Introduction of Recording Transaction Video Lecture - Commerce

Welcome to Accounting 101
Today's topic is recording transactions using Debits and Credits
My name is Samreen Manjra and I am a Certified Public Accountant
Accounting is about organizing, recording, presenting, and
analyzing financial information. We
first start with the basic accounting
equation, which is assets equals liabilities
plus equity. Assets are the resources a company
owns such as cash, inventory,
computers and buildings. Liabilities are the amounts owed
to others including the bills the company
has to pay,
which is referred to as accounts payable
as well any loans, or notes payable.
Equity represents the owners claim to the
business
which can be further broken-down into
common stock and retained earnings.
Retained earnings
includes a total prior and current revenues earned,
minus expenses incurred and minus
dividends paid. We utilize the accounting
concepts of debits and credits in order to create
journal entries. Journalizing is the
process of
recording accounting transactions. When
we
increase one side of the accounting equation,
we would also increase the other side.
When we increase assets, we would debit an asset account.
When we increase liabilities, we will credit
a liability account. When we increase
equity
we will credit an equity account. For
example, on April 1,
Company A obtains
ten thousand dollars cash by obtaining a loan.
Since the Company's cash balance increased by
ten thousand dollars,
we would debit, cash which is an asset account. In
order to obtain that loan,
the company increased its liabilities by
ten thousand dollars
therefore, we would credit notes payable.
please note that when we depict this
transaction
in the accounting equation, it balances out.
The journal entry starts by recording April 1st,
the date of the transactions, on the left side.
We will debit the cash account and this is written
first in the account description column.
The thousand-dollar amount is now is
included in the debit column.
Then we will credit the notes payable account.
The thousand-dollar liability
amount is included in the credit column.
A short description is provided underneath. The journal entry format includes the
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.
How do we know whether to debit or credit an account?
this question brings us back to the
accounting equation.
When we increase out assets, this means we are
also increasing our liabilities or equity.
Therefore, when we increase an asset,
this is a debit. A liability
account or an equity account would have a
credit.
When assets are decreasing,
we credit the asset account and debit
either the liability account or
equity account. As previously discussed,
equity consists of common stock and retained earnings,
therefore, we have to think about the impacts of the transactions
to the equity account as a whole.
An increase in common stock
or revenues increases equity, therefore
is a credit. An increase in expenses or dividends
decreases equity, therefore is a debit.
Theopposite relationships hold
true for for decreases
in equity. Here is another example
On April 5, Company A buys
four thousand dollars of inventory
on account and on April 10
the company pays the suppliers the four
thousand dollars owed.
We start the journal entry by recording
the April 5th transaction.
We debit the inventory account
because there's a four thousand dollar
increase in assets and credit the
accounts payable liability account because we
owe money to the supplier. If the supplier is paid on April 10th,
we would debit Accounts payable since we decrease our liability,
and credit cash work. Now that we have discussed
the basic
debit and credit concept, my recommendation is to
practice applying the concepts and
preparing journal entries.
Please post any questions or comments
you may have and thank you for taking
the time to view this video!