Introdução à Contabilidade Financeira - 1.3.2 - Escrituração de débito e crédito II

hello I'm Professor Brian bue welcome to the second part of our debit and credit Extravaganza in the last video we introduced a lot of terminology and Concepts and in this video we're going to practice applying those I'm gonna I'm going to start with a series of examples to help review the key Concepts from last video and then we'll move on to practice doing journal entry so that we get used to writing things using this debit and credit language let's get started okay let's reinforce everything that we've learned with a series of four examples in the

first example we're going to increase an asset and then increase either a liability or equity in this case we receive $100 cash from a bank loan the accounts involved are cash and notes payable both of which increase by $100 on the balance sheet equation we would see that assets would go up by 100 that's the cash liabilities would go up by 100 that's the note payable or obligation of the bank and Equity is unchanged for the journal entry first we need cash to go up by 100 cash is an asset assets are debit accounts so

we would debit cash to get it to go up by 100 and what I'll do is I'll put in parenthesis plus a to indicate that this debit is increasing the cash account we're going to credit notes payable for 100 notes payable is a liability liabilities are credit accounts so we increase a credit account with a credit entry if we looked at this with t accounts we would have a cash t account which would have an entry on the debit side a notes payable t account which would have an entry on the credit side if we

did a balance sheet equation sort of drew a line added up the balance in each account our balance sheet would balance we'd have cash of 100 on the asset side liabilities of 100 on the liability and Equity side with no shareholders Equity another example now let's look at decreasing an asset and decreasing a liability or owner Equity account so here we're going to repay $20 of a bank loan so the accounts involved are cash and notes payable both are going down by 20 on the balance sheet equation we would see assets go down by 20

that's the cash liabilities going down by 20 that's notes payable and there's no effect on equity for the journal entry we're going to debit notes payable for 20 we need a liability to go down liabilities have credit balances we reduce a credit balance with a debit debit know payable 20 then we're going to credit cash for 20 cash is an asset assets are debit balances we reduce a debit balance accounts with with the credit so a credit to cash for 20 will reduce it and notice I have minus L and minus a in parenthesis to

indicate that these two are both reducing liabilities and assets for T accounts we would have a credit entry in the cash te account a debit entry in the notes payable te account if we drew uh line for the balance in each our balance in cash is 80 on the debit side balance in notes payable is 80 on the credit side our balance sheet equation would balance where we have 80 of cash 80 of notes payable and no stockholders Equity okay okay I know we're not off to a rousing start but just two more examples and

then we'll do some journal entry practice next example let's look at in increasing one asset and decreasing another asset the example transaction is that we pay $10 in cash for inventory the accounts involved here are cash and inventory and cash is going down by 10 inventory is going up by 10 our balance sheet equation would look like this all the actions on the left hand side where we have one asset going down and one asset going up by the same amount so they cancel for the journal entry we need inventory to go up inventory is

an asset so we debit inventory by 10 to make it go up by 10 we need cash to go down cash is a asset you make a debit balance asset account go down with a credit so we credit cash for 10 in terms of the T accounts we would have another credit to cash of 10 we would put a inventory te account with a debit balance of 10 if we drew lines and added up the balances we've got 70 in cash and 10 in inventory on the left hand side so that's 80 of assets we

have 80 of liabilities in the notes payable no stockholders Equity our balance sheets balanced and our debits equal our credits final example we're going to increase a liability or equity and then decrease another liability or Equity so in this case we're going to issue $80 in common stock to pay off the bank loan so the two accounts are common stock and notes payable common stock is a stock L's Equity account going up by 80 the bank loans of liability going down by 80 in the balance sheet equation we'd have nothing on the asset side liabilities

would go down for paying off the bank loan Equity would go up for issuing the common stock for the journal entry we want to debit notes payable for 80 because notes payable is a liability that we want to reduce liabilities have credit balances we reduce them with a debit so debit notes payable we want common stock to increase common stock is an equity account which has a credit balance we increase a credit balance account with a credit so credit common stock to increase stock holders Equity by 80 and then with our T accounts we would

have a reduction of 80 to notes payable the reduction being a debit an increase to common stock of 80 with the increase being a credit if we drew lines and came up with the totals we'd have 70 in cash 10 in inventory that's 80 on the asset side we have no notes payable it goes to zero because we fully paid it off and a balance in common stock of 80 so our assets equal our liability plus stockers Equity balance sheet balances debits equal credits so let's practice some journal entries it be the same procedure that

we've used in other videos where I'll give you a transaction put up the pause sign so that you can pause if you want to give it a shot then I'll give you the answer and we'll talk through how we got it here's the first one boc issues 10,000 shares of $5 Power Value stock for $15 of cash per share in this transaction we're receiving cash cash is going to increase and we're going to increase common stock accounts cash is an asset we make cash go up with a debit so we're going to debit cash the

dollar amount is $150,000 which is $15 cash times 10,000 shares we need the common stock accounts to also go up by 150,000 but we have to split it between the par value and the additional pay in capital so we're going to credit common stock at par for $50,000 which is $5 par value times 10,000 shares and then we'll credit additional paid in capital for the rest which is $100,000 so now we have 150,000 of debits 150,000 of credits we're in balance and we've done the journal entry correctly whoa you can have more that one credit

in a journal and could you also have more than one debit and what is this all session with power value yes you can have more than one credit you can have more than one debit the only requirement is that your debits equal your credits within the journal entry and yes accounting professors are obsessed with par value it's one of those difficult things that you can only come to a trained professional like me to understand so you're going to see it a lot Bo acquires a building costing $500,000 it pays $80,000 cash and assumes a long-term

mortgage for the balance of the purchase price the accounts involved in this transaction are buildings which are going up cash which is going down and mortgage payable which is going up it's a liability that's increasing as we take out the mortgage so starting with buildings they're going up buildings are an asset so we debit buildings by 500,000 to increase the asset we want cash to go down cash is an asset cash has a debit balance so to make it go down we need to credit it we credit cash for $80,000 to reduce that asset and

then mortgage payables a liability has a credit balance we want to increase it so we're going to credit mortgage payable to increase the liability we're not given the amount but we know it has to be 420,000 because we know our debits have to equal our credits once we credit mortgage payable for 420,000 we have 500,000 of debits 500,000 of credits and we're in Balance Bo obtains a three-year fire insurance policy and pays the $3,000 premium in advance in this transaction we're getting fire insurance coverage for three years that's an asset that we're going to call

prepaid insurance and it's going up we're paying cash so cash is going down so starting with the prepaid insurance it's an asset we make an asset go up through a debit so we debit prepaid insurance for 3,000 cash is an asset also but it's going down so to make cash go down we credit cash to reduce the asset by 3,000 Bo acquires on account office supplies costing 20,000 and merchandise inventory costing 35,000 [Music] in this transaction we're acquiring office supplies and inventory both of those are assets so we're going to make them go up with

debits so we debit office supplies to increase that asset by 20,000 we debit inventory to increase that asset by 35,000 now we're not paying any cash instead we owe our supplier $55,000 because we got the stuff on account when we owe money to our suppli buyer it's a liability called accounts payable that's increasing we make a liability increase through a credit so we credit accounts payable for 55,000 so we have 55,000 of debits 55,000 of credits and we're in Balance next boc pays $22,000 to its suppliers in this transaction we're paying our suppliers which reduces

how much we owe them which is going to reduce accounts payable and since we're paying cash it's going to reduce cash as well accounts payable is a liability it has a credit balance if we want to reduce it we need a debit so we debit accounts payable 22,000 cash of course has a debit balance if we want to reduce it we credit cash for 22,000 and this by the way is the journal entry you're going to do anytime that you pay cash to reduce a liability debit the liability to reduce it credit cash to reduce

it Bo exchanges a building valued on the books at $200,000 for piece of undeveloped land in this transaction we're trading one asset for another asset we're getting land land is going to go up so to make land go up we debit land 200 100,000 we're getting rid of a building building is going down building is an asset we make make a asset go down with a credit so we credit building 200,000 how do you know that the land is worth $200,000 given the information we have we have to assume the land is worth $200,000 so

our debits equal our credits and the Assumption makes sense because if we're giving up a $200,000 building and just getting land the two value should be equal now later on in the course we'll look at situations where they're not equal and we end up having a gain or loss in the transaction but that's for another day boc retires 1 million of debt by issuing a h 100,000 shares of $5 Power Value stock in this transaction we're reducing a liability anytime we reduce a liability we need to debit the liability to make it go down so

we debit notes payable for a million dollars to reduce it by a million now we need to increase stockholders Equity by a million but we have to split it into the common stock and the additional paid in capital so common stock at par goes up by the par value so we credit common stock to make the stockers Equity go up for $500,000 which is $100,000 shares times $5 par value then we credit additional paid in capital to make that stockholder Equity account increase and we know the amount has to be $500,000 because we know our

debits have to equal our [Music] credits sorry I'm going to make you do par value a lot get over it boc receives an order for $6,000 of merchandise to be shipped next month the customer pays $600 at the time of placing the order in this transaction we're receiving $600 cash and anytime we receive cash we debit cash to increase the asset so we debit cash 600 we're also getting an obligation here because now we either owe the customer $600 back or we have to deliver the merchandise so we're going to create a liability called advances

from customers so we credit advances from customers to increase the liability for $600 what about the $6,000 of merchandise we ordered don't we have to account for that no we only account for the $600 because that's the only part where there's been a transaction exchange because we receive $600 cash for the other $5,400 that's all future stuff that's all promises we don't have a liability yet because there's no obligation that's based on benefits or services that we've received not until we exchange cash goods or services equal to 5400 in the future will we have to

record that part of the transaction finally boc declares and pays $8,000 of cash dividends let's start with cash in this transaction so cash is going down by 8,000 anytime cash goes down we credit cash to reduce the assets so we credit cash for 8,000 so now we know we're looking for a debit the other part of the transaction is dividends we're paying dividends now remember Dividends are a reduction in retained earnings retained earnings are a stockholders Equity account stockholders Equity accounts have credit balances so we reduce them with a debit so we reflect the dividend

by debiting retained earnings for $88,000 that was a lot of good practice at taking transactions and trying to represent them as journal entries using debits and credits you're going to get a lot more practice starting next video we're going to do an extended case that follows a startup company all the way through it first transactions to its uh first set of financial statements and along the way you're going to get a lot of practice doing journal entries and see a lot more debits and credits I'll see you then see you next video