Alright. Our next adjusting entry is related to unearned revenue. Let's check it out. So remember adjusting entries they include the deferrals, the accruals and depreciation. We're still talking about deferrals at this point. Okay, so unearned revenue is going to be a deferral type adjusting entry. So let's discuss what is unearned revenue. This is when we receive cash from the customer before delivering goods and services to the customer. So this is where the customer pays us in advance, right? The cash is received, but we haven't done anything for them yet. Right. So what do you think this is? Think about, think about those that technicality, their unearned revenues. What kind of account is that? So think of the situation, this situation, the customer's given us money. We've received money from the customer but we haven't done anything for them yet. In this case we owe them a service, right? They've paid us for something. And in the future we're gonna have to do that something for them. So since we owe them something, since we have to do something for the customer, we have a liability, unearned revenues are liabilities because we have received from the customer, right? But we have not performed for them yet. Okay, So we are liable to perform whatever we need to do for the customer. So just like everything else we've got these two important dates. So let's think about the important dates. And let's start here in the blue boxes and then we'll talk about the cash basis to a cruel in the next video for the red boxes. Okay, so let's start here. The first date is the cash receipt date. This is the day that the customer actually pays you even though you haven't done anything for them yet. Okay. So on January 15, a student paid the tutor $1,000 in advance for 20 hours of tutoring. Okay. So we're gonna think of it from the tutors perspective, not from the student's perspective. We're thinking from the tutor, the business, they received $1000 Right? So he received $1000. So he's gonna debit cash, right? He received $1000. But what about the credit? The credit isn't going to be revenue. We haven't done anything for the customer yet. All we did was received this money. So we're going to credit unearned revenue. Right? And this is a liability because at some future date we're going to have to tutor this student and he's not gonna pay us any more money. He already paid us. Right? So this unearned revenue is we're gonna earn it as we tutor the student. Cool. So that would be our entry debit cash for 1000. Because we received cash and credit unearned revenue. A liability which we will Uh earn over time as we tutor the student. So here we go on the adjusting date at just the unearned revenue account based on the amount of revenue earned, right? So there was a bunch of unearned revenue, but we're going to earn some of it as we perform our service. So on January 31, the students still had eight hours of tutoring prepaid. So notice they could tell you this a few different ways. They can tell you how many hours the students used up, or they can tell you how many hours are left, right? They told us in this case there's eight hours left, so we can infer that from the 20 hours that they paid for, minus the eight hours left. Well there were 12 hours used up, right? He used up 12 of those prepaid hours. So from our perspective, the tutors perspective, we've earned revenue for 12 hours of work, right? There's still eight hours of work. We still have to perform, but there's 12 hours that we've earned. Right? So the one more thing we need to know is how much revenue do we get per hour? Let's do that up here. We had $1000 paid to us for 20 hours of tutoring, right? $1000 divided by 20. Well that's gonna give us $50 an hour, right? $50 an hour for that private tutoring man clutches, sounding like a great deal now. Huh? Alright. So $50 per hour and they've used up 12 hours of their tutoring, Right? So 50 times 12 I'm gonna do it right up here. Uh $50 times the 12 that they've used up is going to be 600 right? So 600 is the revenue that we've earned. We've tutored the student for 12 hours, we've earned $600 of this revenue. So we are going to, in this case debit are unearned revenue, right? Because since we performed for this customer, our liability to them is less, right? We've performed a lot of this for them. So there's no way we still owe them $1000 worth of services we owe them less. We need to decrease that by the 600. So this debit to unearned revenue is decreasing the balance from 1000 down to 400 right? 1000 minus the 600. And then we earned revenue. So we're gonna have a credit to revenue for 600 Right? This is revenue that we actually earned. And notice that this revenue 600 that is the 12 hours times the $50. Right? So that is the revenue we've earned so far. And that is going to be our total revenue down here. 600 our unearned revenue. Well, that's the 1000 minus the 600 we've earned. There's still 400 and unearned revenue. So if you're gonna show our balance sheet there would be a liability on the balance sheet, uh for $400 in unearned revenue. Cool, let's pause here and then we'll do the cash basis to a cruel in these red boxes on the right