3. Accrual Accounting Concepts
Summary of Adjusting Entries
Here is everything about Adjusting Entries, all in one place! Wow!
Summary of Adjusting Entries
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Alright guys, so I've created a summary page to include everything. We've talked about adjusting entries all in one place. So this should really help you with your studies when you're learning these adjusting entries. Let's check it out. So the first thing I want to mention is that this is going to denote the accrual accounting way. Alright. This doesn't show the cash basis and then we adjust to accrual accounting that we learned in some of the deferral videos. Okay, So right here, we're just doing the basic straight accrual accounting way, which is the way you should pretty much always see these entries happen. Okay? So start with the first one. Prepaid expenses. The first entry we make is when we buy whatever it's gonna be when we pay for the rent or whatever. So we'll use rent in this example. Let's say we pre pay for a year of rent. We would have a debit to prepaid rent and a credit to cash, right? This is when we pay for for the rent in advance, Right? And then on a later date, the time is gonna be passing. And we're gonna have used up some of the rent. And we're gonna make some entry like this rent expense and pre paid rent. Right? And it all depends on how much time has passed, how much rent expense. We have to recognize they're Okay. So those are how those entries are gonna look how about for supplies? Let's move on to the next one again, we're gonna buy the supplies up front? So we're gonna do something like debit supplies for some amount and we'll credit cash, right? Because we paid for the supplies. Okay. Pretty straightforward. We're increasing the asset of supplies and then later on we're gonna find out how much supplies are left and whatever is not there. Well, that's the expense. That's what we've used up. Right? So we're going to debit our supplies expense and we're going to credit supplies, right? And this should get us to the final balance in supplies based on what we counted that was left. Alright, next one, unearned revenues scroll up, unearned revenues. So first we receive cash from the customer in this case we're receiving cash, right? This isn't a payment we're making. But we haven't done anything for the customer yet. So we're gonna debit cash for whatever they pay us. An unearned revenue is going to be a liability. So we increase it with this credit here, right? So cash debit for the cash we received and then unearned revenue credit to make the liability, right? So eventually we're going to perform for the customer. We're going to do whatever we need to do, deliver the goods, do the service, and we're gonna take the revenue. So at this point we're gonna decrease the unearned revenue with a debit for whatever amount we earned, and we're going to credit our actual revenue for that amount and that revenue goes to the income statement. Cool. Alright, let's do the same thing here with the Krul's so Krul's this is where the cash happens later. Okay, cash happens later. So the first entry is where we let's start with accrued expenses is where we received the benefit from an expense but we haven't paid for it yet. Right. So our example, we used wage wage expense. There was some sort of employee that we we haven't paid yet. Right? It was like those days at the end of the period and we haven't paid the employee for those remaining days. So we have to take the expense for those days he worked but hasn't been paid and then we're gonna have an accrued wage expense. Some sort of accrued expense which is a liability in the amount that for those days that they haven't been paid yet. Right later on, we're gonna pay for the expense and we're gonna remove the liability. So we would have some sort of uh debit to accrued wage expense, right? To get rid of the liability. And I'm gonna put this in a different color and in parentheses because we could also have wage expense in the new period. Just like we talked about in the concept video, right? There could be this other debit for for the days that they worked in the new period that's also included on this paycheck, right? And then we're going to credit cash for the amount we pay them. Cool. Alright. So remember that blue entry, that wage expense, It might not always be there if we just pay them in the next period and they didn't work any more days. But if they had worked in the previous period and worked in the new period and then we're paying them well, we're gonna have to debits there. One to get rid of the liability and one for the days that they worked in the new period, right? Accrued revenues. So this is where we do something for the customer but they haven't paid us yet. Right? So in this case we earned the revenue when we perform for the customer. So we earned the revenue upfront but they haven't paid us. So we have accounts receivable which is an asset and that's money that we're gonna get in the future when they finally pay us. We're gonna credit revenue because we did our job, we did our part of the bargain, we earned our revenue. Cool. On the other side. Um is when we finally get paid by the customer, so we're gonna receive cash from the customer. So we're gonna debit cash and we're gonna credit, I'm gonna put a our accounts receivable, we're going to credit the accounts receivable because we're not owed that money anymore, right? They paid us, we're no longer owed that they are. So we're getting it off the books. Cool. So those are Krul's last but not least. We've got our depreciation down here. So depreciation remember this breaks up the upfront cost of a long term asset over its useful life. Okay. So the first entry is where we buy the asset, right? We're gonna have some sort of thing like machinery through the long term asset, whatever we paid for it. And we're going to credit cash if we paid for it in cash, okay? And then time passes and there's less useful life left. So we would calculate what the depreciation amount is based on the useful life, whatever the depreciation is gonna be, we're gonna have a depreciation expense, which is our debit. And we're gonna credit accumulated depreciation, which is that contra asset account. So it's related to the to the machinery account, but it lowers the value, right? It's this netbook value that I have here at the bottom. That purchase price which is sitting in the machinery account minus the accumulated depreciation. Notice how the purchase price, the machinery has a debit balance. The accumulated depreciation has a credit balance. So the debit minus the credit. It brings the value down a little bit to the netbook value. Cool. Alright, so this summary page should help a lot while you're studying. You've got a lot of information about your pre pay about your adjusting entries all in one place. Cool. Alright, let's move on to the next video