QuickBooks Bookkeeping Basics

Welcome back to educator.com. This is Bookkeeping Basics.0000

Accounting 1 on 1. All you need to know to use QuickBooks.0004

Now, the thing that we need to do with accounting or in QuickBooks is, we need to understand a little bit about the basics of accounting equation.0008

Everything starts off with this: assets equal liabilities plus equity.0018

So, it is a little equation that you need to understand.0023

That all of our assets are the same or equal to our liabilities less equity.0026

Or in the reverse we can actually sit there and say our assets minus our liabilities will equal our equity.0033

Well, let us not get ahead of ourselves.0042

What this means is that left side must always equal the right side.0045

We must always be in balance when are dealing with accounting. Everything has to be in a balance.0048

So, if we have a $1000 in assets we may have $1000 in equity. So, that would be in balance0054

If we have $1000 in cash therefore we have a $1000 in equity.0061

If we have a $1000 vehicle and a loan or liability of $1000 is still in balance.0067

So, assets. An asset is something that is valuable.0075

And we benefit from or have use of that particular asset to generate income.0080

So, an asset truly is a tool that we can use to generate income.0085

A vehicle, a truck, cash, money. Those are all assets.0092

It is something that an entity has enquired or purchased.0098

And that has money value, its cost or book value, market value or residual value.0101

An asset can be something physical such as cash machinery, inventory, land and building.0106

An enforceable claim against others such as accounts receivable. People owe us money.0113

Or a write such as copyright, a patent, trademark or an assumption such as goodwill.0119

We assume that there is goodwill to the name Coca-Cola and there is value just in that name alone.0126

So, it assists us in generating an income.0135

Liabilities. What is a liability?0139

Is a claim against the assets or legal obligations or a person or an organization.0141

Arising out of past or current transactions or actions.0148

For instance, if we buy a truck and we get a loan for it.0151

Therefore that transaction creates a liability.0155

Liabilities require mandatory transfer of assets or provisions of services.0157

That specific dates or undeterminable feature.0164

Accounts and wage payable. Account is payable or the wage is payable.0168

Accrued rent and taxes. These are all liabilities.0172

Trade debt or short term or long term loans.0178

Owners equity is also turn as a liability because it is an obligation that the company has to its owners.0181

So, a liability is something you own.0188

Equity is the ownership or interest or claim of a holder of common stock or shares.0192

And some types are preferred stock or preferred shares.0199

At a company on a balance sheet equity represents funds contributed by the owners or stockholders.0201

Plus retain earnings or minus the accumulated losses.0208

So, equity truly it includes our income and expenses less equity.0213

The net value of our income less our expenses is part of equity. It goes into that.0219

Net worth of a person or a company is computed by subtracting the total liabilities from the total assets.0225

So, our total assets minus our total liabilities give us our equity.0230

Equity represents members, investment plus retain earnings or minus losses.0236

So, an asset minus liabilities equals equity.0241

Debit versus credit. We have always heard these things.0248

The T account. What is this?0253

Let us understand what a debit is and a credit is.0255

Now, to understand this let us think about how your bank works.0261

You have a bank account with Joe bank.0264

So, we are going to show you how your bank account works.0269

And how your books and check register works in relationship to that.0271

So, the T account. Let us look at that. It is called the T account.0275

On one side is debit which is the left side and on the right side is the credit column.0279

So, the right side versus left side.0284

Left side is debit. Right side is credit.0287

And what you do on the left must equal what you do on the right.0290

Everything needs to be in balance like a scale, if you notice.0293

Debit and credit. How your bank treats your account.0301

When you make a deposit your paycheck you get a $1000.0308

You debit on the left side your check. They will take your cash and they will debit their cash.0313

Now, they have your cash -- $1000 -- they put it and they debit their cash.0321

But at the same time they will record a liability on the right side your account number.0326

So, they are going to do cash and there is going to be a credit on the other side there.0336

So, they will debit the $1000 in their cash and credit a $1000 in their liability to you.0345

So, whenever you put money into your bank account the bank owes you money.0355

Therefore you are a liability to the bank. They look at you as a liability.0360

Whatever your bank account is they owe you that money.0365

But, on the reverse side how do you handle the same thing?0368

Well, when you get your income you are going to record your income as a credit and you are going to debit your bank account.0371

Wait a minute. I have been going through up my entire life.0381

So, the bank it is going to credit my account by my deposit.0386

What does that mean? Well in their books you are a liability.0389

But in your books it is an asset so therefore it is a debit.0392

So, you are going to debit your bank while the actual bank it is going to credit a liability that they owe to you.0396

Ok? So, now you are an asset.0405

And your income you are going to credit that $1000 of income.0410

So, you are going to credit income and record income to your business that you have made money or your paycheck.0414

You are going to say I have got income, your wage income.0421

And I am going to debit my bank account to show that I have increased my bank account by $1000.0424

But, to the bank you are a liability.0431

Now, the most important thing here next is your chart of accounts.0433

The balance sheet accounts and income statements. What are all these?0437

The balance sheet accounts, assets, liabilities and equity?0441

Assets such as cash that counts receivable.0447

Current assets like inventory. Fixed assets like the truck, machinery.0451

There are liabilities. What are liabilities? Accounts payable.0460

What is an Accounts Payable? Accounts Payable are things like we owe money to our cell bill.0464

We get an invoice in the mail. We owe them money but we are not going to pay it right away.0470

We will put it in as an Accounts Payable to be paid in a short term later.0475

The short term liabilities. Maybe we have a short term loan that is due in 6 months.0480

There is payroll liabilities.0484

And we owe the federal government there the taxes that we even hold or credit cards.0486

We might pay that within a year.0491

Long term liabilities. We might have a car or a loan that is due in 3 or 5 years.0494

There is a mortgage or just 30 year mortgage.0498

Now, we look at equity. What is equity?0502

Well, it is capital. What we invest in our business.0504

What we put in. That is capital.0507

Our owners contribution is capital.0509

There is retain earnings. What is retain earnings?0512

That is our net income. That is our income minus our expenses.0514

That is over a period of time when we have left in the business.0520

We create and retain onto those earnings. We retain them.0523

Our net income flows into the income statement. Flows from the income statement.0527

Our income less our expenses. Retain earnings is our previous years of earnings or loss.0531

And then we have retained and our net income is our current income for that current year.0537

Part of the income statement of course or income statement or our income which could be sales and products and services.0546

Our cost to good sold is part of our income. It is our product less the cost of that product.0553

So, it is our inventory cost purchased price of the item sold.0562

Then we have our expenses, advertising cost, auto, bank charges, and payroll expenses.0566

Payroll which could be wages. Payroll taxes, employer like in state an unemployment insurance.0575

And there is our insurance costs etc. There is many different types of expenses that we have.0583

So, an income statement is our income minus our expenses equals net income or loss. Hopefully it is an income.0589

Now, our net income figure flows to the balance sheet.0601

Under the equity section is net income for the current year.0605

And then the following year that net income value just changes name to retain earnings.0610

That is our basics in bookkeeping basics.0618

Thanks for visiting educator.com. We will see you next time.0622