[MUSIC] As mentioned in the prior video, a list of payments and receipts is not enough to control all the transactions that took place in the business. So the first thing that we need is a document that tells us what are the sources of capital in the business. Where is the money coming from? And at the same time, where is this money now? What are the uses of this capital? Obviously by definition, both sides have to be the same, because we are talking about the same amount of money. So on the right hand side. We have, where is the money coming from? And the left hand side is telling us, where is the money now? What are the investment had the company has made with this money. So, here we're going to have the furniture and equipment for example, that's Cristina Hat or we are going to have here is the software, buildings, land, anything that the company investing. And whatever is not invested is going to be in cash. On the capital sources, we are going to have the equity coming from the shareholders, the capital contributed by shareholders. Bank loans, trevies from suppliers, etc. Having this method in mind, let us start accounting for all the different transactions that Cristina told us. Let's go for the first one. So Cristina said that when she incorporated the company, she contributed capital herself and also her uncle. The total contribution was 50,000. So we are going to have a loose source of capital that we can call share capital. For example in the US could be call common stock or we can call it contributed capital. And now this is the source of capital. Where is this capital now? Well, probably sitting on a bank account, that 's called account cash. And so, this is the use of the capital so far. As you see my construction both sides have to be the same number. In the second transaction that Cristina told us, she said that she negotiated a bank loan with a bank of course, and on December 31st she got the loan less 20,000 euros, So what do you think we have to do here? Well first, obviously we have a new source of capital, so we need to recognize that on the right hand side. Now, where is this money now? If she has not use it yet, obviously this money after this transaction is going to be sitting on cash as well. And therefore, we are going to increase the cash account. As you see again by construction, both sides have the same total amount, 70,000. For this to happen, at least you need to change two accounts in every transaction. This is why we talk about double entry accounting. Because at least in every single different section, you have two accounts that are in both. Excellent. So far we have been accounting for the financing transactions. In the next video, we're going to start with the rest of the transactions that have to do with investing and a little bit of operation. [MUSIC]