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

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

Hello how are you guys doing seems like a
while since we have taped. Hopefully at this point everybody here has taken the test I
know for you folks at home have you taken test number one if you have not I don’t know
why you’re watching this lecture. Because you should have taken test number one over
chapters one and two by now and be sure to be watching your emails for you folks at home
for the information that I send about the test. Ok everybody here did pretty well on
the test I was very proud of them I hope you did well at home ok. So were going to move
on right now and I’ve said this before and I’ll say it again accounting is a building
block course right are starting to see that you know all those questions that I’ve asked
before what financial statements does the account go on how do you cause the indicated
change in the account remember all the questions that I asked about on the test if you did
poorly on that section then you’re foundation is crumbling it was actually never there you
have a foundation of sand I’m not trying to scare anybody here, because you all did good
on that section. But if you folks at home if you bombed that section you have a decision
to make either you need to drop this class or catch up very quickly accounting is not
the sort of class is where you can say “you know I dint really get chapter one and two
at all, but boy am I going to give it my all in chapters three and four” it’s not like
that. We’re going to build on chapters one and two at this point I’m going to assume
that you have that chapters one and two foundation ok I spend more time on those chapters here
probably more than any other instructors here because I really want to get that foundation
solid. So I’m going to assume you got it I know the people in the room here do and hope
you people at home do as well ok. Alright we are going to talk today and the next few
days on a subject called the adjusting journal entries and adjusting our accounts how we
help that how it helps us prepare our financial statements. I want you to really engage I’m
going to be doing a lot of lecture today were not going to be doing a lot of in class stuff
obviously we don’t have any homework to go over so please try to engage because this
is really an important subject it is a chapter that some people have a difficultly with but
I think if you do what I suggest doing and make sure you’re doing your homework you will
be ok. Alright let’s talk about chapter there adjusting accounts and preparing financial
statements. Now first of all we’ve talked about this we can and we do divide time up
into accounting periods in accounting so we can divide things up in a year in a quarter
or a month ok that’s why when we prepare our income statement and our statement of equity
we said for the month ending December thirty one two thousand and eleven or for the year
ending December thirty one two thousand and eleven right? So we divide time up in accounting
periods because we can make yearly financial statements we can do monthly we can do quarterly
we can do weekly financial statements. As a matter of fact there’s one type of company
that do financial statements at the end of each day you what type of industry that is?
The banking industry a lot of banks complete a pair financial statements at the end of
each day ok but we can and we do divide up time into accounting periods. We have not
really used the term accrual basis of accounting but we have talked about its characteristics.
First of all let’s talk about the cash basis of accounting the cash basis of accounting
we recognize revenue whenever the cash is received and we recognize expenses and record
them whenever the cash is paid is that how we’ve been doing things absolutely not and
what we’re going to find the cash basis of accounting is not generally accepted accounting
principles for the most part. We don’t were not so focused on when cash is coming in and
when cash is going out what your going to find if we use the cash basis of accounting
it will give us very erratic financial statements and it actually is very easy to manipulate
financial statements if you use the cash basis and you don’t want to have the sort of business
that should be doing that so back to the slide the cash basis of accounting is not generally
accepted accounting principles what we use is the accrual basis of accounting and in
that basis of accounting we recognize that basis of accounting we recognize revenues
when they are earned and when are they earned when the product or service been provided
it doesn’t necessarily hinge when the cash comes in. So with the accrual basis of accounting
we recognize revenue when they are earned and we record expenses when they are incurred
the accrual basis of accounting is what we use in our financial statements and do example
on why we do that here in a little bit are there any questions on that? I want to go
through an example her and let’s just take a look right here switch over to the Elmo
I want to make sure you guys can see that on alright lets read that together December
twenty ninth two thousand ten our company pays six thousand dollars cash for six months
of auto insurance coverage for our fleet of company vehicles the coverage’s for the period
is for the period of January first, two thousand and eleven through June thirtieth, two thousand
and eleven. Companies pay auto insurance just like you pay auto insurance you have to pay
before the coverage actually begins don’t you? Or otherwise people will just wait an
go well I dint have a wreck this month so I’m not going to pay for auto insurance” no
you have to pay before your coverage actually starts. Ok so let’s go back to this example
ok now one more time on December twenty ninth our company pays six thousand dollars cash
for six months of auto insurance for our fleet of company vehicles the coverage is for the
period of January first two thousand and eleven through June thirtieth two thousand and eleven
you with me? So that is for six months right? Let me draw a little time line here just give
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
cash basis of accounting then we would recognize six thousand dollars of expense in December
boom all of it in December cause that’s when the all the cash went out. but so do you see
that’s not really the best reflection of reality because really that six thousand dollars that
we’ve paid it benefited six months didn’t it? Don’t you think it would be better if
somehow if we could do this a different way and you probably can know where I’m going
with this? But let me finish my timeline down here. Once again that December, January, February,
march, April, may, June wouldn’t it be better if somehow we could recognize a thousand dollars’
worth of expense for each of six months do you see that really more of a reflection of
reality. Doe that make sense? And this is actually what we’re going to do with the accrual
basis of accounting is were going to do this were going to structure things so that we
recognize one thousands of expense for each of those months think about it we paid six
thousand dollars for six months of auto insurance so basically that’s a thousand dollars’ worth
for insurance coverage the cost per month does that make sense? These are the periods
that benefited alright now I want you to notice something I want to point something out make
sure it’s clear in both of these situations we paid cash on December twenty ninth please
don’t mistakenly think here we worked a payment plan or something like that you see what I’m
saying? No I both of these situations we paid in December but with the cash basis we recognize
the entire expense when the cash is paid which would be December whereas the accrual basis
we want to recognize the expense really when those expenses were incurred when they were
utilized by the company. Understand? Ok I also want you to recognize that under the
cash basis do you see how the financial statements would really be wacky you’d say holy smokes
why is our December net income so low? Well it’s because we had this big expense for auto
insurance and so it really got deducted at arriving at net income your financial statements
would really reflect reality ok. So were going to talk about using the accrual basis of accounting
now what we want to do now you have another example in your slides I don’t really like
just because there’s too many months and students get lost in the numbers but yes marlin? “in
both way isn’t the same amount of money coming out there both going out in December in reality
the money’s gone” Yes going back to the in both situations we are paying six thousand
dollars cash on December twenty ninth this is not the a difference in the way the cash
is leaving our company this is a difference in how the expense is recognize in our books
ok good question. Once again in the accrual basis of accounting we use the revenue recognition
principle don’t we? We recognize revenues when they are earned when are they earned?
when we provided the product or service to the customer. Now remember when we were going
through assumption and principles in chapter one and we came to the matching principle
and I said let’s talk about that one later well this is later I want to you to understand
the matching principle the matching principle states that we should attempt to match the
expense in the same time periods in which they helped create revenue. Again it’s not
hinged on when the cash was paid we want to match the same periods in which they helped
create revenue the matching principle is a very important principle do you see going
back to the Elmo that this is a better following of the matching principle because that insurance
that we paid for six thousand dollars for six months that help provide revenue for those
six months right? Specifically a thousand dollars each month right? If we don’t have
company vehicles we probably can’t operate our business so we can’t create revenue so
we want to match the expense to the periods in which they helped create revenue understand?
Alright any questions on that? Please don’t hesitate to ask questions. What were going
to thus talk about is adjusting journal entries how are we going to do this how are we going
to accomplish this abidance of the matching principle persei well we’re going to use an
adjusting journal entry, and I will talk about these and I will abbreviate these AJE’s an
AJE is an adjusting journal entry what is an adjusting journal entry? Well it is a type
of journal entry its listed with all the other journal entries it’s just a special type of
journal entry it has the same rules the total debit have to equal the total credits. The
accounts being debited are listed first and the accounts being credit all that sort of
stuff. But in an adjusting journal entry is a type of journal entry is recording to do
two things. To bring an asset or liability account balance to it proper amount and to
recognize a revenues or expense. It does two things it brings an asset or liability to
its proper amount and it recognizes a revenue or expense couple other things about adjusting
journal entries they are always made on the last day of the period now I don’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 period, because some companies just prepare annual financial statements
and just will make AJEs on the last day of the year. There’s other companies who do monthly
financial statements and they will do AJEs each month but they always do AJEs on the
last day of the period. We make them and they help us prepare the financial statements and
help insure their accuracy. Another thing and this is important the cash account is
never part of an adjusting journal entry never will you debit or credited cash in your AJE
if you debited or credited cash in your AJE then you have made a mistake. Ok let me tell
you another rule about AJEs lets come off the PowerPoint if we can this is a Dave Krug
special ok this isn’t in your book this is something I figured out way back when I was
In school and it helped me so I will pass it along to you for no extra charge ok. So
what I want you to do is write this down because it’s not in your book I want you to spell
out the word real like Dave Krug is a real smart guy then what I want you to do is draw
a line in the middle of the word real and what do you think these letter stand for?
Revenues expenses or expense assets and liabilities ok you with me? Every AJE will affect one
of these from the left side of the line and one of these from the right side of the line
always, always, always so it will either affect an expense or a liability or expense and an
asset or a revenue and an asset or a revenue and a liability always, always, always. So
it’s never going to affect revenue and a expense or two assets or a revenue and a liability
it’s always going to affect one from the left side and one from the right side. Does that
make sense? Now I think that’s helpful for a couple of reasons. Sometimes people can
get half the entry like is said I know we should credit a liability here but what’s
the other side of the entry well you have to debit one of these it narrows down your
choices. Now let me to you something else about AJEs every AJEs you make it will either
debit an expense and of course it will credit some other account or it will credit a revenue.
Ok every AJE you make will either debit an expense or it will credit a revenue, so I’ve
already told you this side so the other part of that is one of these now this might not
make a lot of sense now but I want you to reflect on it after we talked about these
a little more. Are you with me? Ok any questions on that? What I want to do now is stay with
the Elmo and I want to go back to this example ok now were going to use the accrual basis
of accounting aren’t we? So we can get rid of that cash basis for now do a little origami
here ok. So were going to use the accrual basis of accounting let’s talk about how this
would look in our journal entries ok. Ok first of all I want to make the journal entry on
twelve twenty ten on twelve twenty nine ten is when we paid the six thousand dollars for
the insurance coverage that will be January one through June thirtieth. So our journal
entry is will cash is going out cash is credited for six thousand dollars do you know what
is debited for six thousand dollars? Very good prepaid insurance I’ll abbreviate it
if you’ll let me. We debited pre-paid insurance which is an asset and we credit cash now some
of you might say “hey wait Dave you have cash and that violates what you just told us” this
is not a AJE that just a regular journal entry plus it wasn’t made on the last day of the
period but this is the journal entry when we actually paid for that auto insurance ok
now if we were to post this journal entry let me sneak in a t account over here for
pre-paid insurance then we would debit it right here for six thousand dollars are you
with me that’s not very clear as a matter of fact let me do a better t account for us.
At twelve twenty nine we do a debit for six thousand dollars you with me? Ok alright January
thirty one comes how much of that insurance has been used up now think about it we paid
six thousand dollars for six months of coverage so basically a thousand dollars per month
it’s from January first to June thirtieth January thirty first is now here how much
of that auto insurance have we used up? A thousand right it’s kind of like if somebody
were Jessica were nice of enough to give you like a six thousand dollar best but gift card
wouldn’t that be sweet and you used up a thousand of it how much would you have on that card
now? Five thousand but you used one thousand right. This is where the AJE comes in. Take
a look at that let’s see what are AJE is now I told you that AJEs are made on the last
day of the period now this company happens to do AJEs and financial statements each month
ok. So this is our AJE what I’m going to write below now how much of that asset has been
used up you said and you were right you said a thousand so do you see where we have to
credit or decrease prepaid insurance for a thousand dollars isn’t that decreasing 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 affected an asset so were either going to debit an expense or debit a revenue
right? And I told you that every AJE that either debits an expense or credits a revenue.
So let me ask the question again we decrease or credited pre-paid insurance cause that’s
how much we used up what do you think we debit? Insurance expense does that make sense folks?
Cause think about it lets go back to that t account. Now let’s 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? “Five thousand” And isn’t that what you said is how much we have left
of that asset to use up? Is this registering with you all ok does this follow the rules
of AJEs I just gave you? Is it made on the last day of the period yes because they do
monthly financials. Is cash a part of the AJE? It’s not part of this AJE. Do we follow
the rule of REAL? Yes because we decrease an asset and we debited an expense? Does the
AJEs either follow one of these? Yes it follows this one we debited an expense and what did
we credit pre-paid insurance which is an asset you see how it follows all those rules? Do
you see folks where if we did not do this AJE do you see where our asset would be overstated
it would showing still that we had six thousand dollars of pre-paid insurance and we don’t
at one thirty one eleven, and do you see how that expense would not be on the books if
we did not make that AJE you with me? So when we deal with adjusting journal entries in
regards to pre-paid assets we are always concerned how much of the asset was used up. How much
was used up we used up a thousand so we have to decrease that asset and we have to book
that as expense to show it was used up and it’s expensed on the financials you with me?
Questions? Questions on that? Alright now I will tell you this subjects this chapter
probably more than any other that you cannot learn by just me doing this. If you are just
think I’m just going to watch Krug, and I’ll get it figured out no you’ve got to make AJEs,
you’ve got to make AJEs, AJEs and the first time you do AJEs sometimes it’s kind of clunky
and you get it wrong and you’re debiting the wrong thing or you’re crediting the wrong
thing ok. You just got to keep doing it you’ll get it if you work through it, but if you’re
just watching me or doing a little bit of the homework you’re probably going to bomb
the this on the test, because I love all of you I’m going to give you a lot of homework
in this chapter. “Cassie? “For AJEs is it only for like pre-paid insurance or whatever?”
That’s a great question it’s kind of going where were going to go now. That’s a great
seg-way into where going to go in just a minute, but before we do that looking back at this
Elmo is there in the AJE we made is there any questions? Now let me ask you this before
we leave this February twenty eighth two thousand and eleven rolls around how much more of that
pre-paid asset or pre-paid insurance have we used up, how much more? We used up another
thousand right? Correct looking back at this do you see where were going to make the same
AJE on February twenty eighth two thousand and eleven, because we used up another thousand
were going to need decrease our pre-paid insurance by another thousand and of course when we
post this the pre-paid insurance will be properly reflected at its current balance at that time
of four thousand right? Do you see how we’ll make this AJE at the end of January, February,
March, April, May, and June? Each time the AJE will look like this each time were suing
up or expensing one thousands of it and at the very end of June thirtieth what is that
asset worth? It’s worth zero and it will be reflected on our books as an asset with zero
amount balance or account balance because we have used it all up just like how you might
use up your best but gift card. Now let’s go to that question that Cassie asked she
said awesome Dave this is brilliant you kind of said that didn’t you? Yeah sort of but
what are the other type of AJEs? We just talked about pre-paid assets and there’s another
type we’re going to talk about here in a second, but there’s five categories of AJEs there’s
one talking about pre-paid assets and expenses, depreciation, unearned revenue, something
called accrued expense, and something called accrued revenues. Now I don’t think I know
we are not going to get through all five types today ok. I’m hoping to may be getting through
the first one or two and I’ll tell you we spend more time on first category than any
of the other categories so you’re going “holy smokes this is going to take a while” well
it takes longer to explain the first type than it does on the third the fourth the fifth
cool? But those are the five types of adjusting journal entries that kind of answers your
questions don’t it? Alright let’s take a look at tan example in your slides this is similar
than the one we just did on December first of two thousand and eleven Scott company paid
twelve thousand dollars for insurance for December two thousand and eleven through May
of two thousand twelve. They record the expenditure pre-paid insurance on December first two thousand
eleven ok. Now this is a little different because they paid on December one and that’s
actually when the coverage started right? But on December one they debited pre-paid
insurance and they credited cash for the twelve thousand now what adjustment is required on
January thirty one two thousand and eleven how much is that insurance have they used
up at the end of December for December? Two thousand its twelve thousand for six months
so are adjusting journal entry is very similar to what we just showed you decrease the pre-paid
insurance asset by two thousand and you book that two thousand as expense cool? Now there
is another question let me back up there’s the t accounts for this right? After you made
that December thirty first AJE the pre-paid insurance asset is properly reflected at a
ten thousand balance which is how much of the asset you have left to go cool? Were going
to talk about a different but let’s come off that for a second were in the first category,
and it has to do with office supplies when we purchase office supplies we debit and account
that’s called office supplies and it’s an asset were going to talk about that in a second.
Let me go to a different example may be one that will hit closer to home. Marlin you’re
over twenty one aren’t you I know you are because you work at a restaurant so let me
put this in perspective marlin lets ay at the beginning of the weekend you bought twelve
beers and you put them in your refrigerator your refrigerator was empty before then but
you bought twelve beers and you put them in your refrigerator on Saturday morning. And
you left for the weekend and you came back Sunday night and there were three beers left
in your refrigerator right? Somebody has drunk how many beers? “Too many” too many but specifically
nine right? If you put twelve in here and you come back and there is three left hopefully
it’s not the same person and hopefully they’re not driving right? Does this make this is
obvious right? You put twelve beers in the fridge there’s three left at the end of the
weekend nine of them were used up or drunk think about that concept when we look at office
supplies let’s take a look at an example look at your screen. During two thousand and eleven,
Scott Company purchased fifteen thousand five hundred of supplies. And they recorded the
expenditure as supplies which is an asset. Now on December thirty one of two thousand
and eleven they did a count on the supplies and there was twenty six fifty five on hand
you with me? So how much of the supplies were thus used up well it’s not as clean a number
is it? But there was twelve eight four five that were used up of office supplies do you
see that? if you want to think of it this way in your refrigerator you purchased fifteen
thousand five hundred bottles of beer on the end of the year you did a count and you found
twenty six fifty five of beer on hand well somebody drunk twelve thousand eight forty
five bottles of beer that was quite a party wasn’t it? Do you understand so we have to
make this AJE we make it on the last day of the period cash is not part of this AJE we
have to decrease our supplies account by crediting it and we have to book twelve eight four five
of expense so our financial statement will be recorded accurately you see how that it’s
kind of similar to pre-paid I don’t know if they give us a t account here good. If we
did a AJE we post that and it post right here and it post right here do you see if we did
not post the AJE our supplies asset would be greatly overstated on our financial statements
and we would have never booked our expense so our net income would be greatly over stated
as well. But by making this AJEs right here we have recognized an expense and we have
decreased an asset it follows our REAL doesn’t it? And it going to the Elmo is it one of
these tis one these isn’t it every AJE is one of these we debited an expense here supplies
expense ok does that make sense? A question on that supplies any questions? “I have a
question is it necessary to indicate on the journal entry the it is an adjustment journal
entry?” Boy that’s a great question the question is do you need to indicate on your journal
entry that it is an AJE cause your right it’s a journal entry it’s going to be recorded
with the other journal entries now there is certainly going to be some hints that its
going to be a adjusting journal entry cause it’s going to be on the last day of the period
but usually in the description they’ll say adjusting journal entry to record supplies
used up, and when I go in and audit companies or consult with them I usually see a lot of
journal entries made on the last day of the period because they are adjusting their books
that’s sound like its fishy but they are adjusting their accounts so their financials statements
would be reflected accurately. You ever hear anybody say oh it’s really busy at work we’re
closing out the year well a lot of that is making these adjustments so these financial
statements are accurate. So you probably would in your little explanation say something but
it looks like it’s a regular journal entry doesn’t it? Debit have to equal the credits
and all of that ok. And for your purposes all your AJEs will just have two accounts
one account being debited one account being credited. Ok so may be that helps to. Ok any
other questions? Ok I want to at least touch on the next category and that has to with
depreciation, depreciation is a special type of an AJE for a using up of an asset specifically
it’s for a fixed asset such as a automobile or a piece of equipment or a building or a
conveyor belt or a truck. Those are all fixed assets ok now there is only one type of fixed
asset that we do not depreciate well talk about this later but land is a fixed asset
and it’s not depreciate it everything else is depreciated now I want to caution you here
let come off this for a second you’ve heard the term depreciation before right? And I
want to caution you because the way you heard it used or heard it use is sometimes not what
we’re doing in accounting what were probably heard in situations like this well Jake just
bought a new truck and he paid twenty thousand for it as soon as he drives it off the lot
it’s not worth twenty thousand it’s a used truck now right you’ve heard people say that
that may or may not be true. However, what we’re doing in depreciating things in accounting
is spreading the expense out over a reasonable period of time for example lets say you paid
twenty thousand dollars for that truck and let’s say it was for your company ok do you
see where you if you expense that entire truck in the month that you bought it that would
kind of not really be following the matching principle, because that truck is probably
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 think that truck is going
to last you five years if somehow you can depreciate what I said five years if you can
depreciate four thousand dollars for each of those five years doesn’t that make more
sense? And seem to follow the matching principle matching the expense to the periods in which
that truck helped you create revenue. Let’s not go there yet ok but it makes more sense
if we can depreciate four thousand dollars each of those five years or specifically a
thousand a quarter or three thirty three a month right? So for our purposes in accounting
folks depreciation is spreading the expense over a reasonable amount of time. Now after
one year I’ve depreciated four thousands of your twenty thousand vehicle correct? Am I
saying the market value is sixteen thousand and we had to depreciate to write it down
to market value no I’m not listen to me hear me now and believe me later that’s old school
you probably don’t know what that means. When we depreciate we are not doing it to try to
mark down our asset to market value, because face it after a year what you think 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 four different amounts. For our purposes in accounting we
depreciate to spread the expense out over a reasonable period of time we are not trying
to write it down to market value ok cool you with me? Ill probably repeat that because
it’s important and it’s a common mistake people make. When we adjust for depreciation going
to the slides what we do depreciation is the process of computing with expense from allocating
the cost of plant and equipment over their expected useful lives. That’s a fancy language
from what I just said how do we compute depreciation well we take the cost minus what we call the
salvage value or the residual value those are the same terms different terms for the
same thing that’s for what we think we can sell it at the end of that period of time.
In the example we did I used the salvage value of zero for Jake’s twenty thousand dollar
truck. And businesses often use a salvage value or residual value but sometimes they’ll
say we think we can sell it for two thousand at the end of five years so straight line
depreciation expense is your cost of the asset minus the salvage value divided by your estimated
useful life let’s look at another example I think it will it will make more sense on
January one two thousand and eleven Barton, purchased equipment for sixty two thousand
dollars cash the equipment has an estimated useful life of five years and the company
expects to sell the equipment at the end of its lie for two thousand dollars cash. What’s
depreciation expense for the year ended December thirty one two thousand and eleven well we
take the cost of the asset sixty two thousand minus our estimated residual value of two
thousand dollars divided by our estimated life of five year and this means were going
to depreciate twelve thousand dollars per year now how does that journal entry look.
We debited an account called depreciation expense and you might think we credit the
asset itself but we do not here’s how the journal entry looks we debit depreciation
expense for twelve thousand and this company just makes AJEs at the end of each year and
we do not credit the equipment we do not credit equipment we do not credit the asset like
we did with supplies and pre-paid insurance we use an account called accumulated depreciation
now whenever I introduce an account please know me well I want you to know the type of
the account the balance of the account and what financial statement it is on favorite
test question. Accumulated depreciation is a contra asset account what the heck is a
contra asset account? Come off there for a second the word contra what does the word
contra mean? Lie contradict or contrast it means opposite so if you say I think the chiefs
are good this year and I say Jessica I’m going to contradict you I think they are horrible
I’m going to take the opposite view the word contra means opposite so let’s go back to
this slide an asset is a normal debit or credit balance account? An asset is a normal debit
balance account. So now back to the slide what balance do you think a contra asset has?
A credit because contra means opposite an asset is a debit balance account a contra
asset is a credit balance account. So we do not credit in depreciation we do not credit
the asset itself we credit an account called an accumulation depreciation which is an contra
asset now why we do that and now the asset itself I will explain next time ok but I do
want to show how this looks on your financial statements on your balance sheet and will
probably go a minute or two minutes over our time dang. We show the asset itself and then
we subtract out the contra asset and we show the net book value of the asset so we don’t
reduce equipment we credit accumulated depreciation the contra asset we deduct it form the asset
and we get our net book value. Now I would encourage you to read about these things in
your book it’s kind of complicated I know it’s new, but what I want you to do for your
homework is the following. I want you to read your book I am going to give three handouts
lets go to the Elmo and just take a look and what they are going to look like and the first
one is a handout on pre-paid asset AJEs and in each instance I want you to first answer
a key question and then I want you to make your AJE each of these is separate do not
analyze this one and consider this one they’re all separate from each other so I want you
to do your hand out on pre-paid assets AJEs. I also have a hand out on office supplies
AJEs you with me? And I want you to do that entire thing again there’s a key question
to answer each time and a AJE independent of each other. And then lastly because I love
you I want you to do this hand out on depreciation AJEs it’s going the same thing on each instance
I ask you a key question and I ask you to make the AJE each company separately considered
from the others. For you folks at home as always I have these handout under the lessons
tab cool but that’s all I want you to do for homework it seems like a lot but you’re not
doing that much it’s not going to take you all think so quit your whining I’m just kidding
you’re not whining ok you guys did great on your test so for you folks at home get these
off of angel for you folks here let me hand them out before you leave well see later bye-bye.

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

  1. THIS is the missing link that explains how purchases differ from expenses! I can't tell you how valuable this is. I'm a farmer, and it's a little weird, as businesses go (because our inventory just "appears" —and "disappears" if we don't sell it soon enough), so I'm having to figure out accounting as I go. Starting from the absolute basics is the only way to learn this!

  2. Does anyone have the handouts by anychance? I am not taking the class but this is the first lecture with homework assigned that I can not do because I don't have the handouts. I LOVE THIS CLASS! I have understood everything thus far! Thank you for a wonderful lecture. Thank you!

  3. great video.
    But how do you record following adjustment:
    During the year, Dividends amounting to $5,000 was declared and paid. This was not recorded.
    Is cash involved in this adjustment entry?


  5. Phenomenal teaching skills. You just crash coursed me for my final tomorrow! Life saver!! thank you so so so much 🙂 you're the best!

  6. You are such an amazing teacher. I am using your lessons to complement my hospitality accounting course. Your examples are clear. Kudos. 🙂

  7. I attend Fisher Business School at the Ohio State University, and you Sr. are at the level of the great professors I've had. Keep the good work!

  8. send me hand outs sir please .. 🙁 
    all about adjusting journal entries 😀 thanks in advance. more power 

  9. Easier way to remember this is by paring them up like this
    SE > S
    EX > PP   (Prepaid Expenses) paid in advance
    EX > AP  (Accrued Expenses) used it have not paid
    AR > R   (Accrued Revenue) did it have not paid
    UR > R   (Unearned Revenue) pay me have not done it
    DE > AD
    learn the left column first and later the second on the right is is easier
    S: Suupplies , Ar: accounts receivable, Ex: Expenses , Ur: unearned revenue, Ap: Accounts payable , R: revenue, De depreciation , accumulated depreciation

  10. I didn't understand this when our professor discussed it. Thanks alot. We'll be having our midterm exams tomorrow. Haha. 

  11. thank you very much for making this video! It helps me unlock something in my mind about AJE. Great job sir! God bless you.

  12. "Whenever I introduce a new account, please know me well: I want you to know the type of the account, the balance of the account, and what financial statement it's on."

    He does sort of discombobulate these pieces of information. Really, it's only one piece of information which he has hardly touched: the type of account. Once you know that, you know the balance and what financial statement.

  13. HI Professor, could you possibly post the link for all the hand outs so we just click the link and get it .  Thank you so much for your time.  I learn 100% from all your lecture but I want to get those hand outs if possible. Thanks!

  14. My Accounting professor once told the class the book is missing "errors" as another type of Adjusting Journal Entries.

  15. I would like to ask you if you can put the link where you have your 'tabs" so I can study. At work my manager are giving us this class as a review, but I need a lot of help,,Please, I will be eternally grateful,,, My e-mail is [email protected]

  16. We're currently on Merchandising. And must I say, I failed the Service Business part because of lack of knowledge in AJE, Closing and Reversing. Now I realized that these 3 in which I suck at are also reflected in Merchandising. So I am very elated to have found your tutorials. You are going to save my life. Thank you very much!

  17. Guys, i literally typed into Google – Accounting chapter 1 & 2 exam and this was the first result! 2015 edition, but it should theoretically be the same work.

  18. Hello Mr. Dave, i am very glad to have found your site its very helpfull as i just starting to study accounting for a short course.I hope to get some hand outs from you.Thank you!

  19. Took the Practice exam
    got 2 Mistakes #5. Which I am not really familiar(i admit that) and #12 I hope there wil be an explanation for this Item I tried to analyze but I really cannot fihure it out.

  20. Thank you so much for your wonderful lecture. It is much helpful and easier to understand as well as remember AJE (Adjusting Journal Entry). Next week, I will have an exam, and one of the questions will be AJE that I found it really difficult to remember which account should I debit or credit.
    I have tried to watch different videos related to AJE on YouTube, but many of them are still so hard and make me confused until I find this video and this channel. That helps me a lot.
    Thank you!

  21. For this chapter, I think it's better to read the textbook first, and then listen to the lecture. Knowing the system first, you will understand the lecture more.

  22. thank you so much. i subscribe this channel soon you tech us free accounting course i have no words to express how much i am happy you are like light in the dark for us who can not afford school fee and set home. i like the instructor he explain by simple word and give examples that any body can understand he help us a lot . pleas keep posting ……
    many tanks from Africa Ethiopia

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