[MUSIC] Okay, the first thing we need to do is to set up all the T-accounts to start recording the transactions for the new year. The way we set up the T-accounts is taking them from the balance sheet from the previous year. So what we're going to do is take the ending balances of the previous year. And actually, the balance sheet as of December 31st, year x1 is going to be the same as the balance sheet as of January 1st, year x2. Because nothing has happened in between. Now we take these balances. These are going to be the beginning balances for the T-account. So we're going to present all these accounts in the T-shaped form. As you see here, I have sort of organized the T-accounts into assets, and liabilities, and owner's equity. So that we have a little bit of order. From now on we're going to use these T-accounts to record each one of the transactions. Note that on the asset side of the T-accounts have a debit balance, except for a couple of accounts that you see here which are accumulated amortization and accumulated depreciation. And this is why they are called contra assets. Because they always show with a negative balance with a credit balance even though they are on the asset side. The reason is that they are subtracting from the value, the original cost of the furniture and equipment in this case, in the case of depreciation. And from the cost, the original cost, the purchase cost of software in the case of accumulated amortization. If we add all these balances on the asset side, we are going to get the same number that we will get if we add all the credit balances on the liabilities and owner's equity side. This basic accounting equality always has to hold after each transaction that we record, if we add all the debit and credit balances on the asset side, we should get the same number that we get if we add all the credit balances on the owner's equity on liability side. Okay, let's start with the first transaction. So you've seen this before, we are going to purchase books on credit for a total value of 150,000 euros. How would you account for this? Well, first thing we receive the books, we own the books now because suppliers have delivered the books to the store, and therefore we're going to debit inventory. Because we want to increase an asset account, so we debit the asset account inventory. Second, we are not paying for this inventory so cash is not effected, not changed. But instead we have a new source of capital. Suppliers are financing us, so we need to recognize an increasing accounts payable by crediting accounts payable. After this transaction, liquidity has not changed, profitability has not changed. So we just have one asset that increases, but we have financed this asset with an obligation with a source of capital from suppliers that we need to return. Therefore we are not richer or poorer. Okay, in the next video clip, we are going to continue with more transactions. [MUSIC]