Accounting 1: Program# 11 – “Adjusting Journal Entries”

Hello there exactly how are you people doing feels like a.
while given that we have actually taped. Hopefully at this moment everyone right here has actually taken the examination I.
recognize for you people in the house have you taken test primary if you have not I put on'' t know. why you ' re watching this lecture.
Since you ought to have taken examination leading over. phases one as well as two now and also make sure to be watching your emails for you people at residence. for the information that I

send regarding the test.Ok everybody below did rather well on.
the test I was extremely pleased of them I hope you succeeded in the house ok. So were mosting likely to move.
on right now as well as I'' ve said this before as well as I ' ll state it once more bookkeeping is a structure.
block training course right are starting to see that you recognize all those inquiries that I'' ve asked. prior to what monetary declarations does the account go on just how do you trigger the suggested.
modification in the account remember all the questions that I inquired about on the test if you did.
inadequately on that particular area after that you'' re structure is crumbling it was actually never there you.
have a structure of sand I'' m not attempting to scare anybody here, due to the fact that you all did excellent.
on that particular section. If you folks at house if you flopped that section you have a decision.
to make either you require to capture or drop this class up very quickly accounting is not.
the kind of course is where you can claim “” you recognize I dint actually obtain phase one and two.
at all, however young boy am I going to offer it my done in chapters three and also 4″” it'' s not like.

that.We ' re mosting likely to improve phases one and also 2 now I'' m going to assume. that you have that phases one and also two structure ok I spend more time on those chapters here.
Due to the fact that I truly desire to obtain that foundation, most likely more than any kind of various other trainers below.
solid. So I'' m mosting likely to think you got it I recognize the individuals in the room below do and really hope.
you people in the house do as well alright. Alright we are mosting likely to talk today and the next couple of.
days on a subject called the changing journal entrances and also readjusting our accounts exactly how we.
assistance that exactly how it aids us prepare our economic statements. I desire you to really involve I'' m. mosting likely to be doing a great deal of lecture today were not mosting likely to be doing a great deal of in course stuff.
clearly we wear'' t have any homework to look at so please attempt to
engage because this. Is really a crucial subject it is a chapter that some individuals have a difficultly with.
I believe if you do what I recommend doing and make certain you'' re doing your homework you will.
be ok.Alright allow

' s discuss phase there readjusting accounts and also preparing economic.
declarations. Currently to start with we'' ve discussed this we can and we do split time up. right into accounting durations in bookkeeping so we can divide points up in a year in a quarter. or a month ok that ' s why when we prepare our earnings statement as well as our statement of equity. we stated for the month ending December thirty one two thousand as well as eleven or for the year.
Finishing December thirty one 2 thousand as well as eleven? So we divide time up in bookkeeping.
periods because we can make annual economic statements we can do monthly we can do quarterly.
As a matter of fact there'' s one type of business. The financial sector a whole lot of banks complete a set economic statements at the end of.
each day ok yet we can and we do split up time right into bookkeeping periods. We have not.
actually used the term amassing basis of bookkeeping however we have spoken about its characteristics. Of all allow'' s talk concerning the cash basis of accounting the money basis of accountancy. we identify income whenever the cash money is received and we recognize expenses and record. them whenever the cash is paid is that exactly how we'' ve been doing points never and.
what we'' re mosting likely to locate the cash money basis of accountancy is not typically accepted audit.
principles for the most part.We don ' t

were not so focused on when cash is coming in and also.
If we make use of the cash money basis of bookkeeping, when cash money is going out what your going to discover.
it will certainly give us very irregular economic statements as well as it really is very easy to manipulate.
financial declarations if you make use of the cash basis as well as you put on'' t intend to have the type of organization.
that ought to be doing that so back to the slide the cash basis of bookkeeping is not usually.
approved audit principles what we use is the amassing basis of accountancy as well as in.
that basis of accountancy we acknowledge that basis of accounting we acknowledge profits.
when they are made and also when are they made when the service or product been offered.
it doesn'' t necessarily pivot when the money comes in. So with the accrual basis of accountancy.
we recognize income when they are gained and we record costs when they are sustained.
the accrual basis of bookkeeping is what we utilize in our economic statements and also do example.
on why we do that right here in a bit are there any kind of questions on that? I intend to go.
through an example her and allow'' s simply have a look right below switch over to the Elmo.
I wish to see to it you individuals can see that on alright lets check out that together December.
twenty ninth two thousand ten our firm pays six thousand bucks cash money for 6 months.
of auto insurance policy coverage for our fleet of business vehicles the insurance coverage'' s through. is through of January first, two thousand as well as eleven through June thirtieth, 2 thousand.

and also eleven.Companies pay car insurance policy simply like you pay vehicle insurance coverage you have to pay.
prior to the insurance coverage actually starts don'' t you? Or otherwise people will just wait an.
work out I dint have an accident this month so I'' m not mosting likely to pay for auto insurance policy
” no. you have to pay before your coverage in fact begins. Ok so allow'' s go back to
this example. ok now again on December twenty ninth our business pays 6 thousand dollars cash.
for six months of vehicle insurance policy for our fleet of company vehicles the coverage is for the.
period of January initial 2 thousand and also eleven via June thirtieth two thousand and eleven.
you with me? To make sure that is for six months right? Let me attract a little plan right here just offer.
me a second if you would.That ' s

December, that'' s January, that'' s February, that ' s March,. that April, this is may, and this will be June you
with me? Ok if we were suing the. money basis of bookkeeping after that we would certainly recognize 6 thousand bucks of expenditure in December. boom all of it'in December trigger that ' s when the all the cash headed out. however so do you see. that ' s not actually the very best representation of truth since really that six thousand bucks that. we ' ve paid it profited six months didn ' t it? If, Don ' t you think it would be far better. in some way if we might do this a various means and you possibly can understand where I ' m going. with this? Let me complete my timeline down below. As soon as once more that December, January, February,.
march, April, may, June wouldn'' t it be much better if somehow we could acknowledge a thousand bucks''. well worth of expense for each and every of six months do you see that actually more of a representation of.
reality.Doe that make

feeling? As well as this is in fact what we'' re mosting likely to do with the accrual.
basis of accounting is were going to do this were mosting likely to structure points to ensure that we.
recognize one countless cost for each of those months consider it we paid six.
thousand dollars for 6 months of car insurance policy so basically that'' s a thousand dollars ' well worth.
for insurance policy protection the expense each month does that make good sense? These are the durations.
that benefited alright now I desire you to observe something I intend to direct something out make.
sure it'' s clear in both of these situations we paid cash on December twenty ninth please.
put on'' t mistakenly believe right here we worked a repayment plan or something like that you see what I'' m. claiming? No I both of these scenarios we paid in December but with the money basis we acknowledge.
the whole cost when the money is paid which would be December whereas the accrual basis.
we wish to acknowledge the cost actually when those expenditures were sustained when they were.
Ok I additionally

desire you to recognize that under the. Well it ' s because we had this huge expense for vehicle.
So were mosting likely to speak about making use of the accrual basis of accounting. currently what we wish to do now you have one more instance in
your slides I don ' t truly like. just because there ' s a lot of months as well as students get lost in the numbers yet yes marlin? “in. both method isn ' t the same quantity of money coming “out
there both heading out in December in truth. the money ' s gone” Yes going back to the in both scenarios we are paying six thousand. dollars cash on December twenty 9th this is not the a difference in the means
the cash money. is leaving our firm this is a difference in exactly how the expense is identify in our publications. ok great question.Once once again in the amassing basis of bookkeeping we utilize the
earnings recognition. concept don ' t we? We recognize incomes when they are earned when are they made? when
we gave the'product or solution to the consumer. When we were going, now remember. through assumption and also concepts in phase one and also we involved the matching concept. as well as I said allow ' s speak about that later on well this is later I intend to you to understand. the matching concept the matching concept states that we need to attempt to match the. cost in the same amount of time in which they assisted produce income.
Once more it ' s not.
Six months? Specifically a thousand dollars each month? If we don ' t have.
business vehicles we most likely can ' t operate our business so we can ' t develop revenue so.
Alright any kind of inquiries on that? Please don ' t wait to ask questions.What were going. AJE is an adjusting journal entrance what is a changing journal entry?
stuff.But in an adjusting journal entrance is a kind of journal entrance is tape-recording to do. 2 things. To bring a possession or liability account balance to it appropriate quantity as well as to. acknowledge a revenues or expense

. It does two things it brings a possession or responsibility to. its appropriate quantity and also it recognizes
an income or expenditure pair various other aspects of adjusting. journal access they are always made on the last day of the period now I wear ' t say the. last day of the month or the last day of the year I ' m specifically saying AJEs are prepared. on the last day of the duration, because some companies simply prepare annual economic declarations. and also just will make AJEs on'the last day of the year.There ' s various other firms that do monthly. monetary statements and they will do AJEs monthly but they constantly do AJEs on the. last day of the duration. We make them and they aid us prepare the financial declarations and also. aid insure their precision.

One more point as well as this is necessary the cash money account is. never component of an adjusting journal entrance never ever will certainly you debit or attributed cash in your
AJE. Then you have made a mistake, if you debited or credited cash money in your AJE. Alright let me tell.
you an additional rule regarding AJEs lets come off the PowerPoint if we can this is a Dave Krug.
When I was, special ok this isn ' t in your publication this is something I figured out way back. In college as well as it helped me so I will certainly pass it along to you for no extra cost ok. So.
what I want you to do is write this down because it ' s not in your publication I desire you to lead to.
out words real like Dave Krug is an actual clever guy after that what I desire you to do is attract.
a line in the center of the word genuine as well as what do you assume these letter mean? Earnings costs or expenditure properties and responsibilities ok you with me? Every AJE will certainly influence one.
of these from the left side of the line and one of these from the best side of the line.
always, constantly, always so it will certainly either impact an expenditure or an obligation or expenditure and an. property or a profits as well as an asset or an earnings as well as a responsibility constantly, always, always.So.
Occasionally individuals can.
Ok every AJE you make will either debit an expense or it will certainly attribute an earnings, so I ' ve.

currently told you this side so the other part of that is just one of these currently this could not.
Ok any kind of inquiries on that?
the Elmo and also I wish to return to this example ok now were mosting likely to make use of the accrual basis.
We can get rid of that money basis for now do a little origami. Were going to make use of the amassing basis of accounting allowed ' s speak concerning
how just how. Ok initial of all I desire to make the journal entry on.
the insurance policy coverage that will certainly be January one with June thirtieth. So'our journal.
entry is will certainly pay is going out money is credited for 6 thousand dollars do you understand what.
is debited for 6 thousand dollars? Excellent pre paid insurance policy I ' ll abbreviate it.
if you ' ll let me.We debited pre-paid insurance coverage which is a property as well as we credit money currently some.
of you might state “hey wait Dave you have cash as well as that violates what you just informed us” this. is not a AJE that just a routine journal entrance plus it wasn ' t made on the last day of the.'When we actually paid for that car insurance policy ok, duration yet this is the journal entry. If we were to publish this journal entry allow me sneak in a t account over here for, now. pre-paid insurance policy after that we would certainly debit it right below for six thousand bucks are you. with me that ' s not extremely'clear actually let me do a far better t account for us. At twelve twenty 9 we do a debit for 6 thousand bucks you with me? Ok alright January. thirty one comes just how much of that insurance coverage has been used
up currently consider it we paid. 6 thousand dollars for 6 months of insurance coverage so essentially a thousand bucks each month. it ' s from January initial to June thirtieth January thirty first is now below just how much. of that automobile insurance have we utilized up? A thousand right it ' s type of like if someone. were Jessica behaved of enough to give you like a 6 thousand buck finest however present card.
wouldn ' t that be wonderful and you made use of up a countless it just how much would you have on that card. currently? Five thousand yet you used one thousand right.This is where the AJE is available in. Take. an appearance at that allowed ' s see what are AJE is now I informed you that AJEs are made on the last. day of the duration currently this business occurs to do AJEs as well as financial statements each month. ok. So this is our AJE what I ' m going to create below currently how much of that property has been. utilized up you stated and you were right you claimed a
thousand so do you see where we need to.

credit score or decrease prepaid insurance coverage for a thousand bucks isn ' t that reducing pre-paid. insurance for a thousand? Do you see that? What do you believe we debit for a thousand. bucks what do you think we debit for a thousand?
Well allow ' s go back to this we just affected. a we simply influenced a property so were either mosting likely to debit an
expenditure or debit an earnings. ? And also I informed you that every AJE that either debits an expense or credit ratings an income. Let me ask the question once more we reduce or attributed pre-paid insurance coverage cause that ' s. just how much we made use of up what do you believe we debit? Insurance policy cost does that make good sense folks? Create believe regarding it releases back to that t account.Now allow ' s article this journal access. our AJE to our t account that was the AJE we made on one thirty one what is the equilibrium.
of that account now? “Five thousand” And isn ' t that what you stated is exactly how a lot we have actually left. of that property to use up? Is this registering with you all ok does this adhere to the policies. of AJEs I simply'gave you? Is it made on the last day of the period yes since they do. monthly financials. Is cash a part of the AJE? It ' s not component of this AJE.

Do we adhere to. the guideline of REAL? Indeed due to the fact that we
lower a property and also we debited a cost? Does the. AJEs either comply with among these? Yes it follows this we debited an expenditure and also” what did'. we attribute pre-paid insurance coverage which is an asset you
see how it adheres to all those guidelines? Do. you see people where if we did refrain from doing this AJE do you see where our possession would certainly be overemphasized. it would showing still that we had 6 thousand bucks of pre-paid insurance policy as well as we wear ' t. at one thirty one eleven,'and also do you see how that expense would not be
on guides if. we did not make that AJE you with me? So when we handle changing journal entrances in. regards to pre-paid possessions we are constantly worried just how much of the property was used up.How a lot.
was consumed we made use of up a thousand so we need to decrease that possession and we need to book.
that as expense to show it was consumed as well as it ' s expensed on the financials you with me? Inquiries? Inquiries on that particular? Alright now I will tell you this subjects this phase. possibly much more than any type of other that you can not discover by just me doing this. , if you are just.. think I ' m just mosting likely to view Krug, and also I ' ll get it determined no you ' ve reached make AJEs,. you ' ve got to make AJEs, AJEs and also the initial time you do AJEs sometimes it ' s sort of confusing.

and you obtain it incorrect and you ' re debiting the wrong point or you ' re attributing the wrong.
point ok. You simply reached keep doing it'you ' ll get it if you overcome it, yet if you ' re. just enjoying me or doing a little bit of the homework you ' re most likely mosting likely to bomb. the this on the examination, due to the fact that I love every one of you I ' m going to give you a whole lot of homework. in this phase. “Cassie? “For AJEs is it just for like pre-paid insurance policy or whatever?”.
That ' s a wonderful inquiry it ' s kind of going where were mosting likely to go'currently.
That ' s an excellent.'seg-way right into where mosting likely to go in simply a minute, yet prior to we do that looking back at this. Elmo exists in the AJE we'made is there any questions? Currently let me ask you'this prior to. we leave this February twenty eighth 2 thousand and also eleven rolls around just how much even more of that.
pre-paid asset or pre-paid insurance policy have we consumed, just how much a lot more? We consumed another.
thousand right? Right looking back at this “do you see where were going to make the same. AJE on February twenty eighth 2
thousand and also eleven, due to the fact that we consumed another thousand. were going to require lower'our pre-paid insurance coverage by one more thousand as well as certainly when we. post this the pre-paid insurance policy will certainly be correctly reflected at its current balance at that time. Of four thousand? Do you see exactly how we ' ll make this AJE at the end of January, February,. March, April, May, as well as June?Each time the AJE will look like this each time were filing a claim against
up or expensing one countless it and also at the actual end of June thirtieth what is that
possession well worth? It'' s worth no and also it will certainly be assessed our books as a property with no
amount balance or account balance since we have actually utilized it all up much like how you might
consume your finest however gift card.Now let ' s

go to that concern that Cassie asked she
stated remarkable Dave this is dazzling you type of claimed that didn'' t you? Yeah sort of yet what are the various other kind of AJEs? We simply discussed pre-paid properties as well as there'' s an additional type we ' re mosting likely to talk regarding below in a second, but there'' s 5 classifications of AJEs
there ' s. one speaking regarding pre-paid possessions and also expenditures, devaluation, unearned profits, something. Currently I wear'' t assume I understand. I'' m wishing to may be obtaining through.
the first a couple of and also I'' ll tell you we spend more time on very first group than any type of.
of the various other categories so you'' re going “divine smokes this is going to take a while”” well.
it takes longer to clarify the very first kind than it does on the 3rd the fourth the fifth.
cool down? Those are the 5 types of readjusting journal entrances that kind of responses your.
inquiries wear'' t it?'Alright let ' s have a look at tan instance in your slides this is similar.
than the one we simply did on December first of 2 thousand and also eleven Scott firm paid.
twelve thousand dollars for insurance policy for December two thousand and eleven via May.
of two thousand twelve.They record the expense pre-paid insurance on December initially two thousand. eleven ok. Now this is a little various because they paid on December one and also that ' s. in fact when the coverage began right?
On December one they debited pre-paid. insurance policy and they attributed cash money for the twelve thousand currently what modification is needed on. January thirty one two thousand and eleven just how much is that insurance policy have they made use of. up at the end of December for December? 2 thousand its twelve thousand for 6 months. Are readjusting journal access is very comparable to what we just revealed you lower the pre-paid. insurance policy possession by two thousand as well as you book that 2 thousand as cost cool? Currently
there. is an additional concern let me back up there ' s the t make up this right? After you made. that December thirty very first AJE the pre-paid insurance asset is properly mirrored at a. ten thousand balance which is just how much of the asset you have delegated go awesome? Were going. to speak about a various but allow ' s come off that for a 2nd remained in the very first classification,. and also it pertains to office products when we buy workplace supplies we account and also debit. that ' s called workplace materials and it ' s a property were mosting likely to discuss that'in a 2nd. Allow me most likely to a different instance might be one that will hit closer to home.Marlin you ' re. over twenty one aren ' t you I know you are since you work at a restaurant so allow

put this in perspective'marlin lets ay at the start of the weekend break you acquired twelve.
beers as well as you put them in your refrigerator your refrigerator was vacant prior to then however.
In your fridge? Someone has drunk exactly how several beers? “Also many” too lots of yet specifically.
It” ' s not the very same person and with any luck they ' re not driving? Does this make this is.
Evident? You put twelve beers in the refrigerator there ' s 3 left at the end
of the. weekend 9 of them were consumed or drunk think about that'principle when we consider workplace.
products let ' s have a look at an instance appearance at your screen.During 2 thousand and also eleven,.
Scott Company'acquired fifteen thousand 5 hundred of supplies.

As well as they videotaped the.
expenditure as products which is a possession. Currently on December thirty either thousand.
and eleven they did a rely on the products and also there was twenty six fifty five accessible.
Just how much of the materials were therefore utilized up well it ' s not as clean a number. There was twelve 8 4 5 that were utilized up of office supplies do you.
see that? if you want to think about it this method in your refrigerator you bought fifteen.
By making this AJEs right below we have acknowledged an
expense and and also have. And also it going to the Elmo is it one of. A concern on that products any type of questions?
entry?” Boy that ' s a wonderful concern the inquiry is do you need to suggest on
your journal. entry that it is an AJE trigger your right it ' s a journal entry it ' s mosting likely to be videotaped.
with the other journal entries currently there is absolutely mosting likely to be some tips that its. mosting likely to be an adjusting journal access cause it ' s mosting likely to get on the last day of the duration. yet usually in the description they ' ll claim adjusting journal entry to tape-record supplies.
consumed, and also when I enter as well as audit firms or talk to them I normally see a whole lot of.
journal entrances made on the last day of the duration since they are changing their publications.
that ' s appear like its shady yet they are changing their accounts so their financials statements. would be reflected accurately.You ever listen to any person state oh it ' s really busy at work we ' re. closing out the year well a

great deal of that is making these modifications so these monetary. statements are precise. So you possibly would in your little explanation say something yet. it looks like it ' s a normal journal entrance doesn ' t it? Debit have to equal the credit scores. as well as all of that ok.
Alright I want to at least touch on the next category as well as that has to with. Those are all fixed'assets ok now there is just one type of repaired. Allow come off this for a 2nd you ' ve listened to the term devaluation before?
going to last you what? Five years or so may be? You with me? Wouldn ' t it be better wouldn ' t. it be better if it followed that matching principle if you assume that vehicle is going. to last you five years if in some way you can depreciate what I'claimed 5 years if you can.
decrease 4 thousand bucks for each and every of those five years doesn ' t that make even more.
sense? And also appear to comply with the matching concept matching the cost to the durations in which.
that vehicle helped you create revenue.Let ' s not go there yet alright but it makes more feeling. If we can diminish
four 4 dollars each of those five years or specifically particularly thousand a quarter or three 3 three 3 month? So for our objectives in bookkeeping. folks'depreciation is spreading out the expenditure over a reasonable amount of time. Currently after. one year I ' ve decreased 4 thousands
of your twenty thousand car correct? Am I. stating the market value is sixteen thousand and also we had to depreciate to create it down. to market price no I ' m not listen to me hear me currently and also believe me later that ' s old college. you most likely wear ' t understand what that suggests. When we drop we
are not doing it to attempt to. discount our asset to market price, since admit it after a year what you believe that truck. is worth versus what you assume it ' s worth versus what I assume it ' s worth versus what. Anna believes it ' s worth is most likely 4 various amounts.For our functions in audit we. depreciate to spread out the cost out over an affordable amount of time we are not attempting
. to create it down to market price ok'cool you with me? Because, Ill probably repeat that.
it'' s crucial and it ' s a

common mistake people make.
When we adjust for depreciation going. to the slides what we do depreciation is the procedure of computing with expense from designating. the cost of plant and also tools over their expected helpful lives.
That ' s a fancy language. from what I simply claimed how do we calculate devaluation well we
take the expense minus what we call the. salvage value or the recurring value those coincide terms various terms for the. very same thing that ' s wherefore we assume we can market it at the end of that amount of time. In the example we did I utilized the salvage value of absolutely no for Jake ' s twenty thousand dollar. truck.And organizations typically utilize a salvage value or recurring worth however sometimes they ' ll. say we think we can market it for two thousand at the end of 5 years so straight line. devaluation cost is your cost of the salvage minus the asset value separated by your

useful life allow ' s consider another example I think it will it will make more sense on.
January one 2 thousand and eleven Barton, acquired tools for sixty two thousand.
What ' s. depreciation expense for the
year ended December thirty one two 2 and as well as well we. We debited an account called depreciation cost as well as you could assume we
credit the.
examination question.Accumulated depreciation is a contra possession account what the hell is a. converse property account? Come off there for
a second words contra what does words. contra indicate? Lie negate or contrast it means contrary so if you
say I believe the principals. are excellent this year as well as I claim Jessica I ' m mosting likely to contradict you I assume they are dreadful. I ' m going to take the opposite view words contra means
opposite so let '

s return to. this slide an asset is a typical debit or credit rating balance account? An asset is a typical debit. equilibrium account. Now back to the slide what equilibrium do you assume a contra property has? A debt due to the fact that opposite suggests opposite an asset is a debit equilibrium account an opposite. property is a credit history balance account. So we do not credit in depreciation we do not credit report. the possession itself we attribute an account called an accumulation devaluation which is a converse. possession currently why we do that and currently the asset itself I will certainly clarify following time ok but I do. want to demonstrate how this views on your economic declarations on your annual report and also will. most likely go a minute or 2 mins over our time dang.We show the asset itself and afterwards. we subtract out the converse possession and we reveal the internet book value of the property so we don ' t.
decrease equipment we attribute accumulated devaluation the contra possession we subtract it develop the property. and also we obtain our net book worth. Currently I would certainly urge you to review these
things in. your publication it ' s type of complex I know it ' s new, however what I
desire you to do for your. research is the following.I want you to read your publication

I am going to offer 3 handouts.
Allows go to the Elmo and also simply take an appearance as well as what they are going to look like
and theInitial AJEs you with me? And I want
you to do that entire whole point there ' s a key vital.
I ask you a crucial question and also I ask you to make the AJE each business independently considered. from the others.For you people at house as always I have these handout under the lessons.
tab cool but that ' s all I want you to do for research it appears like a whole lot however you ' re not. doing that much it ' s not going to take you all believe so stop your whining I '
m simply kidding. you ' re not whining ok you individuals did terrific on your examination so for you people in the house obtain these.
off of angel for you folks here let me hand them out before you leave well see later goodbye

Contact Us

Scroll to Top