Adjusting entries
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- Опубликовано: 23 июл 2024
- Welcome to a complete guide of adjusting entries in accounting! If you are on your way of converting this stack of binders full of documents to this compact set of financial statements, you’ll probably be recording your adjusting entries right about here. I will walk you through each of the five types of adjusting entries in lots of detail.
⏱️TIMESTAMPS⏱️
00:00 Introduction to adjusting entries
00:52 Recording cash transactions
02:19 Trial balance (cash basis)
03:37 Categories and types of adjusting entries
04:40 Prepaid expenses
06:46 Deferred revenue
08:08 Depreciation adjusting entry
09:49 Accrued expenses
10:49 Accrued revenue adjusting entry
12:00 Trial balance (accrual basis)
12:49 Adjusting entries definition
13:07 Adjusting entries summary
If you are adjusting, you need something to adjust from and something to adjust to. You are adjusting from a cash accounting based trial balance to an accrual accounting based trial balance.
Let’s get some of these bank transactions onto a #trialbalance , and then start adjusting.
Once we have this trial balance, we can review whether we need any adjusting entries. There are two categories of adjusting entries: adjusting entries that deal with SOMETHING, and adjusting entries that deal with NOTHING. If an adjusting entry deals with SOMETHING, then something has been entered in the general ledger, but the amount needs to be moved or split between accounting periods. The three types of adjusting journal entries in this category are: prepaid expenses, deferred (or “unearned”) revenue, and depreciation. If an adjusting entry deals with NOTHING, then we have a case where nothing has been entered in the general ledger yet, but certain expenses or revenues did occur that need to accounted for in the current period. The two types of adjusting journal entries in this category are: accrued expenses and accrued revenue. In total, there are two categories and five types of adjusting entries. The common theme is that we want to put revenues and expenses in the period they belong. Revenues are recognized when earned and expenses are recognized when incurred.
The definition of adjusting entries. Adjusting entries are accounting journal entries that convert a company's accounting records to the accrual basis of accounting. Adjusting entries almost always involve a balance sheet account and an income statement account.
A summary table shows the four possible combinations: revenues versus expenses, and accrued versus deferred or prepaid. Accrued revenue adjusting entries occur when revenue is earned before the invoice is sent and/or the payment is received, the revenue needs to be captured in the current period as this when you have earned it. Deferred revenue adjusting entries occur when revenue is earned after the invoice is sent and/or the payment is received, the recognition of the revenue needs to be postponed to a future period as you have not earned it yet. Accrued expense adjusting entries occur when expenses are incurred before the invoice is received and/or payment is made, the expenses need to be captured in the current period as this is when you have incurred them. Prepaid expense and depreciation #adjustingentries occur when expenses are incurred after the invoice is received and/or payment is made, the expenses need to be moved or split between accounting periods.
Philip de Vroe (The Finance Storyteller) aims to make accounting, finance and investing enjoyable and easier to understand. Learn the business and #accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers finance training in various formats: RUclips videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!
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Enjoyed this video? Then subscribe to the channel right now, and watch detailed videos (with more examples) for each of the five types of adjusting entries in this "adjusting entries" playlist: ruclips.net/video/lBvnSgIGVnU/видео.html
thank you , I never leave comments but you saved me before my exam tomorrow. Ive been trying for hours and I couldn't understand my teachers lecture examples. Thank you thank you!!
Wow, I am so happy to hear that, Sophie!!! Wishing you lots of success in the exam. Please share the video with fellow students, and have a look through my Accounting 101 and/or the Intermediate Accounting playlists. One other video that jumps to mind is the one on closing entries, not sure whether that is part of the exam, but it doesn't hurt to share the link with you just in case: ruclips.net/video/CXiKLtb7tqI/видео.html&pp=gAQBiAQB There are 45 videos (including shorts) in that playlist, so I hope a few of them might be useful.
I struggled to understand the logistics of accounting (journal) and then I came across your video. Wow, thank you!
Glad it was helpful! Have you watched the video on T-accounting as well: ruclips.net/video/f1TDNhuPJLc/видео.html&pp=gAQBiAQB
Excellent training video. Very detailed and clear explaination of the topic. Many thanks to the creator for his work
Glad you liked it! Happy to help. Thank you for watching and commenting.
Thank you for posting those valuable videos on YT.
Glad you like them, Frank! Thank you for watching and commenting. Long live online learning!
Thank you. This helped me to make sense of deferred entries.
Happy to help! If you want to dive in deeper, I made a specific video on deferred revenue ruclips.net/video/SNguYyKrqL4/видео.html and on the toughest one to grasp: deferred taxes ruclips.net/video/MvXAljQD4II/видео.html&pp=gAQBiAQB
Ah thank you! It makes so much more since now.
Glad it helped! 🙂
Love the way you have explained here... ❤️
Thank you Sir 🙏 from India
Most welcome, Amit! Greetings back from the Netherlands.
another topic i've been struggling on and finally understood after watching your videos 😄
Glad I could help! More good stuff in my playlists with all accounting related videos:
ruclips.net/video/b93KBmcXanI/видео.html
ruclips.net/video/lBvnSgIGVnU/видео.html
BTW: The link diagram you use to describe T account transactions is really helpful and beautiful.
Thanks for the feedback, Xavier!!! I love visualizing things so I can understand it, and think that's subsequently also the best way to summarize the material for my audience...
Very clear and simple explanation for understanding
Nice to hear that, Shah! Thank you for watching and commenting!
@@TheFinanceStoryteller Sir do you have details Cash flow lecture
All my cash flow statement related videos are in this playlist ruclips.net/video/mZBjsIYrLvM/видео.html Enjoy!
Thanks for sharing this knowledge
My pleasure
Best wishes from Bangalore, India. Excellent presentation. Thank you
Thank you for the kind words! Best wishes back from the Netherlands!
I really like the visual and your background wall 🤩
Thank you very much!!!
Thank you!
You're welcome! Glad you like it!
Do you have a video that deals with Owner draws and Owner deposits to and from the business?
Hi Donald! No, I have not covered that in any video (yet).
Subscribed & joined 👊
Thank you& welcome, Anthony!!!! 🙂
Enjoyed the video. By the way, do you have a video on capital budgeting?
Here you go, Mike! :-) ruclips.net/video/N-lN5xORIwc/видео.html
Hi buddy !! Nice to see your face !!! On a different topic, do you know how to invest into pre ipo shares? Let’s say I wanted to get into snowflake that just went ipo.
Thank you Craig! No, I don't know how to get into pre ipo shares. Might be best to contact the company's investor relations department directly, or get in touch with one of the banks that is involved with the IPO process.
The Finance Storyteller thank you so much for the swift reply as always!!! Your amazing !!
You're welcome! Did you watch my IPO video? ruclips.net/video/4t62BEH9Ajs/видео.html The most important thing as an investor is not the be the sucker! ;-)
The Finance Storyteller will watch it now 😃
Hey The Finance Storyteller,
Can you do a video about Capitalization?
Yes! I have done two videos on capitalization (this word can mean multiple things): CapEx vs OpEx ruclips.net/video/na4jbAh_vkQ/видео.html and market capitalization of companies on the stock market ruclips.net/video/k-Rp32j0uj8/видео.html I hope one of these provides what you are looking for!
It's really interesting , but I need your help can you?
Hello Yassir! I can clarify any items that may be unclear from the video, but I do not complete people's homework or test questions.
Is it smart to invest through cashapp
I have no personal experience with that. Before you do, I would suggest to check reviews on the internet, and read the terms and conditions.