When buying supplies and inventory, the journal entries recognize that you are trading one asset for another. You have less cash. That requires a credit to the cash account. And you have more inventory, which is an asset, increases with a debit.
- [Instructor] You're 18 again, … and you want to work outdoors and set your own schedule. … So let's start our own landscaping business. … Next, you drive to the local lawn and garden store … and purchase a lawnmower and a gas can for $250. … Instead of paying for the mower with cash, … you open a charge account, which will allow you to pay … for the mower in 30 days with no interest charge. … Beyond this 30 day grace period … an interest charge is going to apply. … The journal entry to record this purchase shown here. … We increase our asset, equipment, … and assets as we know, are increased with debits. … We also increase our liability, accounts payable. … And we know that liabilities increase with credits. … Thus, debits equal credits. … And as a result, we know … that the accounting equation is going to balance. … The accounting equation you can see here. … Now, when you eventually pay for the mower, … cash will be reduced and the liability, accounts payable, … will also be reduced, thus keeping the equation in balance. …
- Reviewing financial statements
- Analyzing transactions
- Categorizing transactions
- Obtaining financing and buying equipment
- How revenue and expenses fit in the accounting equation
- Recording the sale of goods or services
- Posting journal entries to accounts
- The accounting cycle: step by step
Skill Level Beginner
1. Review of the Financial Statements
2. Fours Steps in the Bookkeeping Process
3. How Transactions Affect the Accounting Equation
4. The General Ledger
5. Illustration of the First Three Steps in the Accounting Cycle
The role of computers3m 44s
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