Now the next transaction, I'm again going to start with the cash.
But we're going to credit the cash, because it's gone out of the company.
So, our cash goes down by $130,000 and
our accounts payable also goes down by $130,000.
Notice in this entry, the size of the company actually changes.
Our assets get smaller by $130,000 and
our liabilities get smaller by $130,000.
So, we're shrinking the company by moving those resources outside of the company.
Let's put them in the T accounts.
Now, you can see our cash T accounts starting to get more and
more detail in it.
We're going to need to add that 120,000.
Since it was a debit, it goes on the left.
Our accounts receivable T account is going to be credited by $120,000.
So, that goes on the right.
Now when we move onto the second transaction,
we're still going to use the cash T account and that was a credit.
So, we put that 130,000 on the right and we're going to need
to put the debit of 130,000 on the left of the accounts payable balance.
Now, we're ready to move onto the ext transaction.
We've hit the end of the month, it's the last day of work in January.
As your employees head out the door, they say, hey,
boss, don't forget, tomorrow is pay day, you owe us $5,000.
Now they wouldn't really do that, but
remember I'm trying to show you these externally generated transactions.
And so, something has to have happened to make you think of it.
Otherwise, this would go in those adjusted entries and
I just thought it would easier to have it here at this time.
So you've gotten to the end of the month and you think about this and say,
let me analyze it.
What's happened?
Those employees worked all month, what did they do?
Well, they moved the books around.
So, they would be where the customers want them.
Maybe when a customer came in,
they talked with the customers about what books they should buy, etc.
Whatever value we were going to get out of what they did this month is done.
They weren't building anything new or created anything for the future.
So, all $5,000 that we owe them is leaving the firm as an expense.
We know that we've used up $5,000 of value during this month.
What's the other side of it?
Well, we haven't paid it yet.
So, we owe them.
So, we're also going to reflect the fact that we owe somebody some money.
Let's go ahead and do that journal entry.
We'll start with the wage expense.
It's a debit balance like any other expense, reflecting the fact that values
gone out of the company and then we've got wages payable like our other liabilities.
An increase in the liability is a credit balance of $5,000.
Take a look at this journal entry.
Notice there is no cash that occurred, but
we've still reflected the fact that values has been used up by the company.
Let's go ahead and put this in T accounts now.
Notice our wages payable account didn't had anything in it.
In our journal entry, we credited wages payable.
So, that's going to go on the right-hand side of T account.
Now, I'm going to use just one expense account.
We could have a separate expense account for cost of goods sold, for wage, etc.
But to make this easier when we get into one of the later videos,
we're just going to accumulate all the expenses in one T account.
So, we had a $5,000 debit to the expense.
That means that is goes on the left-hand side, adding more to the activity and
the expense T account.
Just one more transaction and we're done with this video.
At the end of the period, we took a look at everything that had gone on.
And we said, hey, we think we can pay a dividend to our shareholders.
What does this do as far as impacting the company?
That is how do we analyze this?
Well, we no longer have cash and we've returned some value to our shareholders.
So, we know we're down cash.
And if we think about what's happened here, we didn't use up value to create
a sale, rather we just gave something back to our shareholders.
So, we haven't really created an expense.
We've just impacted where we stand right now.
Let's do the journal entry and maybe that will make it clearer.
As always, let's start with the cash part.
Since the cash is left, we're going to credit the cash account for $12,000.
Now, what's the other side of that entry?
Well, we're going to put that toward retained earnings.
Basically, what we're saying is we're giving a portion of the earnings
we've made this period back to the shareholders.
Since they really own the company, we're no longer going to retain those earnings.
That's why we are going to debit this.
Remember, equity accounts normally have a credit balance.
The debit here is saying, we're taking out some of the earnings that we've made and
taking those out of the company.
If that's not entirely clear, that's okay.
Because there is an entire video that's going to cover that for you.
From the journal entry standpoint, we're all set now.
We've credited cash.
We've debited retained earnings.
How do we put those into T accounts?
Well, we've got that cash T account.
Notice there's been an awful lot of activity in there.