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Journal Entries: Business Formation

Brian Krogol
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Alright, let's try this one here. Johnny Clutch was excited about the company's success and bought his girlfriend a new car for $20,000. Alright, so in this case we've got a new car for $20,000, right? But this is a trick, right, johnny clutch bought this car for his girlfriend. This has nothing to do with the company itself. This is a personal transaction of johnny clutch, right? This this doesn't have anything to do with the company clutch tutoring. He took his own money and bought his girlfriend a car. Regardless of whether the money came from the company or not, this has nothing to do with the company. So there should be no journal entry. Okay. And it's not gonna affect the books at all. There should be nothing written about this. This is just a personal transaction of johnny clutch. This goes back to the assumptions that we have in financial accounting. One of the assumptions is the economic entity assumption. And this is where we separate the economic entity being clutch tutoring from johnny clutch the stockholder. Right, So the personal transactions of johnny clutch should not affect the company clutch tutoring. Alright, so this was a trick question here, and you could expect to see things like this where you're gonna see that they give you some kind of odd entry that has nothing to do with the company. Okay. In that case we don't make a journal entry, it shouldn't go into the company's books. Alright. Obviously in future accounting classes, we're gonna teach you all sorts of ways to evade taxes and you know, do all sorts of accounting gymnastics. But as of now, I'm just kidding. We're not gonna get into any of that, but it would be pretty fun. Right? Alright, let's go ahead and move on to the next video.