Lesson 017 - Adjusting Entries 1: Prepaid Expenses (Basic Approach)

Summary

This video lesson covers the concept of adjusting entries in accounting, which are made at the end of the accounting period to update balances for assets, liabilities, revenues, and expenses. The instructor explains the importance of adjusting entries in preparing accurate financial statements, using practical examples like prepaid transportation cards. Different types of adjustments, such as prepaid expenses, accrued revenues, and depreciation, are discussed. The video emphasizes the application of key accounting principles such as completeness, matching, and revenue recognition. A step-by-step example of adjusting entries for office supplies is also provided.

Takeaways

• 📊 Adjusting entries are made at the end of an accounting period before closing procedures to update balances of assets, liabilities, revenues, and expenses for accurate financial reporting.
• 📆 Adjusting entries must be done at the end of each accounting period, whether it's monthly or annually, to ensure the balances are correct for financial statement preparation.
• 💡 Adjusting entries update accounts like prepaid expenses, deferred revenue, accrued revenue, accrued expenses, and depreciation, ensuring that all transactions are properly reflected in financial statements.
• 🚉 An analogy is used involving a prepaid transportation card to explain how adjusting entries work, showing how prepaid amounts decrease as they are used.
• 📜 Common types of adjusting entries include prepaid expenses, deferred revenue, accrued revenue, accrued expenses, asset depreciation, and bad debts (uncollectible accounts).
• 🏢 Prepaid expenses start as an asset (like prepaid insurance or office supplies) and are gradually expensed as they are consumed or expired over time.
• 💼 Deferred revenue occurs when a company receives payment for services not yet rendered; it starts as a liability and is later recognized as revenue once the service is provided.
• 📝 Accrued revenue and accrued expenses are recorded when a service has been provided but payment has not been received (for revenue) or when expenses are incurred but not yet paid.
• 🏗 Asset depreciation is systematically allocated over time, reducing the value of long-term assets like machinery and furniture as they age or are used.
• 📈 Adjusting entries adhere to key accounting principles like completeness, matching principle, and accrual basis of accounting, ensuring all financial transactions are accurately recorded and matched to the correct period.

Q & A

What are adjusting entries in accounting?

Adjusting entries are journal entries made at the end of the accounting period before closing procedures to update balances of asset, liability, revenue, and expense accounts. These adjustments ensure that account balances are accurate and ready for the preparation of financial statements.

Why are adjusting entries necessary?

Adjusting entries are necessary to accurately reflect the financial status of a business by ensuring that assets, liabilities, revenues, and expenses are reported correctly. This allows for the correct preparation of financial statements at the end of the accounting period.

Can you provide an example of an adjusting entry?

An example of an adjusting entry involves prepaid transportation. If you purchase a prepaid transportation card for 100 pesos and use 30 pesos for transportation during the period, an adjusting entry is made to recognize the 30 pesos as a transportation expense and the remaining 70 pesos as a prepaid transportation asset.

What are the different types of adjusting entries?

The different types of adjusting entries include prepaid expenses, deferred revenue, accrued revenue, accrued expenses, depreciation of assets, and adjustments for uncollectible accounts.

What are prepaid expenses, and how are they adjusted?

Prepaid expenses are expenses paid in advance, such as prepaid insurance. Initially, they are recorded as an asset. Over time, as the service is consumed, part of the prepaid amount is recognized as an expense. For example, if you prepaid 100,000 for office supplies and used 60,000 by the end of the year, you would adjust by debiting 60,000 to office supplies expense and crediting 60,000 from the prepaid office supplies account.

What is the difference between accrued revenue and deferred revenue?

Accrued revenue refers to revenue that has been earned but not yet received in cash, while deferred revenue is money received in advance for services or goods yet to be delivered. Accrued revenue is recorded as income even if cash is not yet received, while deferred revenue starts as a liability and is recognized as revenue when the service or product is delivered.

How is depreciation of assets handled in adjusting entries?

Depreciation of assets is an adjustment made to allocate the cost of tangible fixed assets, like machinery or furniture, over their useful life. This is done systematically over time, and an adjusting entry is made to record the depreciation expense and reduce the asset's book value.

What is the matching principle, and how does it relate to adjusting entries?

The matching principle states that expenses should be recorded in the same period as the revenues they help generate. Adjusting entries adhere to this principle by ensuring that all related expenses and revenues are matched properly to measure a company's net income or net loss accurately.

What happens if adjusting entries are not made?

If adjusting entries are not made, the financial statements will not accurately reflect the company's financial position. This can lead to misstated income, over- or under-stated assets and liabilities, and incorrect net income or loss calculations.

How are adjusting entries recorded in a journal?

Adjusting entries are recorded in a journal by debiting and crediting the appropriate accounts. For example, in a case where prepaid expenses are used, the expense account is debited, and the related asset account is credited to reflect the consumption of the asset.

Outlines

00:00

📚 Introduction to Adjusting Entries in Accounting

The video begins with a recap of previous lessons on the accounting cycle, including source document analysis, journaling, and preparing an unadjusted trial balance. The focus is on the fifth step: adjusting entries. Adjusting entries are made at the end of an accounting period to update the balances of assets, liabilities, revenue, and expenses, ensuring they are accurate for the preparation of financial statements. The speaker gives an analogy using a transportation card to illustrate the concept, highlighting how prepaid assets (like the card) reduce over time as they are used.

05:01

💡 Understanding Prepaid Expenses and Other Adjustments

The speaker explains prepaid expenses as payments made in advance, starting as assets but becoming expenses as the service is consumed. Examples like prepaid insurance or prepaid transportation are used to show how the expense is recorded gradually. The paragraph also introduces other types of adjusting entries such as deferred revenue (where payment is received in advance but the service is not yet rendered), accrued revenue, accrued expenses, depreciation, and uncollectible accounts, laying the groundwork for detailed discussions on these topics later.

10:02

🏛 Higher Accounting Adjustments and Principles

This section touches on more complex adjustments, such as impairment loss on assets and amortization of intangible assets, which are covered in higher-level accounting. It emphasizes how adjusting entries adhere to key accounting principles like completeness, matching principle, and the accrual basis of accounting. These principles ensure that transactions are recorded properly, even if cash is not yet received or paid, aligning expenses and revenues for accurate financial reporting.

15:03

✏️ Adjusting Prepaid Expenses: An Example

The video presents an example of adjusting prepaid expenses using a problem about a company that purchased office supplies. The company initially recorded office supplies as an asset worth 100,000, but by the end of the year, only 40,000 remained. The adjustment is necessary to reflect the 60,000 used as an expense in the financial statements. The speaker walks through the journal entries, demonstrating how to calculate and record these adjustments, reinforcing the process of balancing asset and expense accounts at year-end.

20:04

📑 Journal Entries and Balancing Accounts

The speaker explains two different methods for recording prepaid expenses and their adjustments: the asset method and the expense method. In both cases, the final result is the same, but the approach differs. The asset method initially records prepaid items as assets, while the expense method treats them as expenses from the start. The speaker highlights that proper adjustment ensures accurate reporting in the income statement and balance sheet.

25:06

📘 Wrap-Up: Preparing for Next Lessons

The final part of the video recaps the discussion on prepaid expenses and adjustments, hinting at future lessons on other prepaid items like insurance. The speaker encourages viewers to download a handout for further practice and understanding, emphasizing the importance of both English comprehension and accounting skills in mastering these concepts. The video ends by thanking the audience and preparing them for more detailed topics in future videos.

Keywords

💡Adjusting Entry

An adjusting entry is an accounting journal entry made at the end of an accounting period to update balances of assets, liabilities, revenues, and expenses. These entries are crucial for ensuring that financial statements reflect the true financial position of a business. In the video, adjusting entries are introduced as the fifth step in the accounting cycle, used to update account balances before the preparation of financial statements.

💡Prepaid Expenses

Prepaid expenses refer to costs paid in advance for goods or services to be received in the future, such as insurance or rent. In the video, prepaid expenses are explained through the example of prepaid transportation cards, where a portion of the expense is recognized over time as the benefit is used. Prepaid expenses initially appear as assets and are then adjusted to reflect the portion that has expired or been used.

💡Accrual Basis of Accounting

The accrual basis of accounting records revenues and expenses when they are incurred, regardless of when cash is received or paid. This principle ensures that financial transactions are recorded in the appropriate period. The video emphasizes this concept as part of why adjusting entries are necessary, to properly match revenues and expenses for accurate financial reporting.

💡Deferred Revenue

Deferred revenue is money received by a business for services or goods yet to be delivered or performed. It is initially recorded as a liability because the company owes the service or product. In the video, deferred revenue is discussed as an example of an adjusting entry, transforming it into recognized revenue once the service is delivered or the obligation is met.

💡Depreciation

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. In the video, this concept is explained in the context of adjusting entries to account for the reduction in value of assets like machinery and equipment over time. Depreciation ensures that financial statements reflect the current value of assets and the expense associated with their use.

💡Matching Principle

The matching principle is an accounting concept that dictates that revenues and the expenses incurred to earn those revenues should be recorded in the same period. In the video, this principle is linked to adjusting entries, ensuring that income statements accurately reflect the true financial performance of a company by properly aligning revenues with their corresponding expenses.

💡Uncollectible Accounts

Uncollectible accounts, also known as bad debts, refer to receivables that a business is unable to collect from customers. These are recognized as an expense through adjusting entries. In the video, this concept is mentioned as an example of a subsequent measurement of assets and liabilities, where an account receivable is adjusted when it is determined to be uncollectible.

💡Financial Statements

Financial statements are formal records that summarize a company's financial performance and position. The key financial statements include the income statement, balance sheet, and cash flow statement. In the video, the preparation of financial statements is highlighted as the ultimate goal of making adjusting entries, ensuring that assets, liabilities, revenues, and expenses are correctly reported.

💡Accrued Expenses

Accrued expenses are costs that have been incurred by a business but have not yet been paid. These expenses are recorded through adjusting entries to ensure that the company's liabilities are properly reflected. In the video, accrued expenses are discussed as part of the adjusting entries process, ensuring that financial statements accurately represent all obligations of the business.

💡Revenue Recognition Principle

The revenue recognition principle states that revenue should be recognized in the period in which it is earned, regardless of when the cash is received. The video ties this principle to adjusting entries, explaining that it ensures revenues are properly reported in the period when the related goods or services were delivered, even if payment has not yet been received.

Highlights

Introduction to adjusting entries and their role in the accounting cycle.

Review of the first four steps of the accounting cycle: analysis of source documents, journaling, posting, and preparing the unadjusted trial balance.

Definition of adjusting entries as entries made at the end of the accounting period before closing procedures.

Adjusting entries are necessary to update balances of asset, liability, revenue, and expense accounts for financial statement preparation.

Examples of adjusting entries in real-life scenarios, like prepaid transportation cards and how the balance reduces with usage.

Types of adjusting entries include prepaid expenses, deferred revenue, accrued revenue, accrued expenses, depreciation, and uncollectible accounts.

Detailed discussion of prepaid expenses, where a company pays in advance for services, such as prepaid insurance or transportation.

Deferred revenue is discussed as a situation where a company receives payment in advance but hasn’t yet delivered the service.

Accrued revenue and expenses are discussed as services rendered but not yet paid for, and expenses incurred but not yet paid.

Asset depreciation explained with examples of machinery and equipment losing value over time and its systematic allocation in accounting.

Uncollectible accounts (bad debts) are discussed as receivables that can no longer be collected, leading to an expense for the company.

Review of accounting principles that adjusting entries must adhere to: completeness, freedom from error, accrual basis, revenue recognition, and matching principles.

Example problem: A company purchases office supplies for 100,000 on August 1, and by the end of the year, only 40,000 remains.

Journal entries for the initial purchase of office supplies and subsequent adjusting entry to reflect the used portion.

Comparison of two methods of handling office supplies: asset method and expense method, both resulting in the same final amounts.

Transcripts

[Music]

hello everybody so today we will be

discussing adjusting entries okay so in

our previous lesson the monetize our

first four steps of the accounting cycle

the analysis of source documents and

then Jordan dicing posting and the

preparation of the initial and

unadjusted trial balance now we are

ready to start with the fifth step of

the accounting cycle in which the

documents needed for adjustments are

being prepared in analyzed now in that

step Vito Netanyahu unions in an hour

nothing

adjusting entry okay so let's define

first what an adjusting entry is or what

adjusting entries are okay adjusting

entries are entries made at the end of

the accounting period before closing

procedures to update balances of asset

liability revenue and expense accounts

to make their balances ready for the

preparation of financial statements so

in the definition it is said that these

are entries

okay so journal and priest insha now can

I go out nothing okay

Kalyan dal PO at the end of the

accounting period so a monthly you're

hunting period more month income yearly

or humpin period or year and I just

mentioned okay can I'm gonna go up

before closing

jury smell cousin Ione step in the

accounting cycle nothing at all nothing

close same procedures so I just meant I

mean I go up but I give up close

counting close okay no Palace and opal

you adjusting entries update balances of

asset liability revenue and expense

accounts in a big night in punta by you

more balance in an italic a not in

Sellinger palace on to make them ready

for the preparation of our financial

reports or financial statements so that

Camilla busting attend your financial

reports bugzilla Buster not in your

financial statements you adding mana

balances and our report done Tama and

Octavian

okay so let's first have some examples

of adjusting entries and let's try to

relate it in relax situations

that's it for example here in the

Philippines ago began with a tidy but on

the card you transportation card then

get a garvik that in just I think main

light rail transit lines and I'd be like

one like to win our MIT okay so pizza I

think in October nothing I don't know

how your monster job that means I'm

gonna go are not there whenever you are

in gift card

Lulu the nothing on 100 pesos so you

meet Cartman

mention 100 pesos and all in our

victim's entire good prepaid

transportation packet you 100 pesos

nabina yet more than the game blow

compete card more nagamma quad of a

certain sport Asian in the phenomena a

day Linda mocha Shinigami prepaid

transportation on top a sham friends are

going more but Putumayo canary monumento

station tie an annular

while that was kupatana veto crustacean

healer poet stationed somewhere no

Malaya

okay and then the longer going Messiah

win a mentos station that blowing a new

beam card Lana bus young young man

another guy 100 pesos paren kassig in

vivo passionate about me maybe pass of

another urine that was even an esse

trade that workin on it I will train

that was another parting nametrain don't

follow the green train suva reka

permanent dream jaroo jalloo discussion

noggin Sahaba Assad destination no more

master destination more a non-galvan

more lavas Moline give garmo casita de

bourree pas de Basque another style map

upon Sigma imbalance Nanami on prepaid

transportation card I 70 pesos in 30

pesos Novartis nah so an analogy on

Santa next are 100 pesos nah prepaid

transportation card but that emotion

destination more vomit Oscar nom nom 30

pesos

unpowered eligibility pesos

transportation expense

pero Mellencamp on 70 pesos anatomically

70 pesos prepaid transportation maybe

para hominem marrow acid shahe expense

so convenient that the winner things

adjusting entry if we will be making our

example in a real more accounting

situation

the 100 pesos that you paid for his

prepaid transportation and that is an

asset and then from the bingo

destination more the carbon cannon on 30

pesos 'no transportation expense

pero at the end of the period bell 70

osman ali jinnah Prive transportation so

on acid mo 70 pesos prepaid

transportation that was may expense

tabular report no 30 pesos

transportation expense Union Sina

subpoenaed Edna kale ammonia they as an

award of único que not only of the

imbalances the asset liability revenue

and expense nothing because a Coulomb

per kilowatt nothing analysis normally

record that in your transactions no time

than a judge or the next time okay so we

have different types of adjusting

entries we have prepaid expenses

deferred revenue accrued revenue accrued

expenses depreciation of assets and all

other subsequent Mussoorie uncollectible

accounts and all other subsequent

measurements of assets and liabilities

okay so let's talk about them one by one

prepaid expenses are expenses that was

that was paid for in advance by a

company best example prepaid of an

advance payment Aventa prepaid insurance

it Kumagai engine Gilligan with metallic

bubble Tina advance for some expenses

then making him pump pollinating some

emotional tapenade so from a safe

negating expense based on prepaid

expenses starts as an asset in their

chambray new asset new muna expired but

you know we're not even in a diviner

prepay transportation

many transportation expense the capitana

expiration so your asset and I expired

Maggie

okay so it happens that room next we

have is deferred revenue I'm different

revenue demand I tie you oun a police

even an advance payment granting semana

clients or customers method so Montana

Havilah dominance a vanilla your service

mainly but not in the renders anyway but

at the time nama rendering and a dinner

service a Panera nurdinov in shock Billa

revenue so the burger the new starts as

a liability and then it becomes rapid

okay we also have accrued revenue and

revenue mnemonic Americana be protecting

you the revenue Dominica on lambda no

your company has already given the

services no so now Hapuku render can

announcer piece by a cannon on customer

indeed back okay so uh accrued revenue

and on Eid for yes never none have been

very new haha collected island Damian

so I'm Fabian I well okay so I will

expect us know Marilyn expense in

empanada no away okay so expenses were

already incurred Lynn :

karolina expense no para no Breanna and

I been in the party

so he doesn't elemental panda through

the ravine you like the one an opinion

survey sparingly Fernando balance a

customer so no melon by Alito receiver

ball even Thomas after the expenses a

Marilyn I don't expense creme de banana

Baba Yaga so I know my legal am okay

next we also have asset depreciation so

as a depreciation of mine I simply wanna

assets not them most especially your mom

but I think machineries equipment

furniture through time then we'll room

iron as you see that session begin again

with nothing in accounting we have a

systematic way of allocating mechanical

Olympic aluminio in your pocket even

even a section break among Gilligan Vita

the new performance tomorrow as its name

link the decline and in the counting we

put a monetary amount on those and those

Nakayama nowhere pair of solitons k and

now opponent in the night

depreciation we also have uncollectible

accounts at the human receivable now

back on him didn't happen by received

sony he expense your pantalones

uncollectible accounts expense or but

deaths expense

bad debts okay and then that's the

subsequent measurement of asset and

liability accounts okay the most

subsequent measurement for hire a

comping talk same with uncollectible

accounts you more impairment loss no

acid your mana amortization of

intangible asset so mean

I got a thing where it's a bit about

beautiful okay so I'm collecting

bulletins from a subsequent measurement

of assets and liability you will be

talking about this in higher accounting

okay

so or at ADM one what we what we will be

talking about in the succeeding videos

is from here to here okay so we have

their friend examples that will be

available for you for prepaid expenses

need for revenue our walls and asset

depreciation okay we can call it

collectively number three and four as

after one okay now adjusting entries and

here to the following accounting

principle so remember you're not a

mechanic at all and in the previous

videos accounting concepts of principle

so some of them are are are applicable

on why we do adjusting entries okay so

first is completeness completeness

okay so adjusting entries and here's to

completeness because all of the

transactions are being recorded properly

okay Bahamut I mean be another important

than the one a nothing service via the

records receivable olomana revenue

nothing well he may have monopoly

expense per than anyone ever wear and

you wanna record

okay so that part complete Iranian

transaction simulator for example

freedom from Edward Edward DeMarco or in

a burgundy connect injustice and even

update imbalances it okay so that part

now the Athenian balance is not asking

nah I think asset liability revenue in

expenses they are it also adheres to

freedom from error and then finally this

I'm gonna goes up and personally leaders

in this passage of time that is not

somehow pre-filter happy Nellie

prepaid rent for six months the money is

somewhat the phenolic worth morning is

on one expired now so we are be aware of

reporting in these amounts I mean it's

nothing and nothing if it's not timely

it's not relevant anymore

it also adheres to afterworld basis of

accounting Laguna Depot diversa a

proboscis a pulmonary whether or not

cash is received or paid or anyway the

company must an emollient transaction

Kayla on the record Cunha young related

revenue in expense same also with

revenue recognition principle that

whatever happens even though payment is

not yet received from the customer then

you record the revenue busting a

Goguryeo service revenue and lastly

matching principle but it is a matching

principle a matching principle I we

match revenue in expenses in order for

us to see if we have net income or net

loss however how can you properly

measure the income or the loss that was

that was enjoy or incurred by the

company if the revenue and expense is

wrong okay so it also adheres to the

matching principle in this video we will

be talking about an example for prepaid

expenses and there is also a handout for

this specific lesson okay

so enjoy at least moon attire yours and

landing a new travel services company to

say I will be giving you examples

regarding these adjusting entries okay

but when discussed elephanto12345

nightwalker but it is a landing on your

travel services company doctor what

happened China adjusting entries he had

a plane that they have not been being

for some abuse okay

so please download their relief and

handout for this specific video it is in

the description box below

and we're ready to discuss prepaid

expenses okay so now let's start

discussing adjustments on prepaid

expenses please again download the

handout that is available in the

description box so that between link

when you download and print it for

facilitation of discussion but the

problem is written here okay so let's

discuss prepaid expenses and let me read

to you first a problem

German company purchase office supplies

on August 1 2020 amounting to one

hundred thousand in which the company

immediately paid in cash at December 31

2020 which coincides to be in the end of

the accounting period in the venturi

record show that the amount of remaining

office supplies amount to forty thousand

okay so in accounting it's more

beneficial for you if you will be

learning a bit

English rather than mathematics because

the level of mathematics that we just

actually need accounting is just M -

multiplication division addition is

subtraction but the level of analysis

that you need in reading these English

paragraphs will be very important so you

need to assess your level of English

comprehension because it will really

help you answer problems in accounting

accounting is more of English actually

rather than mathematics that's what they

say okay so let's just try to interpret

okay so it goes like this

German company purchase office supplies

amounting to 100,000 km banana August 1

2020 and then at the end of the period

on December 31 so Cabasa high-end and

Vanina problem most probably the problem

pertains to a company with annual

reporting alien doesn't December 31 II

so I know our reporting period boomtown

okay now you've been living in an office

of lights 100,000 and then at the end of

the year the records show knock em down

knocking supplies is 40,000 and it's in

Asakusa in do and now import that's not

adjusting entries it's your own to

report in your financial statements

office supplies of 100,000 men in

reality at the end of the year the

office supplies is only 40,000

so a lemony adjust that i've been happy

ok so let's prepare the journal entries

to represent the initial entry and the

adjusting entry and how to analyze okay

that's fine okay so let's do the entry

for almost one okay so the entry for the

purchase of office supplies is just the

same as how you know with the kind of

eye in an office supplies so you debit

office supplies

among the two 100,000 and then the

problem tells you that it was

immediately paid in cash so we credit

here if the problem tells you that it

was on account and the urine should be

there with office supplies credit

accounts payable the problem with that

okay

now let's analyze the company purchased

officer place worth 100,000 payable

40,000 a long shot at the end of the

period so if your office supplies that

you purchase is 100,000 and then I'm

done I'm done the office supplies is

what was remained at the end of the

accounting period is just 14,000 so we

try to the top 100,000 minus 40,000 will

give you an amount of 60,000 entry

you'll use opposite legs while remaining

you 40,000 and the 60,000 new Muse

napping no office supplies and this

represents office supplies expense okay

so on December 31 let's prepare the

adjusting entry to adjust the amount of

office supplies again money that you

report nothing's a financial statement

some office supplies more one hundred

thousand five with in reality another

anonymous forty thousand so we had

office supplies expense of sixteen

thousand so we there

debbie office supplies expense for the

expense portion or the use portion of

the office supplies which is 16,000 and

then credit of this life but it cooking

the red lip and office supplies Angelina

this office supplies account young

Nogami planet in 16,000 na office

applies because it is already an expense

okay so let's try to put them in T

accounts on how to properly represent it

so this is your Utley account for office

supplies and then this is for your

office supplies expense okay

debit office supplies 100,000 so this

goes here then credit cash of 100,000 so

people a Papa Geeta and then you're

adjusting entry then with office

supplies expense 60,000 and then credit

office supplies 60,000 so we credited

here 60,000 and then let's update rule

and balance the T accounts so 100,000 -

sixteen thousand fourteen thousand

homonym the cost of the supplies

remained at the end of the accounting

period is forty thousand epyon and then

our office of vice expense in the gap in

the office of price is sixty thousand

however some companies would have this

mindset believe in an opinion

100,000 officer place Guinness turn up

an expense they and so other companies

would make this entry

the raksasa office supplies expense okay

100,000 and then create one so we say

good luck on his face okay

other companies would do it that way he

does susan has been so lacking office

supplies their expense man however you

know at the end of the period

mallamma not they now forty thousand 500

remaining so we under a small a 100,000

your office supplies will be needed and

then forty thousand family remaining so

expense will end up analogous 60,000

capital expense another report movin

hundred thousand sobre an expense on him

ever been happy baba was a nothing I say

overstated it oh so bright oh so another

Monica a win at the adjusting entry but

the team on December 31 congenital McGee

unum entry not company bubbly Karina

okay so there

office of blacks como con una Guerra

40,000 and then credit

office supplies expense for 40,000 but

attacking the credit on office supplies

expense Panama Bob Watson from 100,000

below us and another nap warranty by the

office of place expense 1916 Ella

Paddington attendance LP accounts okay

so this is your office supplies and then

this is your this supplies expense then

we office supplies expense 100,000 then

credit cash and then there with office

supplies 14 hours and then credit office

supplies expense 40,000 okay let's try

to rule in balance office supply snapped

in 40,000 ear mainly office supplies

expense 100,000 - 40,000 which gives you

16,000 now think the knowing in your

magic office supplies under this method

is 40,000 under this method of this

applies is 40,000 and then office

supplies expense is 16,000 office

supplies expense is 16,000 whatever

method you may use it is just the same

okay so now look at what happens here in

this paper I wanna some direct or NASA

NASA and then adjusting entry mo kamo

Canio expired

portion

within a month of metal death or blood

cell and the revered work pass expense

an adjusting entry with a man I knew

unexpired portion in deep and academia

okay an entirely personal method at all

at all I mean Accord initially as I said

so some people ethanol and inner nature

apps expense so one that would be the

cement on the phone expense metals in

the asset method we initially record it

as an asset the adjusting entry would be

been expired portion of the prepayment

in the expense method we initially

recommended us an expense then we are

just be unexpired portion but whatever

method you may use it should just be the

same office supplies are you remaining

idle and even ago gamut forty thousand

office supplies expense in Agra McNabb

16,000 it's just the same now for Canon

okay or how much should be reported in

the income statement at the end of the

year as office supplies expense no

Yamagami 60,000 and then how much should

be presented in the balance sheet as

office supplies and he says epigenomic

you mean leave anagram for II okay so

you know mapping hazard method and

expense method on adjustment for free

payments in the next video we'll be

talking about three payments on

insurance prepaid

I hope you understand so it's green

chutney that okay so I hope you

understand Vanessa today thank you and

everything

[Music]