Intro to Recording Accounting Transactions (DR_CR) (1).txt...

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Unformatted text preview: Intro to Recording Accounting Transactions (DR/CR) 00:00:00 Welcome to Accounting 101. 00:00:03 Today's topic is Recording Transactions using Debits and Credits. 00:00:07 My name is Samreen Manjra, and I am a certified public accountant. 00:00:12 Accounting is about organizing, recording, presenting, and analyzing financial information. 00:00:18 We first start with the basic accounting equation, which is assets = liabilities + equity. 00:00:26 Assets are the resources a company owns, such as cash, inventory, computers, and buildings. 00:00:34 Liabilities are the amounts owed to others, including the bills the company has to pay, which is referred to as accounts payable, as well as any loans are notes payable. 00:00:47 Equity represents the owner's claim to the business, which can be further broken down into common stock and retained earnings. 00:00:56 Retained earnings includes the total prior and current revenues earned minus expenses incurred and minus dividends paid. 00:01:07 We utilize the accounting concept of debits and credits in order to create journal entries. 00:01:14 Journalizing is the process of recording accounting transactions. 00:01:19 When we increase one side of accounting equation, we would also increase the other side. 00:01:26 When we increase assets, we will debit an asset account. 00:01:30 When we increase liabilities, we will credit a liability account. 00:01:35 When we increase equity, we will credit an equity account. 00:01:40 For example, on April 1st, Company A obtains $10,000 cash by obtaining a loan. 00:01:48 Since the company's cash balance increased by $10,000, we would debit cash, which is an asset account. 00:01:56 In order to obtain that loan, the company increased its liabilities by $10,000. 00:02:02 Therefore, we would credit notes payable. 00:02:05 Please note that when we depict this transaction in the accounting equation, it balances out. 00:02:12 The journal entry starts by recording April 1st, the date of the transaction, on the left side. 00:02:19 We will debit the cash account, and this is written first in the account description column. 00:02:26 The $10,000 amount is included in the debit column. 00:02:31 Then we will credit the notes payable account. 00:02:34 The $10,000 liability amount is included in the credit column. 00:02:40 A short description is provided underneath. 00:02:43 The journal entry format includes the debit account name and amount written on the left side of each column, and the credit account name and amount written on the right side of each column. 00:02:59 How do we know whether to debit or credit an account? 00:03:04 This question brings us back to the accounting equation. 00:03:08 When we increase our assets, this means that we are also increasing our liabilities or equity. 00:03:15 Therefore, when we increase an asset, this is a debit. 00:03:19 A liability account or an equity account would have a credit. 00:03:25 When our assets are decreasing, we credit the asset account and debit either the liability account or the equity account. 00:03:36 As previously discussed, equity consists of common stock and retained earnings. 00:03:41 Therefore, we have to think about the impact of the transaction to the equity account as a whole. 00:03:47 An increase in common stock or revenues increases equity, therefore is a credit. 00:03:54 An increase in expenses or dividends decreases equity, therefore is a debit. 00:04:00 The opposite relationships hold true for decreases in equity. 00:04:05 Here is another example. 00:04:07 On April 5th, Company A buys $4,000 of inventory on account. 00:04:13 And on April 10th, the company pays the suppliers the $4,000 owed. 00:04:18 We start the journal entry by recording the April 5th transaction date. 00:04:23 We debit the inventory account because there's a $4,000 increase in assets. 00:04:28 And credit the accounts payable liability account because we owe money to the supplier. 00:04:33 If the supplier is paid on April 10th, we would debit accounts payable since we decrease our liability and credit cash. 00:04:42 Now that we have discussed the basic debit and credit concepts, my recommendation is to practice applying the concepts and preparing journal entries. 00:04:51 Please post any questions or comments you may have. 00:04:54 And thank you for taking the time to view this video. 00:04:58 Created using PowToon. cielo24 | what’s in your video? | cielo24.com...
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