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Journal Entries: Business Formation

Brian Krogol
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All right, so let's continue here, Clutch purchased $40,000 of land with cash. Alright, so clutch purchasing land with cash, right? They had 50,000 in cash. That Johnny Clutch put into the business and now they're going to spend some of it on this land. Alright, so let's see what happens. We gotta figure out what accounts are going to be affected. We have 40,000 of land, right? We know that land is going to be affected and cash, right? We paid for that land with cash. Okay, so how are we gonna do this? We need to build our journal entry with debits and credits. So let's think of the accounts first. We have land is land and asset liability equity. Well, it's a long term asset, right? Land is a long term asset. It's something that the company owns and is gonna use in their business. Right? So this 40,000 in land. That's an asset and cash. Well, I'm not gonna ask you about cash again, but cash is an asset, right? That's our first purest asset, right? There is the cash. So they're both assets. That means they go up with debits and down with credits. Right, assets. So which one's gonna go up? Land or cash? Well, we purchased land, right? We purchased land. So we want the land account to go up. So will that be a debit or a credit? It's gonna be a debit. Right? So we're gonna write land And we're gonna put 40,000. So this is increasing the land account by $40,000. But we gave up a cash for that. Right? So our cash is going down and we have to credit it To make it go down. Right assets go down with a credit, so the cash is going to decrease by 40,000 in this transaction. Right? So if we go back above, we had ended the final the previous transaction with a balance of 50,000 0 and 50,000. Right? That's what we got out of that first transaction. And now let's add the effects of this transaction. Well the land is going up by 40,000. Right? So our assets are increasing by 40,000 but our cash is decreasing by 40,000. Right? So those are gonna wash out there. So after this transaction Our assets are still 50,000. Our equity is still 50,000 still no liabilities. But if you if you think about it, we are assets have changed right before this transaction, we just had $50,000 in cash. Now our assets are made up of a mix. Now we have $40,000 worth of land in our assets as well as another $10,000 of cash. Right? So we converted some of that cash into a different asset. Alright, so that's about it for this transaction. Let's pause and move on to the next video