Jacksonville CPA | Equalizing Your Liabilities

So thank you for joining us today. We’re just starting to get more familiar with different accounting terms and uh, things that every business owner should know and should get familiar with. So, um, if your Jacksonville CPA is not educating you on things that you need to know them, give them a call.

It goes back into the retained earnings account at the end of the year when we prepare financial statements. And again this is something we’ll be talking about, you have a revenue increases the retained earnings account. We simply break out the revenue. We put a separate, we put it in a separate account. Okay. And at the end of the year we summarize all the revenue and we put it back in retained earnings, expenses, expenses, decreased retained earnings. No one expense is a cost that we have to incur in order to run our business. I have to pay rent for my office, I have to pay my employees their wages, I have to pay for utilities, for the lighting, the air conditioning I have to pay for insurance. There’s property taxes, I have something called depreciation expense supplies expense. So there’s a wide variety of expenses which are cough and I have to incur to run my business.

Okay. If I didn’t have a business, wouldn’t be incurring all these costs. So when expense is a cost we incur to run our business expenses, reduce retained earnings, they reduce stockholders’ equity. Okay. Now, quick comment, and I’ll, I’ll revisit this, is that it’s very common for students in the early stages to confuse and expense with a liability or an expense is a cost we incur. The liability is when we owe money in the future. It’s an obligation. Jacksonville CPA So let me give you an example to illustrate the difference between an expense and a liability. If I have a company vehicle and I go fill it up with gas and it costs me in today’s dollars, roughly $50. Again, I paid cash, then I’ve been heard and expense the gasoline since I’m going to burn through it in a day or two, then I have to refill my tank because nothing at the cost we have to incur, but there’s no liability there because I paid in cash next time I filled the tank.

I don’t have enough cash, so I use my visa card or my Chevron card, whatever, and so I’ve incurred another $50 expense for gas, but now I have a liability because I have not yet paid for it. I owe accompany money that will be paid in the future. Okay, so notice the liability relates to an expense, but it’s considered to be a separate concept. Okay. In accounting, the concept of double entry accounting states that every transaction that we engage has to involve at least two different accounts. No transaction fee only have one account. Some other accounts for more is always affected. Okay, so notice in the first transaction I incurred an expense and I paid cash which resulted in a reduction of an asset. Second transaction I incurred an expense, but I also now have a liability. For every transaction we must have at least two separate accounts. Okay, so revenues increase, retained earnings expenses, decreased retained earnings, and then dividends, decreased retained earnings. Now it did it.

So retained earnings is something that I talk about with my clients and a lot of times they have trouble understanding. So just wanted to educate you, if your Jacksonville CPA is not educating you on the counting terms you need to know, then please give them a name, a call

when the company distributes money back to the owners. Now remember, the owner of course, is the decision maker in the company, but they are choosing to pay themselves and amount of money called a dividend. If this were a sole proprietorship, for those of you that took bookkeeping, this wouldn’t be the drawing account where their owner is withdrawing money. It is a formal transfer of money. One of the important concepts which I mentioned earlier, the economic entity concept says we have to keep. The owner has to keep a separate set of records for their personal lives and a separate set of records for their business activity. So the investment to start the business is a formal transfer of money into the business that’s recorded by a receipt of cash and the issuance of common stock. A dividend is a formal transaction where the company is giving money back to the owner.

Now it’s very important for you to remember we are only accounting for the business only kind of business. We’re not accounting for the owner’s personal affairs and when you’re doing your homework and you’re reading about a transaction, you have to identify which side of the transaction you’re on. For example, if we buy supplies from office depot or staples, okay, and we buy it on account, which means we didn’t pay cash, we would have supplies which is an asset and we’d have an accounts payable, which is a liability now to office depot or staples is on the other side of the transaction. They would have an account receivable. They would record revenue, okay. Jacksonville CPA And they would also have to adjust their inventory. Now we’ll deal more with that later on in a future chapter. Okay? But the concept is you don’t to know which

side of a transaction you’re on so you can record the proper journal entry, which we’ll be looking at in a future election. So very fun stuff, but he always thinks that we need to know, um, to grow our business. If your Jacksonville CPA is not helping you grow your business, then give them a Neva a call.

Okay? Dividends, decrease retained earnings. Now notice revenue expense dividends are e Dot d, what I called the red accounts. It’s simply a memory tool or a pneumonic to help you remember that the red accounts revenue, our expense, he dividends. D are really part of retained earnings. Okay? So it’s very important for you to commit that to memory, that revenues, expenses, dividends are part of retained earnings, revenue increases, retained earnings expenses, decreased retained earnings, and dividends, decreased retained earnings. Okay? Please commit that to memory. Okay, so we’ve identified the various different components. Back to the previous slide. We have assets, we have all these different assets, which I’d like you to commit to memory. We’ve all these different liabilities. Okay? And then we have stockholders equity and right now we have to stock holders, equity accounts, common stock and retained earnings. And we know that retained earnings is a unique accounts because it includes revenues, expenses, and dividends. Okay? And at the end of the period or the end of the year, we’re going to put all three of those back into retained earnings and what we call the closing process. Again, a future topic. Okay, now I’m going to head over to the board here and I may disappear, but I will reappear shortly

and we have on the board the accounting. If you’re Jacksonville, CPA is not giving you the information you need is not meeting your needs. Do you have never call

equation the accounting equation? Assets Equals liabilities plus stockholders’ equity. And I refer to this as the left side. Assets on the left side, liabilities and stockholders’ equity are added together on the right side. These two added together equal assets. And what that says is that for every asset which is a resource our company uses to run our business, we either put our own money into it, we own it, or we borrowed money to obtain that asset. Okay? And so for each asset, think of liabilities as

them and equity as us, the website, our resources, the right side says, who has a claim? Jacksonville CPA I’ll get out of your way in a second on the assets. Now hopefully you can read that we are experimenting with this. Okay. Assets, which are the resources of the business equals liabilities plus stockholders’ equity. Who has a claim on these assets? If we borrowed money, we bought something on credit, on account from staples, for example. Then we owe them money. They have a claim on the accident and it doesn’t mean they’re going to come in and take everything away. What it means is if we do

so, if you have a Jacksonville CPA that is not meeting your needs, please give my knife a call and we will help you out.