馃攳
Accounting Equation; Retained Earnings; Net Income; Dividends - video - YouTube
Channel: Dr. Brian Routh
[9]
So this is part 2 in our series of
introduction to financial
[15]
accounting, and in this part we're going
to be specifically talking about the
[20]
accounting equation. So first let's look
at the actual accounting equation. So
[28]
we're going to start with assets, and
we'll talk about these in detail here in
[32]
just a second. So this is the actual
equation assets are equal to liabilities
[38]
plus owner's equity. Assets can be
defined as economic resources or future
[48]
economic benefits. So let's look at some
examples of assets. These are some common
[55]
examples cash, accounts receivable
inventory, equipment and land. Most of
[66]
those probably sound pretty familiar to
you. Maybe accounts receivable may be a
[71]
little bit new to you.
Accounts receivable is when you sell
[75]
something or perform a service and the
customer doesn't pay you immediately so
[81]
they owe you that money.
That's called an account receivable when
[85]
you are owed the money for performing a
service or selling a product. Now think
[91]
about the definition of assets we called
it a future economic benefit. Cash seems
[97]
to be the more difficult one for
students to understand how that's a
[100]
future economic benefit because I've got
the cash in my hand right now. But the
[106]
cash isn't really doing anything until I
pay a bill or purchase some inventory
[111]
with it. Therefore it becomes a benefit
when I use it
[116]
therefore cash in hand is a future
economic benefit. So the second part of
[124]
our equation is liabilities. Liabilities
is defined as creditors claims on our
[130]
assets again notice the equation.
Assets equal liabilities plus owner's
[135]
equity. So this is the creditors part of
our assets more commonly known as our
[142]
debt. Some examples of liabilities would
be accounts payable, salaries payable,
[149]
rent payable, utilities payable, and notes
payable. Notice a common theme there the
[158]
word payable. So anytime you see the word
payable that means you owe something to
[164]
someone. The other side of the equation
is owner's equity. This is the owners
[173]
claims on the assets, and it is made up
of for our purposes right now we're
[178]
going to specifically talk about two
things it's made up of stock and
[183]
retained earnings. Now most of you know
what stock is and later on we'll be
[189]
talking about another form of stock
other than common. But what I want to
[193]
focus on really quickly is retained
earnings, and what that is. Retained
[198]
earnings are earnings that a company
retains and does not pay out in the form
[204]
of dividends. So therefore retained
earnings is affected by net income and
[212]
dividends. Net income will make retained
earnings go up and dividends would make
[219]
retained earnings go down. So that's very
important at this point in the
[225]
discussion that you understand that. So
let's look at a little practice with our
[232]
accounting equation. So let's remember
our accounting equation is assets equal
[239]
liabilities plus owner's equity. So the
first example let's look at cougar
[246]
rentals. So in this case we don't know
our assets, but we know liabilities and
[251]
owner's equity. Can you find assets? Sure!
Very simple equation assets which we
[259]
don't know that's our unknown is equal
to 60,000 dollars in liabilities plus
[265]
$21,000 in owner's
equity. That makes our assets equal to
[272]
$81,000, and we'll look at Washington
photo. In this case we don't know
[277]
liabilities but we know assets and we
know owner's equity. So a simple moving
[284]
around of the equation, I can find
liabilities. And then we'll look at
[291]
Portland Nautilus. We know assets are a
$100,000, liabilities are $79,000,
[297]
but I don't know owner's
equity. Can I find owner's equity? Sure.
[303]
Again we'll move the equation around and
locate owner's equity. So try that right
[310]
now.
Try Washington photo and Portland
[312]
Nautilus and see what you get. So again
we found $81,000 for cougar
[321]
rentals. You should have gotten $32,000
for Washington photo, and $21,000 for
[332]
Portland Nautilus. Now here's a little
more complicated example. So what I'd
[342]
like you to do is pause the video here,
work on this example, and then come back.
[348]
And we'll review it together. So I hope
that you have worked this problem out
[356]
you paused the video and now you've
you're back to see how you did. So we'll
[362]
take a look at this Ruth's landscaping
started 2007 with total assets of
[366]
$22,000 and total liabilities of $10,000. At the end of 2007,
[373]
Ruth's total assets stood at $30,000 and total liabilities
[377]
were $14,000. Did
stockholders equity of Ruth's
[381]
landscaping increase or decrease during
2007 and by how much?
[386]
So the first thing you should have
started with is your accounting equation.
[390]
You should have set it up assets equal
liabilities plus owner's equity. Now they
[395]
tell me a little bit of beginning and
they tell me a little bit of ending. So
[399]
you should have labeled
everything so we'll start with beginning
[402]
and we end with our ending. So they tell
me my beginning assets for $22,000 and my
[408]
beginning liabilities or $10,000. So again
I'm just filling in my equation. They
[414]
tell me my ending assets for $30,000 and
my ending liabilities were $14,000. Were
[421]
you able to find your beginning owner's
equity and your ending owner's equity?
[426]
Just like we did before beginning
owner's equity is $22,000 in assets is
[434]
equal to $10,000 in liabilities plus
something. That something must be $12,000.
[441]
If we rearrange the equation where
owner's equity is equal to assets minus
[447]
liabilities. So $12,000 is equal to $22,000
minus $10,000. Now were you able to find
[456]
ending owner's equity? Again something is
equal to $30,000 dollars in assets minus
[464]
$14,000 in liabilities. Again just moving
my equation around a little bit
[469]
algebraically. You should have got ending
owner's equity of $16,000. Now that's not
[476]
the answer to the question. The question
is wanting to know how to donors equity
[479]
change during 2007? Well we started with
$12,000 in owner's equity and we ended
[486]
with $16,000 in owner's equity. That's a
$4,000 increase in owner's
[492]
equity. Now I'd like for you to think how
or what could have made owner's equity
[502]
change? So identify two possible reasons
for this $4,000 increase
[508]
in owner's equity or stockholders equity
during the year.
[516]
Net income as we stated before could
have made owner's equity go up, in
[523]
addition we could have issued stock.
Issuing stock would have made owner's
[528]
equity go up as well.
Most Recent Videos:
You can go back to the homepage right here: Homepage