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

Hey there exactly how are you guys doing appears like a.
while since we have taped. Hopefully at this moment everybody below has actually taken the examination I.
recognize for you people in your home have you taken test leading if you have not I put on'' t understand. why you ' re watching this lecture.
Because you need to have taken test primary over. phases one as well as 2 now and also make certain to be seeing your emails for you folks at house. for the information that I send out regarding the examination. Okay everyone below did quite well on.
the test I was very proud of them I wish you did well at home ok. So were mosting likely to move.
on right now and I'' ve stated this prior to as well as I ' ll say it again accountancy is a structure.
block course right are beginning to see that you understand all those questions that I'' ve asked. prior to what financial declarations does the account take place just how do you create the indicated.
change in the account remember all the inquiries that I inquired about on the test if you did.
poorly on that particular area then you'' re foundation is collapsing it was actually never ever there you.
have a structure of sand I'' m not trying to frighten anybody below, because you all did excellent.
on that section.But if you people at

house if you bombed that section you have a decision. to make either you need to capture or drop this course up really quickly bookkeeping is not. the kind of course is where you can claim “you recognize I dint really get phase “one and also 2. in all, yet child am I going to give it
my done in chapters three and also four” it ' s not such as. that. We ' re mosting likely to improve chapters one and 2 at this factor I ' m mosting likely to presume. that you have that phases one as well as 2 structure ok I spend even more time on those phases here. Since I truly want to get that foundation, probably more than any various other trainers right here. solid.So I ' m going to think you obtained it I recognize individuals in the space here do and also hope. you people in your home do as well okay. Alright we are going to chat today
and also the following few. days on a subject called the readjusting journal entrances as well as changing our accounts just how we. help that exactly how it assists us prepare our monetary statements. I want you to really engage I
' m. mosting likely to be doing a great deal of lecture today were not going to be doing a great deal of in course stuff. clearly we wear ' t have any kind of homework to discuss so please attempt to involve because this. is actually an essential subject it is a phase that some people have a difficultly with yet. If you do what I suggest doing and also make certain you ' re doing your research you will, I assume. be ok.Alright allow ' s speak regarding phase there changing accounts as well as preparing monetary

statements.'Currently first off we ' ve spoke about this we can as well as we do separate time up.
into accountancy periods in accounting so we can separate things up in a year in a quarter.
When we prepare our earnings statement as well as our statement of equity, or a month ok that ' s why. we said for the month ending December thirty one 2 thousand and also eleven or for the year.
Ending December thirty one 2 thousand and eleven? We separate time up in accountancy.
periods due to the fact that we can make annual economic statements we can do monthly we can do quarterly
. we can do weekly financial statements. As an issue of truth there ' s one type of
business. that do financial statements at the end of every day you what sort of sector that is? The financial market a great deal of financial institutions complete a set economic statements at the end of. daily ok however we can and also we do divide up time right into audit periods.We have not.
actually used the term accrual basis of audit but we have actually discussed its attributes.
Of all allow ' s chat regarding the cash basis of accounting the cash money basis of accounting. we recognize earnings whenever the cash money is obtained as well as we acknowledge costs and also document.
We put on ' t were not so concentrated on when money is coming in and.
approved bookkeeping concepts what we make use of is the amassing basis of accountancy as well as in.
the amassing basis of accounting is what we make use of in our economic declarations and do instance
. on why we do that below in a little bit exist any concerns on that particular? I wish to go.
via an example her and allow ' s simply have a look right here switch to the
Elmo. I intend to make certain you men can see that on alright allows read that with each other December.
twenty nine two thousand 10 our company pays six thousand dollars cash for 6 months.
of vehicle insurance policy protection for our fleet of company vehicles the insurance coverage ' s for the period. is through of January initial, two thousand and also eleven via June thirtieth, 2 thousand.
Or otherwise individuals will just wait an. Ok so let ' s go back to this instance.
That is for six months? That ' s December, that ' s January, that ' s February, that
' s March,. Ok if we were suing the.
cash money basis of accounting after that we would recognize six thousand bucks of cost in'December. boom all'of it in December trigger that ' s when the all the money went out.But so do you see. Due to the fact that truly that 6 thousand dollars that, that ' s not really the ideal reflection of reality.
Let me finish my timeline down right here. Once once more that December, January, February,. And this is in fact
what we ' re going to do with the accrual.

dollars for six months of automobile insurance so essentially that ' s a thousand dollars ' well worth.
for insurance protection the expense per month does that make sense? These are the durations.
that profited alright now I desire you to observe something I intend to aim something out make.
sure it ' s clear in both of these scenarios we paid money on December twenty 9th please.
wear ' t mistakenly believe right here we worked a layaway plan or something like that you see what I ' m. claiming? No I both of these circumstances we paid in December yet with the money basis we acknowledge. the entire expense when the money is paid which would be December whereas the accrual basis. we wish to recognize the expenditure actually when those expenses were incurred when
they were. used by the company.Understand? Ok I likewise desire you to acknowledge that under the. cash basis do you see just how the economic declarations would actually be goofy you ' d claim divine smokes. why is our December earnings so low? Well it ' s due to the fact that we had this huge cost for automobile. insurance policy and also so it truly got subtracted at getting here at

net revenue your financial statements. would actually reflect reality
ok. Were going to talk regarding using the accrual basis of accountancy. currently what we wish to do currently you have one more instance in your slides I put on ' t really like. just due to the fact that there ' s way too many months and also trainees get lost in the numbers yet yes marlin? “in. both method isn ' t the very same amount of money coming out there both going out in December in fact. the money ' s gone” Yes returning to the in both scenarios we are paying six thousand. dollars cash money on December twenty 9th this is not the a difference in the way the cash. is leaving our business this is a distinction in exactly how the expense'is acknowledge in our books. ok great question.Once again in the amassing basis of accounting we make use of the profits acknowledgment. concept put on ' t we? We recognize earnings when they are made when are they
gained? when we gave the service or product to the client. Currently bear in mind when we were going. with presumption and concepts in phase one
as well as we concerned the matching concept. and I stated allow ' s chat regarding that a person later on well this is later on I want to you to understand. the matching principle the matching principle states that we must attempt to match the. cost in the exact same time durations in which they assisted create earnings. Once again it ' s not.
Particularly a thousand dollars each month? If we don ' t have. Please put on ' t hesitate to ask questions.What were going.
Well it is a type.
In an adjusting journal access is a kind of journal entry is taping to do.
We make them as well as they assist us prepare the monetary declarations as well as. Another thing and this is essential the money account is.
Then you have actually made an error, if you attributed or debited cash money in your AJE.
Okay let me inform. In institution and it helped me so I will certainly pass it along to you for no additional fee ok.
Profits expenses or expenditure possessions as well as liabilities ok you with me? Every AJE will certainly affect one.
it ' s always going to influence one from the left side as well as one from the appropriate side. Does that. make good sense? Currently I believe that ' s useful for a number of reasons.
Alright every AJE you make will certainly either debit an expense or it will credit an income, so I ' ve. Ok any type of concerns on that? What I desire to do currently is stay with.
the Elmo and I desire to go back to this example ok currently were mosting likely to make use of the amassing basis. of bookkeeping aren ' t we? So we can get rid of that cash basis for now do a little origami.
Ok very first of all I desire to make the journal entrance on.
Our journal. Extremely excellent prepaid insurance policy I'' ll abbreviate it.
if you ' ll allow me. We debited pre-paid insurance which is a property and also we credit score money now some.
of you may state “hey wait Dave you have money which breaches what you simply told us” this.
is not a AJE that simply a routine journal entry plus it wasn ' t made on the last day of the. duration yet this is the journal entry when we really paid for that car insurance coverage ok. If we were to publish this journal entry let me creep in a t account over here for, currently.
pre-paid insurance coverage after that we would debit it right below for 6 thousand dollars are you. with me that ' s not extremely clear actually allow me do a far better t represent us. At twelve twenty nine we do a debit for 6 thousand dollars you with me? Ok alright January. thirty one comes just how much of that
insurance has actually been consumed now consider it we paid. six thousand dollars for 6 months of coverage so generally a thousand dollars per month. it ' s from January very first to June thirtieth January thirty initial is now here how a lot. of that vehicle insurance policy have
we consumed? If somebody, a thousand right it ' s kind of like. were Jessica were nice of enough to provide you like a six thousand dollar ideal however present card. wouldn ' t that be sweet and also you consumed a countless it just how much would certainly you carry that card.
currently? Five thousand but you used one thousand right.This is where the AJE comes in. Take. a check out 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 company happens to do AJEs and financial declarations every month. ok. This is our AJE what I ' m going to write listed below now exactly how much of that asset has been. used up you stated as well as you were right you claimed a thousand so'do you see where we have to. credit history or reduce pre-paid insurance policy for a thousand dollars isn ' t that reducing pre-paid. insurance for a thousand

? Do you see that? What do you think we debit
for a thousand. dollars what do you think we debit for a thousand? Well let ' s go
back to this we just affected. a we just impacted a property so were either
mosting likely to debit an expense or debit a profits. ? As well as I told you that every AJE that either debits a cost or credit histories an income. So let me ask the question again we reduce or credited pre-paid insurance policy reason that ' s. just how much we'utilized up what do you assume we debit? Insurance policy expenditure does that make good sense individuals? Create consider it lets go back to that t account.Now let ' s blog post this journal entry. our AJE to our t'account that was the AJE we made on one thirty one what is the balance. of that account now? “5 thousand” And isn ' t that what you stated is just how much we have left. of that possession to consume? Is this signing up with you all ok does this follow the policies. of AJEs I just offered you? Due to the fact that they do, is it made on the last day of the period indeed. month-to-month financials.Is cash money a part of the AJE? It ' s not part of this AJE. Do we comply with. the policy of REAL? Indeed since we decrease a property and also we debited

a cost? Does the. AJEs either adhere to among these? Yes it follows this set we debited an expenditure and what did.
we credit pre-paid insurance policy which is a property you see how'it follows all those regulations? Do. If
we did not do this AJE do you see where our asset property would certainly overstated, you see people where. it would showing still that we had six thousand bucks of pre-paid insurance coverage and also we put on ' t. at one thirty one eleven, and do you see just how that expense

would not get on the books if'. we did not make that AJE you with me? So when we manage readjusting journal entries in. regards to pre-paid possessions we are always worried exactly how
much of the asset was used up.How a lot. was used up we used up a thousand so we need to lower that property as well as we need to book. that as cost to show it was consumed as well as it ' s expensed on the financials you with me? Questions? Inquiries on that particular? Alright now I will tell you this subjects this phase.
probably greater than any other that you can not find out by simply me doing this. If you are simply. assume I ' m just going to see Krug, as well as I ' ll get it figured out no you ' ve obtained to make AJEs,. you ' ve obtained to make AJEs, AJEs and also the very first time you do AJEs occasionally it ' s kind of confusing. and also you get it incorrect and also you ' re debiting the incorrect thing or you ' re crediting the incorrect.
thing ok. You just got to maintain doing it you ' ll obtain it if you resolve it, however if you ' re.
just seeing me or doing a little of the homework you ' re probably mosting likely to bomb. the this on the test, due to the fact that I like all of you I ' m going to provide you a great deal of
homework. in this chapter. “Cassie? “For AJEs is it just for like pre-paid insurance or whatever?”.
That ' s an excellent concern it ' s sort of going where were mosting likely to go now.
That ' s a fantastic. Elmo is there in the AJE we made is there any inquiries?
we leave this February twenty 8th two thousand'and also eleven rolls around just how much more of that.
pre-paid property or pre-paid insurance have we consumed, just how much more? We used up another.
thousand right? Right recalling at this do you see where were mosting likely to make the exact same.
AJE on February twenty eighth 2 thousand and also eleven, due to the fact that we made use of up one more thousand. Of 4 thousand?Do you see exactly how we'' ll make this AJE at the end of January, February,
March, April, May, and also June? Each time the AJE will look like this each time were taking legal action against
up or expensing one thousands of it and also at the actual end of June thirtieth what is that
asset worth? It'' s worth zero and also it will be shown on our books as an asset with absolutely no
amount balance or account balance because we have utilized everything up much like just how you might
consume your ideal yet present card.Now allow ' s

most likely to that concern that Cassie asked she
said outstanding Dave this is brilliant you sort of claimed that didn'' t you? Yeah kind of what are the various other kind of AJEs? We just spoke about pre-paid possessions and there'' s one more kind we ' re going to chat about below in a second, however there'' s 5 categories of AJEs
there ' s. one speaking about pre-paid possessions and also costs, devaluation, unearned earnings, something. called accumulated cost, and also something called accrued revenues.Now I don '

t think I know.
we are not going to get with all 5 types today ok. I'' m intending to might be making it through.
the initial a couple of and I'' ll tell you we invest even more time on very first category than any type of.
of the various other groups so you'' re going “holy smokes this is going to take a while”” well.
it takes longer to discuss the initial kind than it does on the 3rd the 4th the 5th.
cool? Those are the five types of readjusting journal access that kind of answers your.
inquiries don'' t it?'Alright allow ' s take an appearance at tan instance in your slides this is comparable.
than the one we simply did on December initially of two thousand as well as eleven Scott business paid.
twelve thousand bucks for insurance coverage for December 2 thousand and also eleven via May.
of two thousand twelve.They record the expenditure pre-paid insurance coverage on December initially two thousand. eleven ok. Currently this is a bit various due to the fact that they paid on December one and also that ' s. really when the protection started?
However on December one they debited pre-paid. insurance coverage and they attributed cash for the twelve thousand now what change is called for on. January thirty one 2 thousand as well as eleven exactly how much is that insurance coverage have they used. up at the end of December for December? Two thousand its twelve thousand for six months. Are readjusting journal entry is extremely similar to what we just revealed you reduce the pre-paid. insurance property by two thousand and also you publication that two thousand as expenditure cool? Now
there. Is another inquiry let me back up there ' s the t accounts for this? After you made. that December thirty first AJE the pre-paid insurance coverage property is correctly shown at a. ten thousand balance which is just how much of the property you have entrusted to go trendy? Were going. to chat about a various but let ' s come off that momentarily were in the initial classification,. and also it concerns workplace materials when we acquire office materials we debit as well as account. that ' s called office products as well as it ' s a property were going to discuss that'in a 2nd. Let me most likely to a various instance might be one that will strike closer to home.Marlin you ' re. over twenty one aren ' t you I understand you are because you operate at a restaurant so let

place this in viewpoint'marlin allows ay at the beginning of the weekend break you bought twelve.
Beers and you placed them in your refrigerator your refrigerator was empty prior to after that.
In your refrigerator? Somebody has drunk how lots of beers? “Too several” also several but specifically.
It” ' s not the exact same individual and also with any luck they ' re not driving? Does this make this is.
Apparent? You put twelve beers in the fridge there ' s 3 left at the end
of the. weekend 9 of them were consumed or drunk think concerning that'idea when we look at workplace.
products allow ' s take a look at an instance check out your screen. Throughout two thousand as well as eleven,. Scott Firm acquired fifteen thousand 5 hundred of supplies.And they taped the. expenditure as supplies which is a possession. Currently on December thirty one of 2 thousand. and eleven they did a matter on the supplies and also there was twenty 6 fifty 5 handy.
How much of the products were therefore utilized up well it ' s not as tidy a number. There was twelve eight four five that were utilized up of office products do you.
see that? , if you desire to believe of it this method in your fridge you acquired fifteen.
thousand 5 hundred containers of beer on completion of the year you did a matter as well as you found. twenty 6 fifty five of beer available well somebody drunk twelve thousand 8 forty. 5 bottles of beer that was fairly an event wasn ' t it? Do you understand so we need to. make this AJE we make it on the last day of the period cash money is not part of this AJE we. need to lower our materials account by attributing it and also we need to book twelve 8 four 5. of expense so our economic statement will certainly be tape-recorded precisely you see exactly how that it ' s. kind of comparable to pre-paid I put on ' t know if they provide us a t account here good.If we. did a AJE we upload that and it'upload right here and also it post right below do you

see if we did. not publish the AJE our products property would be considerably overstated on our economic statements. as well as we would certainly have never booked our cost so our web revenue would certainly be greatly over stated. . By making this AJEs right below we have identified an
expense expenditure we have. reduced a property it follows our REAL doesn ' t it? As well as it mosting likely to the Elmo is it among. these tis one these isn ' t it every AJE is among these we debited a cost here supplies. cost ok does that make feeling? A concern on that particular products any concerns? “I have actually a. concern is it essential to indicate on the journal entry the it is a modification journal.
entrance?” Child that ' s a great question the concern is do you require to indicate on
your journal. entrance that it is an AJE cause your right it ' s a journal entry it ' s mosting likely to be recorded.
with the other journal access currently there is absolutely going to be some tips that its. mosting likely to be an adjusting journal access trigger it ' s mosting likely to be on the last day of the duration. but normally in the description they ' ll claim adjusting journal access to tape-record supplies.
consumed, and also when I enter and audit firms or speak with them I usually see a great deal of.
Since they are readjusting their publications, journal entrances made on the last day of the duration.
that ' s seem like its shady however they are readjusting their accounts so their financials statements. would be mirrored accurately.You ever hear anybody claim oh it ' s really hectic at the office we ' re. closing out the year well a

lot of that is making these modifications so these financial. statements are precise. You possibly would in your little description state something. it looks like it ' s a normal journal entrance doesn ' t it? Debit have to amount to the credit scores. as well as all of that ok.
Ok so may be that helps to. Ok I want to at least
touch on the next following and that has to with. Those are all repaired assets ok now there is just one type of dealt with.
as well as it ' s not diminish it whatever else is depreciated currently I intend to caution you
below. Let come off this for a 2nd you ' ve listened to the term devaluation before? And I. desire to caution you since the means you'heard it utilized or heard it use is in some cases not what.
we ' re performing in accounting what were most likely listened to in circumstances like this well Jake
just. acquired a new vehicle and also he paid twenty thousand for it as quickly as he drives it off the whole lot.
it ' s unworthy twenty thousand it ' s an utilized truck currently right you ' ve listened to individuals state that. that may or'may not be true.However, what we ' re doing in dropping things in accounting.

is spreading the expenditure out over a sensible duration of time for instance allows say you paid. twenty thousand dollars for that truck and allow ' s state it was
for your company ok do you. see where you if you cost'that entire truck in the month that you purchased it that would certainly. sort of not truly be adhering to the matching principle, since that vehicle is most likely. mosting likely to last you what? Five years or so may be? You with me? Wouldn ' t it be better wouldn ' t. it be much better if it complied with that matching concept if you assume that vehicle is going. If somehow you can depreciate what I stated five
years if you can, to last you 5 years. diminish four thousand dollars for each and every of those 5 years doesn ' t that make even more. sense? And also seem to follow the matching principle matching the expense to the durations in which. that truck helped you produce revenue.Let ' s not go there yet alright however it makes more sense.
if we can diminish four thousand bucks

each of those 5 years or especially a. thousand a quarter or 3 thirty three a month right? So for our objectives in audit. individuals devaluation is spreading out the expense over a reasonable amount of time. Now after. one year I ' ve decreased four hundreds of your twenty thousand vehicle correct? Am I. stating the marketplace worth is sixteen thousand and we had
to drop to compose it down. to market worth no I ' m not pay attention to me hear me currently and also believe me later on
that ' s traditional. you most likely put on ' t understand what that implies.
When we drop we are refraining it to attempt to. mark down our asset to market price, since admit it after
a year what you assume that truck. is worth versus what you think it ' s worth versus what I think it ' s worth versus what. Anna thinks it ' s worth is probably 4 different amounts.For our objectives in accounting we. decrease to spread the cost out over a sensible duration of time we are not attempting. to create it'down to market price ok cool you with me? Ill possibly

repeat that because. it ' s important as well as it ' s a typical error individuals make. When we change for depreciation going.
to the slides what we do depreciation is the procedure of computing with expense from allocating.
In the example we did I used the salvage worth of no for Jake ' s twenty thousand buck. And also businesses usually make use of a salvage worth or residual value but in some cases they ' ll.
useful life let ' s take a look at another instance I think it will certainly it will make even more feeling on.
January one 2 thousand and also eleven Barton, bought equipment for sixty 2 thousand. bucks cash the equipment has actually an approximated valuable life of 5 years as well as the business. expects to sell the devices at the end of its lie for two thousand bucks cash.What ' s. devaluation expenditure for the year finished December thirty one two thousand and eleven well we. take the cost of the possession sixty two thousand minus our estimated recurring value of 2. thousand dollars split by

our estimated life of five year and this methods were going. to drop twelve thousand dollars annually currently
just how does that journal access appearance. We debited an account called devaluation cost and also you may think we attribute the. property itself yet we do not below ' s just how the journal entry looks we debit devaluation. cost for twelve thousand and also this firm simply makes AJEs at the end of each year and. we do not attribute the equipment we do not credit rating tools we do not credit the asset like. we finished with products and pre-paid insurance coverage we make use of an account called
accumulated devaluation. currently whenever I introduce an account please understand me well I desire you to understand
the kind of. the account the balance of the account and also what financial statement it is on preferred. test question.Accumulated depreciation is a contra asset account what the hell is a. converse asset account? Come off there momentarily the word contra what does words. contra mean? Lie oppose or contrast it implies opposite so if you state I think the chiefs. are great this year and also I claim Jessica I ' m mosting likely to negate you I assume they are dreadful. I ' m going to take the contrary sight the word opposite implies contrary so let ' s return to. this slide a property is a regular debit
or credit rating balance account? An asset is a typical debit. balance account.So currently back to the slide what equilibrium do you assume an opposite asset has? Since contra implies opposite an asset is a debit equilibrium
account a contra, a credit scoresOpposite asset is a credit equilibrium account. So we do not credit history in devaluation we do not
credit report. the possession itself we credit an account called a build-up devaluation which is a converse. property now why we do that and currently the asset itself I will describe next time ok yet I do. desire to show just how this searches your economic statements on your annual report and also will.
possibly go a min or more mins over our time dang. We show the asset itself and afterwards.
I want you to review your publication I am going to give three handouts. Allows go to the Elmo and just take a look
and and also they are going to look like and theVery first And I desire you to do that entire thing once again there ' s an essential inquiry.
Because I like, as well as after that lastly. you I want you to do this distribute on depreciation AJEs it ' s going the exact same point on each circumstances. I ask you an essential question and also I ask you to make the AJE each firm individually taken into consideration. from the others. For you people at residence as constantly I have these handout under the lessons. tab cool yet that ' s all I desire you to do for homework it appears like
a great deal however you ' re not. doing that much it ' s not mosting likely to take you all think so stop your whining I ' m just joking. you ' re not whimpering ok you individuals did wonderful on your examination so for
you folks in the house get these. off of angel for you individuals right here let me hand them out prior to you leave well see later bye-bye.

Contact Us

Scroll to Top