owners and another name is called in another one is called owners so we just learn to use the words equity or we can use owners and of you co-owner can be proprietor can be shareholder can be stopped okay let's see what else we have this is a chart that you have to be careful to understand when an owner makes an investment it increases owners so owner's equity goes up when the owners makes an investment so investment means holder takes money out of his pocket 10,000 it puts it in the business the business equity goes by so business equity increases when the owners invest money out of their pockets into the business and holders equity increases and here's got a key revenue revenue is let me repeat from last time money received from customers for a good or service which is delivered so all those equity goes up when the customer gets a service or product okay if owners because and then holders equity goes down we say increases when the owner withdraw to withdraw means to take money out of the business and into the story so we draw is the opposite investment now the director for withdrawal is diligent dividend is the proper correct work okay or withdraw so withdrawal is reduction of capital missing equity same as capital reduction of capital because the business we say the word distributes distributes now we use the word capital distributes capital to yoga usually in the form of cash okay yoga doesn't want to take a chair oh right don't mistake - so the distribution that we draw most commonly is in the form of cash in the form of cash he will really take for example computer he may have a small business with the hotel the hotel has five computers he is not using one of the computers she can withdraw a computer and they could also his child can play games or his son is going to school and his computer so this is how a greedy is affected by investment withdraw revenue and now we get to expenses and this is a resource which you have look sacrifice or give in order to keep the business going the expense most common expenses and bluebies in the form of salary and wages okay this is the money which is paid to the employees another common expense i just an example is electricity you have to pay today most businesses have a very common expanse of fall businesses use telephones make money so this is the money that you pay to keep the business going okay there's gotta be some cleaning that's an expense the cleaning supply the soap that's an expense here is another example of an expensive this below tempo video it's a little expense okay so every time we write we use it up and then we throw it in the garbage okay it's good so this is also an expense another expense will be little things like water okay we consume some water whether in this is all expensive now you can begin to think about the expenses of this University it's got expenses about administration about bureaucracy expenses about security people who work is security okay expenses about cleaning expenses about making the new road maybe fixing the basketball court okay maybe making the new fitness room for exercise making a gym right expense maybe maintaining a swimming pool for the universe okay so all of this is the money which the business has to spend for other resources which has to spend in order to keep the business going okay so let's mention common sources of revenues our intervention money received for a good for service we call this sales we also have please okay you guys pay tuition and fees so tuition is also a type of revenue services for example a massage service okay that's a type of service sometimes it's a product with the service isn't a restaurant the restaurant will give you a meal which is food but it's also a service someone comes in and the food to you okay sometimes it's pure service like a movie theater okay that's the search but service is phone telephone service okay or Internet all service Commission's if you're charging your customers you so Commission could be a revenue when you charge the Commission and you get the money but Commission can be expense when somebody else is charging your commission in you pay a commission we still got a lot of people please you can talk after class okay it's recorded you can talk later interest is money pay for borrowed money in other words money they on a loan okay so interest could be interest revenue and interest expense if you lend money to somebody else they give you the money back with interest then interest is for you ready on the other hand for example you purchase well to do too much I just next time okay so interest can be expensed you buy a little motorcycle okay in the motorcycle can cost 40,000 and you pay 40 minutes one thousand eight or let's say twenty months two thousand eight but they will charge you a little bit more and they say oh but if you want to make twenty papers it's not going to be two thousand it's going to be two thousand two hundred and then two hundred each month your pay is called inches so instead of paying a total of forty thousand you're going to pay it over 44,000 40,000 which borrow is called principal in the poor extra thousand that you pay is called interest the interest if your paint is expensive the interest if you receive it is ready okay evidence is a little tricky is a little tricky but dividend if you invest come in your own shares and that company pays you dividend then it's a dividend rare okay which is very very different from the dividend we talked about here when the company pays out to its own this dividend is when one company owes another company okay in the other company pays a dividend to the first cup okay that's a dividend ready royalty is when a company gives somebody else the permission to use a particular trademark a particular brand name okay and finally a very common revenue is red and red is money big to use real estate real estate so you can use a garage and then you pay Greg it's a rent expense or if you own an apartment you give the apartment to somebody else when they pay you money you receive revenue and it's a friend relative so you can pay rent and it's a rent expense or you receive red it's red red in depend on coop cause the real state in who pays the rent okay expenses we say are the costs this is the cost of assets which are consumed so we consume now electricity we consume now this little ten okay when you talk to the volume to consume minutes converter so it is the cost the essence consume or services used example of a services used will be for example the university instead of hiring its own security guards it's using a security company in the security company provides security provides the cameras provides everything else an example of the service which is used this university uses like every other is internet service ok they take from the telecommunication company a service which has been internet service and they use Internet service and then they have separately in each room Wi-Fi for you to okay and this is here's the key to expensive expense is used in the process to make Revit so you have to generate read it's gotta be spent to make money this is what is well-known in America from hundreds of years ago where they say you gotta spend money to make money okay the spending money is called expense the make money is called ready okay so you gotta spend money to make money so expenses are about spending money in order to learn read learn is the same as what we like to use a call generate ready okay and the common expenses are salaries every business has employees you gotta make a salary salary is the money which is paid to employee for a period of time usually one month or one week one week or one month wage is when you pay a person for one hour of work or sometimes daily work okay very common I understand here in Thailand that you say oh you go in in the shop yourself whatever you sell shirts okay and we pay you a wage of 500 baht per day for 304 whatever - okay so if it says daily you call it daily wage so it's a four-hour our way they say with a 25 for you are 10 hours you get 200 can you work six hours you get 120 okay rent expense I already explained rent revenue which is the money you receive when you give realistic program this is the money you pay when you use realistic you also have utilities and I explained one activity is electricity another utility is water so water electricity is expense which business has a taxes taxes meaning money they buy the business - the government is considered what treaty deserve expenses and tax expense it is essentially expense for having the permission from the government Business Week in order to write it you gotta pay the government it's an expense so this is owner's equity okay and this piece here expenses explains this one here let's see where else we got the next piece is transaction and transaction is something we call it event something which happens event it's a business or economic now would something where something of value happens something earth fairy so it's a business's economic event which is recorded okay so if it's a transaction it must be recorded now there's got to be something happening I will give you well we will be covering in the next hour example of what a number of different exams transactions in how we report these so the transaction may be external okay when external transaction is customer comes orders a large 455 okay you now transaction goes two ways you deliver the lunch he pays your fifty okay so that's an example of a service okay but it could be internal internal is but the end of the month comes any kind of a salary click employee that's internal protection very important to understand not all transactions numbers of transactions we still have a lot of people talk those two and it tell those two over there which are too busy just keep talking every word so then we got a lot of people still just talking to each other okay I'm going to talk later you can talk all even all night so not all givenness representatives action so something can happen which is not necessarily a transaction and therefore there is no recording it happens but you don't record okay and I will give you all the Twitter's one or two of these something like hell you happen but not really example simple example rain coming out not a real transaction does not affect the business okay there's nothing real important that happened just because it's great so another example which I gave you last night is I'll repeat again your hire a new employee when you hire him there is no real transaction there is a transaction when you've hired him and give him a sign up bonus most it comes to work today in a given 1000 for beginning to work okay that's a transaction because you actually give him cash okay but usually when you hire somebody there is no real transaction until the end of the month when it actually itself so not everything so activity doesn't mean transaction activity something happens trans actually something happens and you must record so you need to differentiate between activity and transaction okay and I've been explaining a lot more in actually will be giving the example every transaction as jewel jewel means to has double effect or has two effects only accounting equation and I'll be providing more examples but I will just give you for example it may reuse one asset increase another asset for this means you can work one asset to another s example you spend ten thousand five and you buy computer okay you can work cash to laptop okay it's a single transaction of converting one hand to another so any type of purchase the purchase chair you reduce cash meaning you pay cash cash goes down she goes okay so that's an example one is a Jones now another asset goes you got all sorts possibilities I'll be explaining this in a minute or in the next so this is a basic question which we'll try to work is now explained here is which of the following events are recorded so which of these events is a transaction in which is not a transaction the more one supplies our purchase one account supplier or just on account let's explain this word on account all account means that you have a regular relationship with the seller we call it supplier you are a regular customer to the supply office and the supplier when she supplies you you don't pay cash you just puts it on the account okay means all the amount means it will get paid later again of the week or later again the month so all account means deliver it now okay that's what on account so supplies are purchased on account example University we'll buy 1000 of these pilots whiteboard markers okay so when the book score for quick : supplier delivers them universe is not going to pay in one minute right that's not going to happen meaning the good people it's a very good base this key will pay but they say you put it on our account of the end of the month we will pay because we're going to buy also this we're going to buy highlighters we're going to buy 10 or 20 so in the university makes 5 or 10 or 15 purchases during the month they're not going to make 15 payments okay they move add all the money spent in an end of the month they will pay that account ok your step got very simple right I mean they're gonna take 15 or 20 now was every time there is deliberate there is no immediate payment they put it on account and at the end of the month for me at the end of the week okay or the university may say or we will pay you every three months when we get to region line okay so when the university gets tuition it again it pays with it survive so is this a transaction yes so now oh praise here's how anything it's a transaction we gotta be reported nobody how many things it's not the transaction oh well three hands all the others the answer is yes it is a transaction it has to be record next example that employees hired in this particular case it is not a transaction okay nothing really there is no bonus thing nothing really happened there will be a transaction at the end of the month we'll actually a seven I think they already have it here you see supplies are purchased its transaction you must report then to the employee is high you don't quit now let's see older withdraws cash or personal use the withdrawal of cash for personal use to call David so older gets paid cash is this a transaction yes okay so we got people finally making up right yes it is a transaction because money goes out of the business yes next slide another discussion question let's see what's the discussion caller invested additional ten thousand Kings farms which is origins Kings account wherever pointed this receipt is increasing cash in red let's try this so the owner meaning the investor invests ten thousand in the business and cash goes up okay it is recorded as a regular so is this treatment appropriate and the answer is investment is not already it is not appropriate rate because investment is not part of the main line of business it is a transaction between the older and the business so when did an estate it is not really an expense it's not part of the main operation of the business and an investment is not part so when you have these transactions let me go back a few screens over here okay so revenue is separate from invest okay it increases the equity but it's set so when they have a revenue you don't count this investment whatever investment doesn't count is already saying did does not count this expense okay an expense does not count this video okay so dividend is different from expense okay an investment is different from random important to understand time to take the little break let's see what else we have ha transaction problem we take a break here and in the next hour we complete the food from okay 10-minute break

Channel: Krassimir Petrov

Views: 68,824

Rating: 4.8868685 out of 5

Keywords: assets, liabilities, owner's equity, cash, supplies, equipment, furniture, creditors, accounts payable, notes payable, ownership, capital, investment, drawing, capital drawing, revenue, expense, fee, commission, interest, interest revenue, interest expense, dividend, royalty, rent, rent revenue, rent expense, salary, wage, taxes, tax expense, transaction, event, activity, dual effect, accounting equation, account, on account, cash withdrawal

Id: A1H4g6p99Xk

Length: 40min 12sec (2412 seconds)

Published: Tue Jun 11 2013