Accounting 101 with Jimmy Stewart

Example: You own a sole proprietorship. For this period, you had revenue of $100,000, wage expense of $40,000, and computer expense of $30,000 (net income of $30,000). You also contributed $10,000 to the business this period. Step 1 – Transfer Revenue and Expense items to Income Summary                                                              Debit           Credit Revenue                                        $100,000             Income Summary                                  $100,000 Income Summary                       $40,000            Wage Expense                                           $40,000 Income Summary                       $30,000            Computer Expense                                  $30,000 Step 2 – Transfer Income Summary to Equity (capital account)                                                                   Debit           Credit Income Summary                            $30,000            Capital Account – YOUR NAME                 $30,000 Step 3 – Transfer contribution/distribution accounts to capital account                                                             Debit          Credit   Contributions – YOUR NAME     $10,000           Capital Account – YOUR NAME           $10,000      &nbsp

Today we will discuss the accounting cycle. This is the process taken each period to record transactions, prepare the financial statements, and to reset the temporary accounts to zero for the next period. Keep in mind that the steps you may see in your accounting textbook or elsewhere may be slightly different - I have simplified some of the steps: Step 1 – Record transactions as journal entries in the general ledger; Step 2 – Prepare an unadjusted trial balance as of the end of the period; Step 3 – Prepare adjusting journal entries and record on general ledger; Step 4 – Prepare an adjusted trial balance as of the end of the period; Step 5 – Prepare the financial statements; Step 6 – Prepare and record closing journal entries to reset temporary accounts; Step 7 – Prepare a post-closing trial balance.

Today we will discuss the cost layering methods that are used within the periodic and perpetual inventory systems. Assumptions for purchases: 50 units purchased on January 1 at $10 each (50 x $10 = $500) 100 units purchased on February 1 at $11 each (100 x $11 = $1,100) 150 units purchased on March 1 at $12 each (150 x $12 = $1,800) Assumptions for sales: 250 units sold to customer on April 1 for $5,000 Journal entries to record purchases under Periodic Method (entry is the same whether LIFO or FIFO is being used): January 1: Debit Purchases $500; Credit Accounts Payable $500 February 1: Debit Purchases $1,100; Credit Accounts Payable $1,100 March 1: Debit Purchases $1,800; Credit Accounts Payable $1,800 Total Debits to Purchases = $3,400 ($500 + $1,100 + $1,800) Journal entries to record purchases under the Perpetual Method (entry is the same whether FIFO or LIFO is being used): January 1: Debit Inventory $500; Credit Accounts Payable $500 February 1: Debit Inventory $1,100; Credit Accounts Payable $1,100 March 1: Debit Inventory $1,800; Credit Accounts Payable $1,800 Total Debits to Inventory = $3,400 ($500 + $1,100 + $1,800) Journal entry to record sale - Periodic Method (entry is the same whether using FIFO or LIFO): April 1: Debit Accounts Receivable $5,000; Credit Revenue $5,000 Adjusting journal entry to record Cost of Goods Sold and Inventory - Periodic Method (Using FIFO): December 31: Debit Inventory $600 (for ending inventory); Debit Cost of Goods Sold for $2,800; Credit Purchases for $3,400; Credit Inventory for $0 (for beginning inventory) Adjusting journal entry to record Cost of Goods Sold and Inventory - Periodic Method (Using LIFO): December 31: Debit Inventory $500 (for ending inventory); Debit Cost of Goods Sold for $2,900; Credit Purchases for $3,400; Credit Inventory for $0 (for beginning inventory) Journal entries to record sale - Perpetual Method (FIFO): April 1: Debit Accounts Receivable $5,000; Credit Revenue $5,000 April 1: Debit Cost of Goods Sold $2,800; Credit Inventory $2,800 Journal entries to record sale - Perpetual Method (LIFO): April 1: Debit Accounts Receivable $5,000; Credit Revenue $5,000 April 1: Debit Cost of Goods Sold $2,900; Credit Inventory $2,900

Today we tackle depreciation and amortization, and we discuss fixed assets. Facts for following examples: Asset cost of $85,000, salvage value of $10,000, and a useful life of 5 years. Note: "Depr" represents depreciation expense, "A/D" represents accumulated depreciation, and "B/V" represents book value at the end of the year. I tried to align the columns as best as I could, but they appear differently on different platforms. Assuming the asset was put into service January 1 of year 1 and utilizing the straight line method: Year Factor Depr A/D B/V 1 0.2 15,000 15,000 70,000 2 0.2 15,000 30,000 55,000 3 0.2 15,000 45,000 40,000 4 0.2 15,000 60,000 25,000 5 0.2 15,000 75,000 10,000 Assuming the asset was put into service October 1 of year 1 and utilizing the straight line method: Year Factor Depr A/D B/V 1 0.2 3,250 3,750 81,250 2 0.2 15,000 18,750 66,250 3 0.2 15,000 33,750 51,250 4 0.2 15,000 48,750 36,250 5 0.2 15,000 63,750 21,250 6 0.2 11,250 75,000 10,000 Assuming the asset was put into service January 1 of year 1 and utilizing the double declining (don't!) balance method: Year Factor Depr A/D B/V 1 0.4 34,000 34,000 51,000 2 0.4 20,400 54,400 30,600 3 0.4 12,240 66,640 18,360 4 0.4 7,344 73,984 11,016 5 0.4 1,016 75,000 10,000 Assuming the asset was put into service January 1 of year 1 and utilizing the sum of the years' digits method: Year Factor Depr A/D B/V 1 5/15 25,000 25,000 60,000 2 4/15 20,000 45,000 40,000 3 3/15 15,000 60,000 25,000 4 2/15 10,000 70,000 15,000 5 1/15 5,000 75,000 10,000

Today we will discuss prepaid assets, and do some examples with journal entries.

In this episode, we will describe accounts receivable, and we will go over journal entries related to accounts receivable.

In this episode, we will briefly discuss the four main financial statements in accounting: the balance sheet, income statement, statement of owner's equity, and statement of cash flows.

In this episode, we discuss how each type of account in ALE-RE is affected by journal entries, and we learn the debit/credit language of accounting using A|LE-R|E. The lines separate the types of accounts with normal debit balances from those with normal credit balances. This is the most important episode to listen to if you are just learning accounting. Example Journal Entry: Dr. Cr. Utilities Expense 150 Accounts Payable 150

Hi Everyone, Welcome to Accounting 101 with Jimmy Stewart. I hope to explain accounting to you the way I wish someone had explained it to me when I first started out. This isn't meant to be your only source of learning accounting, but this is meant to advance your knowledge in accounting by reinforcing the fundamentals that you absolutely must know to understand accounting. I am a forensic accountant from New York State, and I have learned a lot of tricks over the years that I know will help a lot of other people out as well. Stick with me and I promise I will help you understand accounting in a way that will let you master it. I hope you all enjoy. Please be patient with me as I figure out what I'm doing. James Edward Stewart, CPA/ABV, CFE The Fundamentals and Principles of Accounting: https://www.amazon.com/Fundamentals-Principles-Accounting-Edward-Stewart-ebook/dp/B0151VR3AC