When dealing with two different types of revenues (say profit from the sale of inventory, and revenue from your labors), you'll need to account for these two types of revenue separately. How are these events recorded to balance the accounting equation?
- Okay, now one of your customers asks…if you'll plant some shrubs in her backyard.…She's thrilled that you have just the shrubs that she wants,…thereby saving her a trip to the greenhouse.…You use one half of your inventory of shrubs…in this customer's yard…and it takes you three hours to complete the job.…She pays you in cash.…In this instance we are dealing with…two different types of revenue,…profit from the sale of the shrubs…and revenue from your labors.…Let's deal with each type of revenue separately.…First, the sale of the shrubs.…
Sales, whether made on account or for cash,…require entries that reflect not only the sale,…but also the cost of the inventory that's sold.…The cost of goods sold is an expense…and as such, is offset with the sales revenue…to determine to the profitability of the sales transactions.…While accounting for inventory can get quite complicated.…For our purposes, we're just trying to illustrate…the effects of these transactions…on the accounting equation.…Now, in this example you charged your customer $90…
- 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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