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LECTURER: Ok, hello everyone.

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Welcome again to the Accounting[br]and Governance class.

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Could anyone please tell me[br]if the volume is ok?

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Perfect. Ok, thank you.[br]Thank you.

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So, I hope you have had [br]a very good week,

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and I hope that you will do well [br]in your first assessable homework

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that is in the process of marking

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by another lecturer, [br]that is the person who will mark

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all our assessment.

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So just be a bit patient,[br]during this week

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we will release the results of the [br]first assessable homework.

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Now today we will continue [br]with what we started last week.

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Last week what you learnt was[br]how to record transactions

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using debits and credits [br]and preparing the journal entries

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and you know that for[br]each journal entry

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you need at least two entries, [br]one debit entry and one credit entry.

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it could be more than two,

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but normally we have one debit[br]and one credit

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and of course the total debit [br]and total credit should be the same,

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the same amount in each journal entry.

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So what we will go through[br]today is

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another type of entries[br]which is adjusting entries.

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I hope you have studied the [br]material that is posted

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on the course learning at Griffith,[br]you have watched the videos

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and looked at the PowerPoint too [br]and have of course understanding of this.

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But as usual I will explain everything [br]you need to understand well,

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how to deal with these[br]different types of entries

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that are the adjusting entries.

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The purpose of this session [br]is that you will end the session

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with a clear understanding of that,[br]adjusting entries and also closing entries

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which is another type of entry.

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The journal entries that you[br]learnt last week

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are entries that you prepare [br]from transactions

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that you have in the business so when [br]the accountant records these transactions

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the accountant receives information[br]that is mainly through the cash received

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and cash paid so they are [br]very based on the cash.

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Cash received and cash paid.

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I will answer that Jade

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They are mainly related to [br]cash received and cash paid

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but sometimes the accountant also receives[br]information of invoices

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that are sent to customers so they record[br]an income or revenue and purchases

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so they record the purchase as well.

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So not all are cash journal entries[br]but most of them I would say yes.

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The first difference with adjusting entries[br]is in adjusting entries,

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we do not involve cash.

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Cash is never involved [br]in an adjusting entry.

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So what are these adjusting entries?

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And in this I will answer what Jade asked.

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Why adjustments are not done each month[br]as a normal activity

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then it will not be such [br]a big adjustment at the end,

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and you are totally correct Jade

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But that depends...

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it depends on what is [br]our accounting period.

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It depends on the company.

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The normal accounting period [br]is one year.

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If a company does not prepare [br]financial statements every month

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for example, or every quarter, [br]well, it will happen what you said.

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The adjusting entries are [br]at the end of the year.

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But what's happening there [br]in the real world

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companies prepare the financial [br]statement

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every quarter or even every month

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and in that case if we define the [br]accounting period as one month

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that means at the end of the month [br]we need to prepare the adjusting entries.

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The concept of adjusting entries is that[br]we prepare adjusting entries

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at the end of the accounting period,[br]ok?

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That is the thing.[br]At the end of the accounting period.

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If the accounting period is one month[br]we prepare adjusting entries

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at the end of the month.

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If the accounting period is the whole year[br]we prepare the adjusting entries

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at the end of the year, ok?

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That is one concept that we need to [br]have in relation to adjusting entries.

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The other thing is what we are adjusting[br]because the name is adjusting entries?

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What we are adjusting with these entries.

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We adjust revenues or income [br]and expenses.

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That is what we adjust to reflect[br]in the financial statements,

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all the income or revenue [br]that has earned in the period,

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and to reflect all the expenses[br]that have been incurred during the period.

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That is what we show with [br]the adjustment entries.

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That's why we cannot do adjustment entries[br]in the middle of the month

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or at the beginning of the month,

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it's always at the end of the period [br]because at the end of the period

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we want to have in our [br]financial statement

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all the income earned in that period

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and all the expenses incurred [br]in that period.

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So this is the most [br]important concept

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to start with adjusting entries.

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Then as I said some expenses [br]and revenue menu can be recorded exactly,

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that's the things, others, [br]some expenses revenues cannot be recorded

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we need to adjust to have [br]all the expenses incurred recorded

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and the same for income or revenue.

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To align with the business [br]activity statement,

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the business activity statement [br]is a tax concept.

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In many cases the tax period is the same[br]as the accounting period

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in that case a year but we need [br]to be careful that we do not mix

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with the tax concept when we[br]are talking with accounting

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because there may be some differences.

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Ok, so we will start as usual today [br]with the lecture

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in which I will pose[br]four multiple choice questions.

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You will answer the questions, [br]and this will be a good feedback

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for you and for me about [br]the understanding of some basic concepts

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of this topic.

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If I see that the distribution of [br]your answer is not very good

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which is a good feedback [br]in the sense that that lets me explain

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why this answer is correct [br]or why it's not correct

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for your own learning.

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We will discuss that and I will use [br]these questions to explain

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probably some of the concepts[br]if they are not clear.

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So please feel free as usual to ask [br]any question during the lecture

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and then during the workshop.

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Last week we talked for more than [br]four and a half hours

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in the whole thing because [br]of the number of questions

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but probably today we will be less than [br]that because the topic is more specific

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but I am happy to answer all the questions[br]to explain well,

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my main purpose is for you[br]to understand these topics.

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That is the main purpose because then[br]you will be evaluated on this topic

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The second assessable homework [br]will be next week

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after the topic four, [br]module four.

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So that assessable homework two [br]includes this module,

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module three, [br]adjusting and closing entries

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and also the module four.

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That's why it's very important, [br]if there is anything you do not understand

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please ask, ok?

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I hope no Jade (INAUDIBLE)

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Jade I hope it will not be [br]four and a half hours.

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Ok, for me it's ok.

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I have enough energy I think [br]to beat four and a half hours.

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I feel sorry for you sometimes but [br]maybe you're very tired after that time

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but we will do the best we can.

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Ok, so we will start [br]with the questions...

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Here we have the first question, ok?

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Have a look.

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The question is when is the $1000[br]considered to be earned?

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So it's about the day in which this [br]is considered to be earned.

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Look at all the dates that you [br]have there and then define

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and you can vote for your answer

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When they are earned?[br]Take your time.

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Pima can't see properly, ok.

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Pima, you can zoom,[br]I will put a bit bigger.

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Maybe that can be...

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Ok, good.

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Ok, what is the answer?

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We have a distribution of answers [br]in the poll

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so it's good to explain a bit.

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That is the feedback I need,[br]so if there are

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a whole distribution[br]of your answers means, yeah.

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I need to explain how can we determine[br]when the $1000 are earned.

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Most of you actually answered correctly[br]but there are of course,

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there are many other different answers.

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So this question is about [br]when revenue is earned, ok?

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That is the question, [br]we are using accrual accounting.

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In accrual accounting revenue is recorded[br]when it is earned

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not when cash is received,

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and expenses when they are incurred[br]not when they are paid, ok?

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So we need to identify from the dates[br]when these $1000 are earned.

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The dress manufacturer received[br]a purchase order for 10 dresses

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for a total price of $1000,[br]15th November.

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On 15th November the manufacturer[br]received the order, nothing happened,

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so the revenue is not earned, ok?

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The 10 dresses were delivered [br]on 30th November.

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Delivered means that revenue is earned.

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When is revenue earned?

0:14:38.574,0:14:41.859
When the products are delivered [br]to the customer.

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They are passed from the company [br]to the customer.

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At that point, revenue is earned.

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In the case of services,[br]it's when services are provided.

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When the service is provided,[br]service revenue is earned.

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So that is the correct answer, ok?

0:15:08.827,0:15:14.429
There is some echo, probably [br]somebody has the microphone on.

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So this is the correct answer,[br]and the other dates,

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the customer is sent an invoice [br]on 5th December.

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No, the producer already delivered it, [br]doesn't matter that the invoice was sent

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after the delivery of the products.

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The payment, that means the check [br]is received 10th December.

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Again, it's not related with when we [br]receive the payment

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or when we bank the payment.

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So, the correct answer is that.[br]any questions?

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What is the answer Adash?

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I put here, can you see the blue...

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I wrote in the screen, [br]the blue circle.

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It doesn't save.

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30th November, that is the correct answer.

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I'm not sure if... Can you see [br]because I drew a blue circle in C

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Can you see that?

0:16:20.631,0:16:26.204
Ah, it's not a line.[br]Double is in the white space.

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Ah, I didn't know that. Ok.[br]Ok, interesting.

0:16:32.772,0:16:40.402
In my screen it's exactly in C[br]but probably there are differences in this

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Probably just zoom each, [br]probably.

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I move my zoom in and out[br]and the circle is in C, it doesn't move.

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Ok, we go to the next one.

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If a resource has been consumed [br]but an invoice has not been received

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at the end of the accounting period,[br]which of this is correct?

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I will update...[br]It doesn't move the page.

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Ok, if you cannot follow this [br]I can change to put...

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Yes, I will reset the board.

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Ok, so if a resource has been consumed[br]but an invoice has not been received

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at the end of the accounting period,[br]what is the situation?

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We have some different answers[br]but most of you are correct.

0:19:14.550,0:19:17.378
The correct answer is B.

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Ok, B, an adjusting entry should be [br]recorded to recognize the expense.

0:19:26.507,0:19:32.515
Why is this? [br]Because the resource has been consumed.

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When expenses are incurred is when [br]the resources are used or consumed.

0:19:39.791,0:19:44.575
That means that we need to record [br]an expense, ok?

0:19:44.575,0:19:48.364
So in this case the only one, [br]and adjusting entry should be recorded

0:19:48.364,0:19:52.682
to recognize the expense.

0:19:52.682,0:19:55.791
Any question on this?

0:19:58.614,0:20:01.673
Is it clear?

0:20:01.673,0:20:07.627
Ok, we will go to the next one,[br]thank you Jade.

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Number three,

0:20:14.830,0:20:18.290
if an entity fails to adjust[br]the prepaid rent account

0:20:18.290,0:20:20.727
for rent that has expired,

0:20:20.727,0:20:25.324
what effect will this have on the [br]monthly financial statement?

0:20:25.324,0:20:28.969
Here you need to think a bit more[br]because it's what's happening,

0:20:28.969,0:20:34.770
the adjusting entry was not recorded,[br]what would be the effect on that?

0:20:37.834,0:20:40.140
I will update the poll.

0:20:58.284,0:21:01.244
The previous answer was B.

0:21:44.867,0:21:49.980
It is prepaid rent failed to adjust[br]for the month that was paid.

0:21:49.980,0:21:54.599
This is the prepaid rent that was recorded[br]as a prepaid rent

0:21:54.672,0:21:59.697
but now in this month the rent has expired[br]so it was used,

0:21:59.697,0:22:04.971
the office or the building[br]that we are renting was used, yeah.

0:22:37.111,0:22:42.686
You see in my poll you still chose [br]number one, is it correct?

0:22:44.310,0:22:47.416
Ah, yes, yes. [br]I didn't change the numbers,

0:22:47.416,0:22:54.344
I just updated the poll solutions,[br]but I didn't change the number.

0:22:55.914,0:23:00.270
This is for the question three, for each [br]question I update the poll,

0:23:00.465,0:23:03.747
I do not change the number because that [br]takes a bit more time

0:23:03.747,0:23:07.582
to change that number[br]so I just update the answers

0:23:07.582,0:23:13.600
to lead them in zero, [br]you come out again for each question.

0:23:17.106,0:23:24.370
Ok, so we have a distribution of answers[br]and now there is a whole distribution

0:23:24.370,0:23:29.226
of the answers,[br]so I think this is important to explain.

0:23:29.229,0:23:33.348
If an entity fails to adjust [br]a prepaid rent account

0:23:33.348,0:23:36.624
that means we have a [br]prepaid rent account

0:23:36.624,0:23:42.107
we pay in advance the rent [br]of the office,

0:23:42.107,0:23:45.580
we'll assume that this is the rent [br]of the office.

0:23:45.580,0:23:50.779
We pay in advance the rent of the office[br]before we use the office, we pay.

0:23:50.779,0:23:52.569
How do we record that?

0:23:52.569,0:23:58.389
We record that as a prepayment[br]which is an asset, we debit that,

0:23:58.389,0:24:01.433
and we credit cash.

0:24:01.433,0:24:04.457
So we debit prepayment,[br]we credit cash.

0:24:04.457,0:24:07.522
That was the original entry.

0:24:07.522,0:24:13.218
Now at the end of this period,[br]it says that the rent has expired

0:24:13.218,0:24:18.629
so we used the office for this period[br]so that is what we need to adjust.

0:24:18.629,0:24:26.923
We need to credit the prepaid rent[br]for the amount of the rent that expired

0:24:27.624,0:24:31.838
we need to credit prepaid rent[br]and we need to debit the expense.

0:24:33.538,0:24:35.454
What happens if we do not do this?

0:24:35.454,0:24:40.405
I will write in the same paper [br]what this means,

0:24:40.405,0:24:42.575
so we will...

0:24:42.600,0:24:49.440
when we do the adjustment [br]we will increase, ok, the expenses,

0:24:55.636,0:24:59.595
we increase expenses, [br]that is one of the entries,

0:24:59.595,0:25:06.405
we debit rent expense[br]and we will decrease the prepaid rent,

0:25:06.638,0:25:08.785
the prepayment, ok?

0:25:08.785,0:25:11.908
I will just put prepayment, [br]pre.

0:25:12.194,0:25:17.522
This is the prepaid rent [br]which is an asset.

0:25:19.352,0:25:24.170
What effect will this have [br]on the monthly financial statement

0:25:24.170,0:25:26.418
if we do not record this?

0:25:26.418,0:25:30.440
If we do not do this, [br]what is the effect?

0:25:30.440,0:25:33.648
What happened with the expenses?

0:25:34.162,0:25:41.853
Expenses will be understated [br]because we didn't record this.

0:25:42.472,0:25:49.549
What happens we will have in assets,[br]assets will be overstated.

0:25:49.549,0:25:53.708
So to find the right answer here[br]you need to look at all the answers.

0:25:53.708,0:26:01.214
What answers we had that assets [br]are overstated? Only D and E.

0:26:01.493,0:26:05.820
In C, well...[br]Sorry, C, D and E.

0:26:05.962,0:26:12.841
In A it doesn't say anything [br]about assets

0:26:12.841,0:26:15.556
B, nothing about assets,

0:26:16.629,0:26:21.285
so only C, D and E assets [br]will be overstated.

0:26:21.516,0:26:27.499
That is one thing because of this,[br]because we didn't decrease the prepayment

0:26:27.499,0:26:28.566
which is an asset.

0:26:28.566,0:26:32.200
Assets will be all overstated.

0:26:32.200,0:26:36.210
How will we know which one is correct?[br]C, D or E?

0:26:36.193,0:26:41.571
We need to look at those expenses[br]will be understated,

0:26:41.571,0:26:49.357
but we don't have this,[br]C, D and E talk about profits.

0:26:49.357,0:26:54.517
Then you need to relate profit [br]with expenses.

0:26:54.517,0:26:59.553
If expenses are understated,[br]what happens with profits?

0:27:00.559,0:27:06.496
Profit will be overstated, ok?[br]Profit will be overstated.

0:27:07.860,0:27:11.175
That's why E will be incorrect answer.

0:27:12.558,0:27:16.328
Is that clear that, very well?[br]Profit increases?

0:27:16.449,0:27:20.356
So we need to relate this, [br]you can see now we are using

0:27:20.360,0:27:23.443
all the elements that you had[br]planned before, ok?

0:27:23.609,0:27:26.557
Profit equals revenues plus expenses.

0:27:26.849,0:27:31.723
These expenses are understated, [br]profit is overstated.

0:27:32.790,0:27:34.965
Any question?[br]Ok.

0:27:46.522,0:27:51.855
Yes, (INAUDIBLE)[br]I need to add one more thing.

0:27:51.855,0:27:57.600
Profit will be overstated and that is [br]the answer for question D and E.

0:27:57.600,0:28:00.725
What is the difference between D and E?

0:28:01.689,0:28:08.929
Equity in D will be understated,[br]in E equity will be overstated.

0:28:09.835,0:28:13.982
So now we need to relate [br]the profit with equity.

0:28:14.467,0:28:19.708
So when profit is overstated,[br]equity is overstated.

0:28:19.708,0:28:22.770
If profit is understated, [br]Equity is understated.

0:28:22.770,0:28:24.761
So what is correct?

0:28:24.761,0:28:30.813
Asset overstated, profit and equity [br]would be overstated.

0:28:31.891,0:28:39.361
Ok, that answer your question Jade?[br]Good.

0:28:41.334,0:28:44.658
Ok, so we will go through the last one.

0:28:51.710,0:28:54.504
Here you have the last one

0:28:56.892,0:29:04.447
On 1st September Carlson Limited borrowed [br]$10,000 from the bank for three months

0:29:04.447,0:29:11.960
at the annual interest rate of 9%.[br]Annual interest rate 9%.

0:29:11.960,0:29:16.571
Principal and interest are payable [br]to the bank on 1st December,

0:29:16.571,0:29:21.837
so this is for three months long.

0:29:21.837,0:29:24.678
If the company prepares monthly [br]financial statements

0:29:24.678,0:29:29.530
the adjusting entry that the company [br]should make for interest on 30th September

0:29:29.530,0:29:35.440
that means after one month would be[br]which of these ones?

0:29:35.440,0:29:39.570
I will reupdate the poll.

0:31:38.220,0:31:44.868
Ok. So how we determine this,

0:31:44.868,0:31:50.112
we need to look at what is the interest[br]for one month

0:31:50.112,0:31:54.790
because the expense incurred in this case[br]the interest expense,

0:31:54.790,0:31:59.175
is the interest that...

0:31:59.175,0:32:03.364
that is the interest for only one month.

0:32:03.364,0:32:07.633
We are preparing the adjusting entry [br]at 30th of September.

0:32:07.633,0:32:14.645
The loan started on 1st September[br]so it's the interest for one month.

0:32:14.645,0:32:20.658
This will clarify the answer for if you[br]calculate the interest for the year.

0:32:20.658,0:32:27.210
The annual interest rate is 9%,[br]for one month it will be 9% divided by 12

0:32:27.210,0:32:31.367
that is the interest per month,[br]and then you multiply by $10000

0:32:31.521,0:32:36.512
to calculate what is the interest [br]per month which is $75.

0:32:36.895,0:32:40.380
So at the end of September [br]we need to record,

0:32:40.380,0:32:46.192
debit interest expense $75,[br]and credit interest payable

0:32:46.192,0:32:52.384
because it will not be paid until[br]1st December.

0:32:52.659,0:32:59.989
So we debit interest expense $75[br]we credit interest payable, $75,

0:32:59.989,0:33:03.741
the correct answer is D, ok?

0:33:07.344,0:33:09.995
Ok at that?

0:33:12.221,0:33:16.332
When we have a loan [br]we need to pay interest.

0:33:16.413,0:33:18.833
What is that interest?[br]It's an expense.

0:33:18.833,0:33:23.468
It's the expense incurred because [br]we borrowed money.

0:33:23.468,0:33:28.886
And we can calculate based on [br]the interest rate.

0:33:28.886,0:33:33.540
The interest rate is always given [br]and always is given per annum

0:33:33.866,0:33:36.567
so what is the annual interest rate?

0:33:36.567,0:33:41.911
In this case it is 9%, [br]you can see here.

0:33:41.911,0:33:45.858
9% is the interest rate,[br]but this is the interest rate

0:33:45.865,0:33:48.263
for 12 months, ok?

0:33:49.134,0:33:52.998
So to calculate, very well Joshua,[br]to calculate per month

0:33:52.998,0:33:59.918
we need to multiply the 9% by 112,[br]or simply divide it by 12, ok?

0:33:59.918,0:34:04.126
And then you will have what is [br]the interest per month

0:34:04.126,0:34:09.735
because between the 1st of September[br]and 30th September

0:34:09.735,0:34:13.765
we need to prepare the adjusting entries,[br]it's one month.

0:34:13.765,0:34:19.705
so the interest expense will be [br]the interest for only one month, ok?

0:34:20.148,0:34:26.750
So very good.[br]Good Adash and that is $75.

0:34:27.648,0:34:30.242
Ok, so we've finished [br]the multiple choice questions,

0:34:30.242,0:34:36.580
do you have any questions about concept[br]because now we will apply the concept

0:34:36.580,0:34:40.856
in exercises about adjusting entries,

0:34:40.856,0:34:45.518
so any question about concepts that [br]you would like to ask at this point?

0:34:49.307,0:34:53.115
All good?[br]Ok.

0:34:53.808,0:34:58.440
So, we will go...[br]Excellent Ruby, thank you.

0:34:59.341,0:35:06.655
Yes, yeah, we will go through [br]the practice questions now.

0:35:07.450,0:35:12.416
And I will start briefly with a very...

0:35:13.150,0:35:15.980
a very brief review of what[br]you have learnt

0:35:15.980,0:35:18.499
about adjusting entries.

0:35:21.465,0:35:24.459
It is only three months,[br]just another.

0:35:24.459,0:35:28.102
It's only three months long because [br]it starts on 1st September

0:35:28.102,0:35:32.437
and is payable on 1st December.

0:35:32.555,0:35:35.413
The interest and the principal both.

0:35:35.413,0:35:43.740
So you pay back the $10000 on 1st December[br]with all the interest of the three months.

0:35:45.972,0:35:54.631
Ok, now we will talk a bit about[br]adjusting entries.

0:35:59.407,0:36:03.119
I will explain using this diagram [br]that you have in your PowerPoint

0:36:03.119,0:36:07.590
and you have seen in your videos,[br]I will not go into whole detail of course

0:36:07.590,0:36:12.646
but just with this...[br]this is the big summary.

0:36:12.837,0:36:15.274
The big summary of adjusting entries.

0:36:15.793,0:36:21.928
We have two types [br]of adjusting entries

0:36:21.928,0:36:25.435
or I would say four types[br]if we combine revenues and expenses.

0:36:25.435,0:36:30.214
But we have the accruals [br]and we have the prepayments, ok?

0:36:30.214,0:36:34.442
They are two different adjusting entries.[br]What means accrual?

0:36:34.442,0:36:39.583
Accrual if we're talking about revenue [br]means receivable, ok?

0:36:39.583,0:36:47.481
Accrued revenue it will be the same as [br]to say revenue receivable.

0:36:48.178,0:36:52.611
Accrued expenses when you see this term,[br]accrued expenses,

0:36:52.611,0:36:56.630
that means expenses payable, ok?

0:36:56.630,0:37:00.659
So accruals means receivable or payable

0:37:00.659,0:37:05.097
depending on whether it's revenues [br]or expenses.

0:37:05.830,0:37:08.825
And then we have the prepayments.

0:37:08.825,0:37:14.014
Prepayments means payments in advance, [br]ok?

0:37:14.274,0:37:20.879
We can receive a payment in advance[br]and that is what we call

0:37:21.161,0:37:25.809
unearned revenue or revenue received [br]in advance, ok?

0:37:25.809,0:37:30.018
That is the payment received [br]in advance,

0:37:30.168,0:37:36.344
Or we can pay in advance and that is [br]what we call prepayments.

0:37:38.188,0:37:43.141
So these adjustments, [br]and these are all the adjustments,

0:37:43.141,0:37:47.460
there are no other adjustments for [br]timing differences.

0:37:47.460,0:37:50.797
There are adjustments to correct errors,[br]we will not go there,

0:37:50.797,0:37:53.416
we are talking about the timing difference

0:37:53.416,0:37:57.612
that means to record revenues [br]when they are earned,

0:37:57.612,0:37:59.852
expenses when they are incurred.

0:37:59.852,0:38:03.301
All the purpose of adjusting entries [br]is that,

0:38:03.301,0:38:06.594
to record the revenues [br]in the accounting period

0:38:06.594,0:38:12.992
that are earned in that accounting period[br]and to record expenses that are incurred

0:38:12.992,0:38:16.222
in that accounting period.

0:38:16.222,0:38:20.810
From the normal transactions that[br]you learnt last week,

0:38:20.810,0:38:25.358
we may have many cases in which revenue [br]was not recorded,

0:38:25.358,0:38:30.128
expenses was not recognized as well, [br]and we need to adjust them

0:38:30.128,0:38:33.167
because the main purpose [br]of the financial statements

0:38:33.167,0:38:38.850
in particular the income statement[br]is to show the revenues

0:38:38.850,0:38:43.144
earned in that period,[br]in the period of the income statement

0:38:43.144,0:38:48.143
and to show the expenses incurred [br]in the same period.

0:38:48.143,0:38:51.120
So that is the purpose [br]of adjusting entries,

0:38:51.120,0:38:58.742
to reflect revenues earned and expenses [br]incurred in the accounting period.

0:38:59.127,0:39:03.012
So this is the big summary.[br]Now how do we deal with this?

0:39:03.012,0:39:09.316
Well, in the case of prepayments

0:39:09.316,0:39:11.691
in the case of prepayments

0:39:11.691,0:39:18.496
we have different accounts that can[br]be considered as a prepayment.

0:39:18.496,0:39:23.228
One is the prepaid expenses like

0:39:23.228,0:39:27.064
prepaid insurance, prepaid rent,

0:39:27.064,0:39:32.587
but there are others that we can give [br]the same treatment of this prepayment

0:39:32.587,0:39:36.644
which is supplies or depreciations.

0:39:36.644,0:39:41.831
That means the payments that [br]the company makes in advance

0:39:41.831,0:39:45.224
and therefore they are considered [br]as prepayments.

0:39:45.224,0:39:50.326
So what are the terms involved [br]in this prepaid expenses?

0:39:50.326,0:39:56.233
Well, we have an asset that has an [br]unadjusted balance.

0:39:56.233,0:40:03.169
For example, we have prepaid insurance.[br]That is an account of asset.

0:40:03.169,0:40:09.239
And we do not adjust this because we pay [br]for that at the beginning of the t,

0:40:09.239,0:40:15.375
ok, 1st of January for example,[br]and then on the 30th June we are halfway

0:40:15.375,0:40:19.095
of the total period provided [br]by the policy.

0:40:19.095,0:40:24.319
The policy normally, [br]the insurance policy covers 12 months.

0:40:24.319,0:40:27.631
So we are using the policy [br]during 12 months.

0:40:27.631,0:40:30.099
But what's happening in June?

0:40:30.099,0:40:35.796
Well, we do not have the same amount [br]in assets because we already consumed

0:40:35.796,0:40:41.811
half of the policy, six months,[br]so half of the policy has been consumed.

0:40:42.597,0:40:46.739
Then we need to adjust the amount[br]in assets.

0:40:46.739,0:40:52.340
Here you had the unadJusted balance [br]of the asset,

0:40:53.010,0:40:56.220
that is the total amount of the policy,[br]we need to adjust that.

0:40:56.422,0:41:00.526
How do we adjust that?[br]We need to record an expense.

0:41:00.526,0:41:05.873
An expense for the six months use [br]of the policy.

0:41:05.873,0:41:10.485
So we will record debit expense,[br]that is the adjusting entry,

0:41:10.485,0:41:15.689
we debit the expense, [br]and we decrease the asset

0:41:15.689,0:41:21.224
that means we credit [br]the prepaid insurance.

0:41:21.224,0:41:26.732
So you can see here,[br]this is your adjusting entry.

0:41:26.732,0:41:29.940
We have a debit entry, [br]we have a credit entry.

0:41:29.940,0:41:35.539
We debit insurance expense, [br]we credit prepaid insurance.

0:41:35.539,0:41:39.956
So this is one case.

0:41:39.956,0:41:43.882
And the same we will use for prepaid rent,

0:41:43.882,0:41:49.556
for supplies, for depreciation, ok?

0:41:49.556,0:41:52.519
Jade did the question.

0:42:00.957,0:42:03.840
Oh good, excellent Jade.[br]That's my purpose,

0:42:03.921,0:42:08.760
just to explain in detail what it means, [br]this thing.

0:42:08.760,0:42:12.478
Is there anybody that might have [br]a question on this?

0:42:15.421,0:42:19.849
We will go through the four[br]that are adjusting entries.

0:42:19.849,0:42:24.651
This is related to the prepaid expenses.

0:42:26.994,0:42:30.579
Ok, we go through the second one.

0:42:30.960,0:42:35.972
The second one is what we call[br]the un-earned revenues.

0:42:35.972,0:42:41.869
So revenues received in advance,[br]what is the concept?

0:42:42.343,0:42:46.967
Imagine that the company [br]has a building,

0:42:46.967,0:42:50.618
and they are renting offices

0:42:50.618,0:42:56.641
from this building so they have a [br]number of clients that rent offices.

0:42:57.331,0:43:02.371
And they ask the tenants[br]to pay in advance

0:43:02.371,0:43:05.526
before they start using the building,

0:43:05.526,0:43:10.682
they have to pay for example [br]three months in advance.

0:43:10.682,0:43:14.341
So the company received the cash [br]for this,

0:43:14.341,0:43:18.327
but the tenant still is not using [br]the office,

0:43:18.327,0:43:20.480
so how will we record this first entry?

0:43:20.480,0:43:22.776
This is the entry that you learnt [br]last week,

0:43:22.776,0:43:24.505
this is a normal transaction.

0:43:24.505,0:43:28.881
The company receives cash [br]so we will debit cash, ok?

0:43:28.881,0:43:33.829
And we will have this [br]unearned revenue

0:43:33.829,0:43:37.820
or rent revenue received in advance

0:43:37.820,0:43:42.335
which is a liability for that amount.

0:43:42.515,0:43:44.388
Why is this a liability?

0:43:44.388,0:43:49.347
Because at this point the company [br]has not provided yet

0:43:49.347,0:43:53.167
the office for the tenant to use, ok?

0:43:53.167,0:43:58.676
The tenant has not used the office yet,[br]they pay in advance.

0:43:58.676,0:44:02.515
So we have a liability because we have [br]an obligation to provide the office,

0:44:02.515,0:44:05.800
the tenant already paid.

0:44:05.800,0:44:09.097
Now, what happens after one month

0:44:09.097,0:44:12.168
if we are doing financial statements [br]every month.

0:44:12.168,0:44:17.360
We need to prepare an adjusting entry[br]because we already provided this service

0:44:17.360,0:44:20.024
to the tenant,[br]we already provided the office,

0:44:20.024,0:44:24.569
the tenant used this resource [br]already one month,

0:44:24.569,0:44:29.265
so we need to adjust [br]our liability accounts.

0:44:29.265,0:44:33.740
So the liability account has [br]an adjusted balance, ok?

0:44:33.740,0:44:38.921
When the tenant pays in advance,[br]and now after one month

0:44:38.921,0:44:44.526
we need to reduce this for the month[br]the office was already used.

0:44:44.526,0:44:50.036
So we will debit this liability[br]that is part of the adjusting entry,

0:44:50.036,0:44:57.010
and we will credit revenue because now[br]we earn this revenue,

0:44:57.010,0:44:59.862
that is the rent revenue.

0:44:59.862,0:45:03.753
We earn that because [br]we already provided one month

0:45:03.753,0:45:09.106
the renting of the office to the tenant.

0:45:09.106,0:45:13.480
So here you have again, [br]the adjusting entry.

0:45:13.480,0:45:17.149
We have one debit entry,

0:45:17.149,0:45:22.003
the rent revenue received in advance,

0:45:22.003,0:45:25.405
a debit entry, [br]and we will have a credit entry

0:45:25.405,0:45:30.128
which is simply rent revenue.

0:45:33.221,0:45:36.352
Any question on this second one?

0:45:40.498,0:45:44.468
We will practice with many[br]exercises today

0:45:44.468,0:45:50.096
for you to have a very, very clear [br]understanding of the adjusting entries.

0:45:51.183,0:45:54.743
Ok, the last two.

0:45:54.743,0:45:59.424
The last two I would say they are simple[br]adjusting entries.

0:45:59.852,0:46:04.864
We have accrued revenues.[br]As I mentioned before,

0:46:04.864,0:46:11.580
accrued revenues means [br]revenues receivable.

0:46:11.580,0:46:18.933
This is the case when the company[br]sells products or provides services

0:46:19.146,0:46:23.979
but we still do not record that sale

0:46:24.077,0:46:27.947
and we have not received the cash yet,

0:46:27.947,0:46:32.154
but the service is provided[br]or the products are delivered

0:46:32.154,0:46:34.165
so we need to record revenue.

0:46:34.165,0:46:38.985
If we have not recorded this [br]in the normal journal entry

0:46:38.985,0:46:44.525
that you learnt last week,[br]we will need to record the revenue.

0:46:44.525,0:46:49.439
Sales revenue or service revenue,[br]so we credit this.

0:46:49.439,0:46:53.925
What will be the other accounting ball?[br]It will be the receivable.

0:46:53.925,0:46:56.579
An accounts receivable which is an asset

0:46:56.579,0:47:00.844
so here you have debit [br]the accounts receivable

0:47:00.844,0:47:05.273
credit service revenue [br]or sales revenue,

0:47:05.273,0:47:10.324
depending on whether we are [br]selling produce or providing services.

0:47:10.324,0:47:13.454
So that is the third adjusting entry

0:47:13.454,0:47:17.980
and the last adjusting entry [br]is accrued expenses.

0:47:17.980,0:47:23.171
That means expenses payable.

0:47:23.171,0:47:29.596
So this is the case when we have [br]an expense incurred

0:47:29.596,0:47:35.908
but we have not recorded that,[br]the most typical case is employees

0:47:35.908,0:47:40.791
that work during the month.[br]We have not paid their salaries yet

0:47:40.791,0:47:45.246
because we pay the first days [br]of the following month,

0:47:45.246,0:47:49.147
so we didn't record the expense[br]but they already worked,

0:47:49.147,0:47:52.503
so there is a resource that has [br]been consumed

0:47:52.503,0:47:56.612
and therefore we need [br]to record an expense.

0:47:56.612,0:48:04.786
We need to record an expense [br]and so we debit salaries expense,

0:48:04.786,0:48:09.284
for example, but because we have [br]not paid yet in this period,

0:48:09.284,0:48:14.855
we need to record a credit in this [br]liability which is salaries payable.

0:48:14.855,0:48:20.223
So here we have our adjusting entry.

0:48:20.833,0:48:28.367
This is in a very brief summary what [br]you have learnt about adjusting entries.

0:48:28.367,0:48:31.025
Any question at this point?

0:48:37.439,0:48:39.089
All good?

0:48:39.089,0:48:43.885
So we can now apply these two [br]practical exercises

0:48:43.885,0:48:47.621
and we will work with many [br]adjusting entries,

0:48:47.621,0:48:52.948
so you will have the opportunity,[br]to practice now with this

0:48:55.675,0:48:57.664
so I will put that...

0:49:22.822,0:49:26.713
Can you see the exercise?[br]I am not sure about the zoom,

0:49:26.786,0:49:32.234
if it is ok or not,[br]but I hope it's ok.

0:49:32.729,0:49:36.765
Ok, excellent, excellent.[br]Thank you Jade, thank you all of you.

0:49:37.105,0:49:44.169
Ok, so we will apply to this exercise[br]and we will start the exercise

0:49:44.169,0:49:47.828
at the point that we left last week.

0:49:47.828,0:49:50.516
Do you remember what we did last week?

0:49:50.516,0:49:55.753
We prepared the normal journal entries [br]that come from transactions

0:49:55.753,0:50:00.390
and then we post the journal entries [br]into ledger accounts,

0:50:00.390,0:50:04.027
and then we prepare a trial balance.

0:50:04.027,0:50:08.359
And we call that the unadjusted [br]trial balance

0:50:08.359,0:50:14.052
because it's a trial balance that [br]is prepared before the adjusting entries.

0:50:14.052,0:50:21.048
Ok, so we will start with this,[br]the unadjusted trial balance, ok?

0:50:21.048,0:50:24.151
at 30th June.

0:50:24.151,0:50:29.977
And as you remember the trial balance[br]is simply the list of all the accounts,

0:50:29.977,0:50:34.291
here you can see cash, account receivable,[br]prepaid insurance, supplies,

0:50:34.291,0:50:37.366
all the accounts of the company, ok?

0:50:37.366,0:50:41.263
With the ending balance at [br]the end of the period

0:50:41.263,0:50:44.760
so you can see the trial balance,[br]the unadjusted trial balance

0:50:44.760,0:50:49.603
is prepared at the end of the period[br]is the first thing that we do

0:50:49.603,0:50:54.480
at the end of the period before preparing[br]the adjusting entries, ok?

0:50:54.480,0:50:57.204
So we prepare the unadjusted trial balance

0:50:57.204,0:51:01.653
and we have the ending balance [br]for each of these accounts.

0:51:01.653,0:51:06.518
The ending balance of cash,[br]the ending balance of accounts receivable

0:51:06.518,0:51:13.539
and service revenue is sitting [br]on the fence, yes.

0:51:14.129,0:51:16.255
It moves to the fence, [br]it should be here.

0:51:16.255,0:51:19.093
It should be on the column of credit [br]of course,

0:51:19.093,0:51:21.474
that is a typing thing.

0:51:21.474,0:51:25.383
Service revenue should be [br]in the credit side of course,

0:51:26.033,0:51:28.554
76,600.

0:51:28.554,0:51:33.495
Salaries expense, rent expense,[br]so you have all of these.

0:51:33.948,0:51:39.420
The characteristic of the trial balance is[br]that total debit should equal total credit

0:51:39.420,0:51:46.195
and you can see total debit, 201200[br]and the same as total credit.

0:51:46.195,0:51:51.282
So this is our starting point [br]for this exercise.

0:51:51.282,0:51:52.546
What means this?

0:51:52.546,0:51:56.087
All the normal journal entries[br]are already recorded,

0:51:56.087,0:51:59.611
all of them are posted to [br]the general ledger

0:51:59.611,0:52:02.959
and we prepare this unadjusted [br]trial balance.

0:52:02.959,0:52:08.458
What is next?[br]Well, here you have the exercise.

0:52:08.458,0:52:15.881
One thing before we go to the next page[br]these are not the total,

0:52:15.881,0:52:19.362
all the accounts of the company.

0:52:19.362,0:52:24.130
There are accounts that they have[br]zero balance,

0:52:24.130,0:52:27.324
and of course they are not in the [br]unadjusted trial balance

0:52:27.324,0:52:30.134
but here you have them listed.

0:52:30.134,0:52:32.995
The accumulated depreciation [br]is one account,

0:52:32.995,0:52:37.774
office equipment another,[br]electricity payable, salaries payable,

0:52:37.774,0:52:38.868
and so on.

0:52:38.868,0:52:42.204
So there are a number of accounts [br]that have zero balance,

0:52:42.204,0:52:48.200
and therefore they are not in this[br]unadjusted trial balance,

0:52:48.200,0:52:52.332
but they are accounts.

0:52:53.200,0:52:58.745
So we will go through the exercise.

0:52:59.079,0:53:01.498
Here we have added data.

0:53:01.498,0:53:06.184
This added data refers to [br]the adjusting entries

0:53:06.184,0:53:08.658
that we need to prepare.

0:53:08.658,0:53:13.106
They are related to revenues earned

0:53:13.106,0:53:16.175
or income earned and expenses incurred

0:53:16.175,0:53:23.127
so we need to prepare one adjusting entry[br]for each of this additional data

0:53:23.127,0:53:26.700
and that is what is required,[br]if you look at the question requirements,

0:53:26.700,0:53:29.805
prepare the adjusting entries [br]for the month of June

0:53:29.805,0:53:32.502
so this is just for one month.

0:53:32.502,0:53:35.167
Prepare the adjusted trial balance

0:53:35.167,0:53:38.419
that is prepared after[br]the adjusting entries

0:53:38.419,0:53:42.033
and we will calculate the profit [br]for the month.

0:53:42.033,0:53:48.050
So we will go one by one[br]to see how to prepare this.

0:53:48.050,0:53:53.938
And I will detail all of them [br]in this first exercise

0:53:53.938,0:53:58.187
and then I will go a bit more quick[br]in the second exercise,

0:53:58.187,0:54:01.451
or in the exercise of the workshop.

0:54:01.451,0:54:07.813
So the first, supplies on hand [br]at 30th June total 7200.

0:54:08.759,0:54:18.775
What this tells you,[br]supplies on hand total 7200.

0:54:19.432,0:54:25.677
Well, if this is the data we have[br]that means somebody went to the...

0:54:25.677,0:54:29.916
To the place that we have the supplies,[br]they count them,

0:54:29.916,0:54:33.127
they value them and at the end [br]the conclusion is

0:54:33.127,0:54:38.626
we have 7200 supplies on hand.[br]That means not used.

0:54:39.457,0:54:44.951
How much do we have in our [br]unadjusted trial balance?

0:54:44.951,0:54:52.406
So we need to look at here, [br]supplies. 13,300.

0:54:52.406,0:54:59.068
But it says that we have only 7200 so [br]that means we need to make an adjustment.

0:54:59.469,0:55:04.754
We need to reduce this 13,600

0:55:05.242,0:55:09.677
and to record an expense,[br]a supplies expense for the difference.

0:55:09.709,0:55:18.381
So 13600 less 7200 that we have,

0:55:18.381,0:55:21.672
that means we have consumed

0:55:21.672,0:55:26.615
or used 6400 of supplies,

0:55:26.615,0:55:28.883
and that is the adjusting entry.

0:55:28.883,0:55:32.186
We need to record the expense for this

0:55:32.186,0:55:37.391
so we will have a supplies expense of 6400

0:55:37.391,0:55:43.392
and we will credit supplies to reduce[br]the supplies account.

0:55:43.771,0:55:50.924
So here you have the first journal entry,[br]adjusting entry.

0:55:50.924,0:55:58.922
Supplies expense debit 6400,[br]and supplies credit 6400.

0:56:00.392,0:56:06.246
When you do this and you credit supplies[br]by 6400,

0:56:06.775,0:56:11.748
if you remember the ledger accounts[br]when we credit one of the ledger accounts

0:56:11.748,0:56:18.007
that is supplies, that will decrease [br]the balance of supplies account

0:56:18.007,0:56:22.858
which is 13600,[br]so now the new balance of supplies

0:56:22.858,0:56:31.015
is 7200 which is the amount that we [br]really have in supplies.

0:56:34.733,0:56:38.433
Any question on this?

0:56:38.433,0:56:42.410
So this is the first adjusting entry.

0:56:42.410,0:56:44.948
Yes Natalia, yes please tell me.

0:56:45.026,0:56:49.842
NATALIA: Hello Herman,[br]yeah I see...

0:56:49.842,0:56:54.040
I print out this, I guess many[br]of us do print out

0:56:54.040,0:56:58.017
this worksheet information

0:56:58.017,0:57:04.225
of the sample of the questions,[br]and we have ended one,

0:57:04.225,0:57:09.888
and last lecture I was asking you [br]to let us print full ones

0:57:09.888,0:57:15.560
because it's hard to follow up because [br]our worksheet is empty at the moment,

0:57:15.560,0:57:22.671
it means we follow up on the computer[br]but can't do notes straight on our papers.

0:57:23.036,0:57:27.014
Yeah, this will be great because...

0:57:27.014,0:57:33.616
HERMAN: Yeah, actually I remember that[br]and at 10 am today,

0:57:33.616,0:57:40.100
I uploaded the solution for the lecture [br]exercise and the workshop exercise.

0:57:40.100,0:57:44.721
I opened that for you and for everybody,

0:57:44.721,0:57:49.525
so you can print them and you can be [br]with the solutions

0:57:49.525,0:57:53.593
and you can follow the solutions[br]NATALIA: Ok, now yeah...

0:57:53.593,0:57:57.978
You do this adjusting notes [br]much in advance

0:57:57.978,0:58:03.235
but is it, you can give us indication[br]when you do apply the solution

0:58:03.235,0:58:07.838
on a regular basis because our paper [br]is usually a couple days before

0:58:07.838,0:58:10.889
I print out,[br]and have this, yeah.

0:58:10.889,0:58:16.241
HERMAN: I will do that because I agree[br]with what you asked me last week.

0:58:16.241,0:58:19.772
I agree that it's good that [br]you have the solution

0:58:19.772,0:58:24.471
to follow the lecture and the workshop[br]with the solution so you can take notes

0:58:24.471,0:58:26.897
in the solution which will be easier.

0:58:26.897,0:58:34.058
That' s why I opened today at 10 am and [br]I put an announcement on the blackboard

0:58:34.058,0:58:38.575
for all of you to know that they are ready[br]for you to print,

0:58:38.575,0:58:43.840
and I think that is what we talked[br]because the idea

0:58:43.840,0:58:48.502
is that you try to do this by yourself[br]without the solutions,

0:58:48.502,0:58:50.204
and that is the main purpose,

0:58:50.204,0:58:53.535
that's why I put in the same day [br]of the lecture and workshop.

0:58:53.535,0:58:58.683
I will release these only for you [br]to print out and to take that today,

0:58:58.683,0:59:00.669
later in workshop.

0:59:00.669,0:59:05.312
NATALIA: Ok, and how many it means[br]they're empty for purpose,

0:59:05.312,0:59:10.208
we have a chance to try,[br]and field solution is gonna be

0:59:10.208,0:59:14.529
in the very last day before lecture,[br]for future use.

0:59:14.529,0:59:17.976
HERMAN: Yes, I will do that in that way[br]all the time.

0:59:17.976,0:59:21.081
So I actually did the two purposes.

0:59:21.081,0:59:24.012
One purpose is for you to try [br]without solutions,

0:59:24.012,0:59:26.763
just with your learning from the videos [br]and PowerPoints,

0:59:26.763,0:59:31.587
and second, to have the solutions [br]before the lecture and workshop

0:59:31.587,0:59:36.399
so you can go through them as well.

0:59:38.033,0:59:44.240
Ok, good. [br]Excellent Natalia, thank you.

0:59:44.682,0:59:48.373
Now we can go to the second one.

0:59:51.862,0:59:58.856
The second says an electricity bill [br]for 1200 has not been recorded

0:59:58.856,1:00:04.908
and will not be paid until next month,[br]so what does this description mean?

1:00:04.908,1:00:09.713
If the company receives an electricity [br]bill for 1200,

1:00:09.713,1:00:14.563
it means that they used, [br]they consumed electricity for this amount.

1:00:14.563,1:00:17.126
It is already consumed therefore [br]it is an expense,

1:00:17.126,1:00:18.862
but has not been recorded.

1:00:18.862,1:00:21.933
So the only thing, [br]this is a simple adjusting entry,

1:00:21.933,1:00:26.339
the only thing that we need to do [br]is to record the expense,

1:00:26.339,1:00:32.746
so we will have electricity expense, 1200,[br]but because it was not paid this month,

1:00:32.746,1:00:37.570
next month will be paid,[br]so we will credit a liability

1:00:37.570,1:00:43.909
which is electricity payable,[br]and that is what you have here.

1:00:44.062,1:00:48.061
So in this adjusting entry [br]we will record

1:00:48.061,1:00:51.826
debit electricity expense 1200,

1:00:51.826,1:00:57.356
credit electricity payable 1200.[br]Yes Natalia?

1:01:01.052,1:01:05.831
Stella, Stella. I need to put you [br]as a caption here...

1:01:09.988,1:01:11.212
Stella.

1:01:20.284,1:01:24.684
Give me a second because I need [br]to put the caption here of Stella

1:01:24.684,1:01:30.619
but I don't find you in the list,[br]we have a big list of students.

1:01:42.231,1:01:45.610
Near the top, ok?

1:01:46.147,1:01:50.947
Ah, there it is. T[br]Ok, thank you Stella

1:01:56.544,1:02:04.888
Ok, yes Jade.[br]You have a question?

1:02:05.377,1:02:06.695
JADE: I do, yes.

1:02:06.695,1:02:11.808
I put there instead of electricity payable[br]I put accounts payable.

1:02:11.808,1:02:15.222
would that be okay or is that a problem?

1:02:15.222,1:02:17.550
HERMAN: It is ok.

1:02:18.598,1:02:23.465
If we are very strict in that

1:02:23.465,1:02:27.860
which is not the case because accounts [br]payable is reasonable to use this.

1:02:27.860,1:02:33.797
When we talk about accounts payable,[br]It's the accounts payable to suppliers,

1:02:33.797,1:02:40.630
so we always link accounts payable[br]for the amount that we owe to suppliers.

1:02:40.630,1:02:45.635
That's why it's better, [br]I would not consider it wrong

1:02:45.635,1:02:50.879
but it's better to put this explicitly[br]electricity payable because this is...

1:02:50.879,1:02:58.373
These are utilities that the company [br]received,

1:02:58.373,1:03:01.824
so electricity or water [br]or that type of thing.

1:03:01.824,1:03:05.592
So I would prefer to put separated [br]from accounts payable

1:03:05.592,1:03:11.397
just because the concept of accounts [br]payable is linked to suppliers of produce.

1:03:11.397,1:03:16.256
Ok? But it's not wrong.

1:03:16.256,1:03:21.713
Ok, any other question for the second...

1:03:21.713,1:03:25.992
for the second adjusting entry?

1:03:29.295,1:03:33.845
So we'll go through the third [br]adjusting entry.

1:03:34.256,1:03:40.375
Insurance policy, here you can see [br]one statement that didn't say anything,

1:03:40.375,1:03:43.975
and you cannot do anything unless [br]you go to the data

1:03:43.975,1:03:48.198
that is in the unadjusted trial balance.

1:03:48.198,1:03:54.346
The statement says the insurance policy [br]is for a year commencing 1st May 2019.

1:03:54.346,1:03:58.207
Well, this is all what you need to[br]prepare the adjusting entries,

1:03:58.207,1:04:00.981
because you have the unadjusted [br]trial balance.

1:04:00.981,1:04:06.032
The only information here is that the [br]insurance policy is for one year,

1:04:06.032,1:04:09.528
12 months, and starts on 1st May 2019,

1:04:09.528,1:04:15.493
so we will see what is the information [br]we have in the unadjusted trial balance.

1:04:15.493,1:04:21.174
First, this company started [br]on 1st May 2019

1:04:21.174,1:04:25.167
which is the same day [br]of the insurance policy, ok?

1:04:25.167,1:04:28.736
Insurance policy is added 1st May 2019.

1:04:28.736,1:04:34.921
And the trial balance is at June 30.

1:04:37.121,1:04:42.598
What is the prepaid insurance?[br]9600.

1:04:43.145,1:04:51.058
9600, this is for 12 months, [br]so how much is per month?

1:04:52.045,1:04:56.902
It is 800, so this is equal, ok,

1:04:56.902,1:05:03.365
800. [br]800 per month.

1:05:05.956,1:05:11.115
800 per month.[br]Sorry for my numbers, I'm not very good.

1:05:12.935,1:05:18.374
So 800 is the insurance expense[br]that how much we use

1:05:18.704,1:05:23.365
or consume of this policy per month.[br]800 per month.

1:05:23.365,1:05:30.079
Now how many months between [br]1st May until 30th June?

1:05:31.619,1:05:34.219
Two months, exactly.[br]Two months.

1:05:34.448,1:05:38.607
So what will be the expense [br]that we have to recognize

1:05:38.607,1:05:42.895
or to record on the 30th of June?

1:05:42.895,1:05:47.112
The expense for two months, [br]that means 1600.

1:05:47.694,1:05:51.777
That should be a debit [br]in insurance expense,

1:05:51.777,1:05:57.752
and a credit to prepaid insurance[br]to reduce this 9600

1:05:57.752,1:06:02.817
because we already consumed 1600[br]of insurance.

1:06:02.817,1:06:10.224
So the journal entry, [br]the adjusting entry for this will be

1:06:10.224,1:06:19.778
debit insurance expense 1600,[br]credit prepaid insurance 1600.

1:06:22.803,1:06:25.500
Ok, any question on this?

1:06:30.492,1:06:35.119
Ok, so we can have a look at the...[br]Thank you Jade.

1:06:36.072,1:06:42.160
We can have a look at the next one.[br]Salaries, sorry, not salaries.

1:06:42.160,1:06:44.341
That is the next one.

1:06:44.487,1:06:49.282
Number four, services were [br]performed during the period

1:06:49.282,1:06:54.681
in relation to $3000 [br]of revenue in advance.

1:06:56.689,1:07:00.294
What does this description tell us?

1:07:00.470,1:07:06.703
First the description is telling us that [br]we received revenue in advance,

1:07:06.703,1:07:09.744
that mean we received a payment [br]in advance

1:07:09.744,1:07:16.427
and now in this period we provide services[br]for 3000 of that payment.

1:07:16.773,1:07:22.374
We need to link this with how much [br]we have in revenue received in advance

1:07:22.374,1:07:27.691
in the unadjusted trial balance[br]so we will have a look.

1:07:27.691,1:07:35.835
The unadjusted trial balance, state this [br]revenue received in advance, 4800.

1:07:35.835,1:07:42.435
Debit because we received this amount[br]and we didn't provide the services

1:07:42.435,1:07:47.949
so we have an obligation to provide them[br]and therefore it is a liability, ok?

1:07:47.949,1:07:52.080
Now we provide services for 3000 [br]of this 4800,

1:07:52.080,1:07:59.271
so we need to record a decrease in service[br]revenue received in advance,

1:07:59.271,1:08:06.085
that means we debit 3000 in this account[br]and we will have the current balance

1:08:06.085,1:08:07.945
of all these accounts,

1:08:07.945,1:08:11.343
so we debit 3000 in service revenue [br]received in advance

1:08:11.343,1:08:14.758
and we will have a credit in service

1:08:14.758,1:08:19.211
because we earned already this revenue.

1:08:19.211,1:08:23.166
We provided the service.[br]Yes Jade?

1:08:24.917,1:08:30.744
JADE: Is this classified as an adjustment[br]or is it just as a mistransaction?

1:08:30.744,1:08:35.627
HERMAN: It's an adjustment because [br]the original transaction

1:08:35.627,1:08:40.298
that we already recorded, it is here[br]in the unadjusted trial balance.

1:08:40.298,1:08:43.731
What was the original transaction?

1:08:44.223,1:08:49.762
When this happens, the service revenue[br]received in advance I will write here, ok?

1:08:50.242,1:08:55.973
We have debit cash because [br]we received the payment, ok?

1:08:56.403,1:08:59.197
That was in the previous period.

1:08:59.197,1:09:06.058
We record cash for 4800.[br]Sorry for the numbers.

1:09:07.047,1:09:13.354
So 4800. We debit cash,[br]and we credit, ok?

1:09:13.354,1:09:19.980
This revenue received in advance,[br]I will put it just like that.

1:09:19.980,1:09:24.941
Revenue received in advance [br]we credit 4800.

1:09:24.941,1:09:29.014
This is the normal journal entry. [br]This is the normal transaction

1:09:29.014,1:09:34.895
that we recorded in the last period,[br]and that's why when you look at this entry

1:09:34.895,1:09:41.692
and we post the accounts in the ledger,[br]this is what we have there, ok?

1:09:42.791,1:09:45.524
That is the original transaction.

1:09:45.524,1:09:50.075
What happens now is that [br]we just provide services.

1:09:50.422,1:09:54.523
Of course we didn't receive more money[br]because already we were paid in advance

1:09:54.523,1:10:00.411
but we provide the service [br]so we need to decrease this

1:10:00.411,1:10:05.192
obligation or liability[br]for the 3000 already provided.

1:10:09.722,1:10:15.705
Well, George, it says because the concept[br]of revenue received in advance,

1:10:16.293,1:10:20.879
the concept of that account [br]is that we received cash in advance.

1:10:20.879,1:10:24.730
That is what we received in advance,[br]cash, the payment,

1:10:25.122,1:10:29.782
so if you look at the description,

1:10:31.634,1:10:34.160
services were performed [br]during the period

1:10:34.160,1:10:37.538
in relation to.[br]In relation to what?

1:10:37.538,1:10:41.419
To revenue received in advance.

1:10:41.455,1:10:45.380
If you look at this description,[br]revenue received in advance,

1:10:45.380,1:10:51.242
what it means is that the company [br]received cash in advance

1:10:51.475,1:10:53.497
to provide the services.

1:10:53.527,1:10:58.991
The customer paid before we provide [br]the service to the customer.

1:10:58.991,1:11:03.489
Ok, so cash was involved[br]in the original transaction

1:11:03.489,1:11:08.687
and that is the transaction that [br]I showed you that I prepared,

1:11:08.687,1:11:13.363
so how was it recorded the cash received?

1:11:13.363,1:11:19.582
We debit cash and we credit revenue [br]received in advance from 4800,

1:11:19.582,1:11:22.864
that was the original transaction,[br]it's not for this period,

1:11:22.864,1:11:28.650
that was before the 30th of June[br]and that's why we have in the balance,

1:11:28.650,1:11:31.302
on 30th June we have that amount.

1:11:31.302,1:11:36.777
Now in this period the adjusting entry[br]at the end of the period,

1:11:36.777,1:11:42.310
we need to include how much [br]we provide of services.

1:11:42.310,1:11:46.703
And we provide 3000 of this 4800.

1:11:46.703,1:11:51.753
So because we provide services, [br]now we can record the service revenue,

1:11:51.753,1:11:56.549
it's a credit service revenue,[br]and we decrease the obligation.

1:11:56.549,1:12:03.814
To put the things in context,[br]here we are in the month of June.

1:12:04.816,1:12:10.132
So in June the unadjusted trial balance[br]is for June.

1:12:14.395,1:12:19.935
I will go through the depreciation[br]but do not change them...

1:12:20.189,1:12:24.058
I will go through them,[br]but here... Ok.

1:12:24.724,1:12:27.600
This is the unadjusted...

1:12:28.931,1:12:31.246
I am clear now, excellent Ann.

1:12:31.279,1:12:37.290
This is the unadjusted trial balance[br]at 30th June.

1:12:37.290,1:12:42.294
Here means that before 30th June[br]we received the cash.

1:12:42.294,1:12:47.661
Now in the adjusting entry it means that[br]also during this period before 30th June

1:12:47.661,1:12:55.708
we provide 3000 of this 4800,[br]services provided, ok?

1:12:57.478,1:13:00.754
Does this answer your question George?

1:13:06.412,1:13:12.157
Ok, excellent, good.[br]So we can go through the next one.

1:13:16.052,1:13:17.896
I am here...

1:13:17.922,1:13:25.193
The next one is quite simple because [br]salaries, 6400 are owed on 30th June.

1:13:26.416,1:13:29.666
What does this mean?[br]Salaries owed means that

1:13:29.666,1:13:36.855
the employees worked,[br]so we already consumed these results.

1:13:36.855,1:13:44.878
The work of our employees and therefore[br]we should record a salaries expense.

1:13:44.878,1:13:48.054
But they are owed, [br]that means we have not paid them,

1:13:48.054,1:13:55.201
and that's why we did not record this as a[br]transaction like you learned last week.

1:13:55.201,1:14:00.267
We need to prepare the adjusting entry,[br]so we need to record the pays,

1:14:00.267,1:14:06.191
salaries expense 6400 debit, [br]and a salaries payable

1:14:06.191,1:14:10.645
because it's owed at the end of the month[br]so it will be salaries expense

1:14:10.645,1:14:17.130
and salaries payable.

1:14:17.130,1:14:23.400
Here you have debit salaries [br]expense 6400

1:14:23.400,1:14:27.073
credits salaries payable 6400, ok?

1:14:28.093,1:14:30.748
That I think is simple.

1:14:33.508,1:14:36.377
Then we have the number six.

1:14:37.116,1:14:41.249
Office equipment has a five year life[br]with no resale value,

1:14:41.249,1:14:48.001
and is being depreciated at [br]$1440 per month for 60 months.

1:14:48.001,1:14:54.960
In this description they are telling you[br]how much is the expense, ok?

1:14:55.494,1:15:02.001
But if it is not, if it is only they said[br]the office equipment has a five year life

1:15:02.001,1:15:07.143
with no resale value depreciated using[br]the straight line method,

1:15:07.143,1:15:13.711
you will learn this in another lecture[br]the depreciation for 60 months.

1:15:13.711,1:15:20.232
If we do not have the amounts, you can[br]just go to the unadjusted trial balance

1:15:20.232,1:15:27.329
look at the office equipment account,[br]86400.

1:15:28.776,1:15:31.924
If you divide this by 60,

1:15:31.924,1:15:37.514
you will have exactly 1440 per month, ok?

1:15:38.284,1:15:42.245
So that is the depreciation expense.

1:15:42.245,1:15:45.982
Yes, a couple of work, I will not go in[br]deep in this topic

1:15:45.982,1:15:49.506
because there is a whole topic [br]about depreciation.

1:15:49.506,1:15:54.603
Yeah, I will go why credit and...

1:15:54.786,1:15:59.720
Ok, you let me finish this part [br]and I will answer the question

1:15:59.720,1:16:01.974
of the previous one.

1:16:02.590,1:16:07.561
So we had this depreciation,

1:16:07.561,1:16:09.896
what does depreciation mean?

1:16:10.465,1:16:14.421
When we purchase an equipment like this, [br]office equipment,

1:16:14.421,1:16:19.109
and we pay a big amount of money,[br]in this case how much we paid

1:16:19.109,1:16:24.770
for this office equipment,[br]it was 86400, ok?

1:16:25.676,1:16:32.761
Do you think we can put as an expense[br]86400 in the first month?

1:16:32.761,1:16:40.169
Well, of course not because we will use[br]this equipment during 60 months,

1:16:40.169,1:16:46.789
and remember an expense [br]is when we use

1:16:46.789,1:16:48.689
or consume resources.

1:16:48.689,1:16:52.744
This resource that is 86400,

1:16:52.744,1:16:58.167
it will be consumed or used [br]during 60 months

1:16:58.167,1:17:04.939
so we need to calculate how much of this[br]we use in one month,

1:17:06.029,1:17:07.986
or in two months in this case.

1:17:07.986,1:17:11.976
In two months because it's from [br]1st of May till 30th June.

1:17:11.976,1:17:18.663
How much we use of this in two months,[br]ok? Two months.

1:17:19.607,1:17:23.968
So we divide this by 60, [br]we multiply by two,

1:17:23.968,1:17:28.658
and that will be 2880

1:17:28.658,1:17:34.986
because per month is 1440 [br]when you divide by 60,

1:17:34.986,1:17:37.556
you multiply by two because [br]it's two months

1:17:37.556,1:17:39.467
and now we can record the expense.

1:17:39.467,1:17:45.392
The name of this expense[br]is depreciation expense,

1:17:45.594,1:17:51.621
so we record debit depreciation expense.[br]What is the other account?

1:17:52.419,1:17:58.611
Well the other account will be to decrease[br]this account,

1:17:58.611,1:17:59.592
office equipment,

1:17:59.592,1:18:02.778
so you can say well, [br]we credit office equipment.

1:18:02.778,1:18:07.891
That would be the case that we are doing [br]in all of these accounts,

1:18:07.891,1:18:10.634
but in the case of non-current assets

1:18:10.634,1:18:16.400
we use what we call a contra asset account

1:18:16.400,1:18:20.143
that means we keep separated [br]the decrease of this account

1:18:20.143,1:18:24.490
and the name of that account[br]is accumulated depreciation.

1:18:25.402,1:18:29.546
The effect is the same as you reduce[br]directly office equipment,

1:18:29.546,1:18:34.069
you credit office equipment[br]but in non-current assets like this,

1:18:34.069,1:18:37.062
this is a topic that we will explore[br]in detail,

1:18:37.062,1:18:44.802
we use another account and the name is[br]the accumulated depreciation.

1:18:45.581,1:18:50.001
It's an asset account [br]but with a credit entry.

1:18:50.001,1:18:55.554
So the adjusting entry for this

1:18:55.554,1:19:02.478
will be depreciation expense[br]debit 2880

1:19:02.478,1:19:11.431
and we credit accumulated depreciation[br]office equipment, ok, 2880.

1:19:15.624,1:19:17.866
Any question on this?

1:19:25.575,1:19:29.551
Ok, the last one.

1:19:36.171,1:19:42.865
The last one is number seven,[br]invoices representing

1:19:42.865,1:19:44.614
Ah, Tablynn...

1:19:44.682,1:19:50.666
Ah, ok. Before we go to the seven

1:19:51.237,1:19:53.616
there is a question about the salaries

1:19:53.616,1:19:59.381
who asked me that question [br]about the salaries?

1:20:00.299,1:20:04.507
Omar who did, in the adjusted trial, ok.

1:20:04.650,1:20:09.488
I will try to answer the two questions.

1:20:09.488,1:20:17.227
First, Trina has a question, why [br]to credit 6400 in the transaction five?

1:20:17.227,1:20:22.251
Why to credit? [br]Isn't it debit when they pay 6400?

1:20:22.251,1:20:29.982
Well, remember Trina that we, in any [br]journal entry and also adjusting entry,

1:20:29.982,1:20:33.312
we have a debit side and a credit side.

1:20:33.312,1:20:37.625
The total debit should be always equal [br]to total credit.

1:20:37.625,1:20:43.668
So what is the debit and what is [br]the credit in the 6400 that you have here

1:20:43.668,1:20:46.402
in transaction five?

1:20:46.402,1:20:52.402
Salaries of 6400 are owed at that time,[br]30th June.

1:20:52.817,1:20:58.367
So we have an expense, [br]and the expense is a debit entry, ok?

1:20:58.989,1:21:03.264
The salaries expense it will be debit.

1:21:03.264,1:21:07.425
And we have a salaries payable because[br]they were not paid,

1:21:07.425,1:21:09.960
they are owed at 30th June.

1:21:09.960,1:21:15.227
So the salaries payable, the liability[br]will be the credit entry.

1:21:15.733,1:21:21.353
So your question is why credit?[br]Well, we credit the liability account,

1:21:21.353,1:21:27.640
that means salaries payable,[br]but we debit the salaries.

1:21:27.640,1:21:32.368
What happens when we pay them in [br]the next period?

1:21:32.368,1:21:40.002
When we pay the salaries we will[br]debit the salaries payable,

1:21:40.002,1:21:45.655
so we decrease this liability,[br]and we will credit cash, ok?

1:21:45.655,1:21:48.374
That is what happened in [br]the following period,

1:21:48.374,1:21:54.459
not in this one.[br]And Tablynn...

1:21:55.168,1:21:59.022
Tablynn you asked a question [br]about the depreciation?

1:21:59.022,1:22:01.581
Yes, depreciation, well,

1:22:01.581,1:22:07.835
this is the concept that [br]we will have in detail,

1:22:08.221,1:22:10.907
there is a whole lecture about [br]depreciation

1:22:10.907,1:22:14.263
with different methods of depreciation[br]but for now,

1:22:14.263,1:22:20.357
we only need to think in the concept [br]of depreciation, the general concept.

1:22:20.357,1:22:25.941
When we purchase an equipment[br]that lasts more than one accounting period

1:22:25.941,1:22:31.133
we cannot record as an expense[br]the cost of the equipment

1:22:31.133,1:22:35.021
because we will use the equipment[br]for a number of periods,

1:22:35.021,1:22:38.757
so we need to divide the cost of [br]the equipment

1:22:38.757,1:22:43.046
into the number of periods.

1:22:43.046,1:22:47.767
So we will have just one part of the cost[br]in each period,

1:22:47.767,1:22:53.001
and the easier way is just divide the cost[br]by the number of periods.

1:22:53.001,1:22:59.160
So in this case the total amount[br]divided by 60 months that we will use

1:23:01.380,1:23:06.521
this equipment, office equipment,[br]means that we will have an expense

1:23:06.738,1:23:13.457
of 1440 per month, and we call that,[br]that expense,

1:23:13.457,1:23:18.453
we call that depreciation expense, ok?

1:23:18.453,1:23:21.248
That is the name of this account,[br]depreciation expense.

1:23:21.248,1:23:23.124
What does that mean?

1:23:23.124,1:23:28.363
It means that that is [br]the part of the equipment

1:23:28.363,1:23:33.347
that has been used [br]or consumed in one period.

1:23:34.339,1:23:37.565
And that's why we record that [br]as a debit for each month,

1:23:37.565,1:23:43.149
but here we have two months, ok?[br]Because from 1st May until 30th June

1:23:43.149,1:23:46.173
which is the time for this exercise,[br]two months,

1:23:46.173,1:23:53.741
it will be two multiplied by 1440,[br]which is 2880.

1:23:53.741,1:24:01.364
So we will record depreciation expense,[br]debit 2880.

1:24:01.745,1:24:03.587
What is the other account?

1:24:03.587,1:24:09.656
I mentioned that there is another account[br]but the name is accumulated depreciation,

1:24:09.656,1:24:14.757
so we will record a credit [br]in that account.

1:24:17.197,1:24:21.528
Ok, I'd asked how much would you deduct[br]from depreciation expense

1:24:21.781,1:24:26.618
in the adjusted...[br]Excellent Tablynn, thank you.

1:24:26.618,1:24:32.075
How much would you deduct in the [br]adjusted trial balance?

1:24:32.316,1:24:37.863
I will go through that Adash[br]because we started with

1:24:37.863,1:24:40.613
the unadjusted trial balance.

1:24:40.613,1:24:47.206
We are doing the adjustments, and then [br]I will explain how we will adjust these

1:24:47.206,1:24:51.070
to the adjusted trial balance.

1:24:51.070,1:24:57.678
How we transform the unadjusted to the [br]adjusted trial balance.

1:24:57.678,1:25:00.354
Ok, yes Trina.

1:25:02.402,1:25:08.058
TRINA: Hello, with the salaries,

1:25:08.597,1:25:14.476
we already had 6400, [br]it means that expense increased,

1:25:14.476,1:25:20.401
that's why expense is debit 6400,[br]but with the liabilities,

1:25:20.401,1:25:25.661
it means that we decrease [br]the liabilities, is that right?

1:25:25.661,1:25:28.280
HERMAN: Yes when (INAUDIBLE)

1:25:28.695,1:25:31.900
TRINA: So if we decrease the... [br](CROSSTALK)

1:25:32.410,1:25:37.180
Sorry, if we decrease the liabilities,[br]it means it debits liabilities,

1:25:37.180,1:25:38.972
is that right?

1:25:39.439,1:25:42.075
HERMAN: Yes, when we pay that is [br]another transaction,

1:25:42.075,1:25:44.066
it's not the adjusting entry.

1:25:44.066,1:25:47.960
When we pay for the liability,[br]we will credit the liability

1:25:47.960,1:25:51.625
so we decrease the liability,[br]and we will debit cash.

1:25:51.821,1:25:57.411
So we decrease cash because we are paying[br]for that liability.

1:25:57.828,1:25:59.245
But that is another (CROSSTALK)

1:25:59.245,1:26:04.636
TRINA: yeah, I'm a bit confused because [br]we decrease the liabilities,

1:26:04.636,1:26:10.715
but well you put it credit 6400.

1:26:10.715,1:26:14.479
HERMAN: Yeah, well, that is the point.[br]Trina it's good that you asked

1:26:14.479,1:26:21.408
because we should not confuse two[br]different journal entries, ok?

1:26:21.408,1:26:25.769
The journal entry that we're talking [br]in number five here,

1:26:25.769,1:26:28.130
is an adjusting entry.

1:26:28.130,1:26:32.068
We have not paid anything [br]in this journal entry.

1:26:32.068,1:26:38.456
In this transaction, we only recognize[br]that the employees worked

1:26:38.456,1:26:44.585
during the months,[br]how much we owe them for this work, 6400.

1:26:44.585,1:26:47.340
We didn't pay anything.

1:26:47.340,1:26:51.480
In the transaction here it doesn't say [br]that we paid for that.

1:26:51.480,1:26:58.037
We owe this amount at 30th June.[br]So what do we record?

1:26:58.037,1:27:03.906
We record the expense, [br]that means debit salaries expense, 6400,

1:27:03.906,1:27:08.633
and we record the liability because [br]we owe them this amount,

1:27:08.633,1:27:15.065
so we credit salaries payable, 6400[br]and that's all.

1:27:15.065,1:27:17.444
That's all the adjusting entries.

1:27:18.436,1:27:24.513
Now in another day, next month,[br]we will pay for that.

1:27:24.808,1:27:28.797
In the payment that is another [br]journal entry, not this one,

1:27:28.797,1:27:32.792
when we pay for that what will we do?

1:27:32.792,1:27:36.785
We will debit the liability,[br]so we decrease the liability.

1:27:36.785,1:27:43.516
We will debit 6400, and we will pay,[br]that means we will credit cash.

1:27:43.516,1:27:46.164
When we credit cash we decrease [br]the cash account

1:27:46.164,1:27:51.339
because we are paying that amount[br]and that is another journal entry

1:27:51.339,1:27:52.965
for the next period.

1:27:54.600,1:28:01.572
Does this clarify the point Trina?[br]Good, excellent.

1:28:03.589,1:28:10.686
Ok, we are in the number seven,[br]the last one.

1:28:11.282,1:28:16.599
Invoices representing $8000 of services[br]performed during the month

1:28:16.599,1:28:22.853
have not been recorded as of 30th June,[br]so what does this mean?

1:28:24.803,1:28:30.162
We have provided services because [br]it says invoices representing

1:28:30.834,1:28:35.776
$8000 of services performed during that,[br]so we performed this service,

1:28:35.776,1:28:39.105
and we provided the services [br]for $8000

1:28:39.105,1:28:42.502
but they have not been recorded[br]so we need to record them.

1:28:42.502,1:28:47.110
So we need to record [br]an accounts receivable

1:28:47.110,1:28:51.596
because it doesn't say anything there[br]that we received the money,

1:28:51.596,1:28:55.527
therefore it is an account receivable,[br]we will debit...

1:28:55.696,1:28:57.176
(CLEARS THROAT)[br]Sorry.

1:28:57.686,1:29:00.468
We will debit the account receivable[br]for $8000,

1:29:00.468,1:29:05.745
and we will credit the service revenue

1:29:05.826,1:29:07.610
because we earned from that service,

1:29:07.610,1:29:11.592
we already provided the service,[br]so we will credit service revenue.

1:29:11.942,1:29:13.651
So what we will have...

1:29:19.479,1:29:21.431
I will do that.

1:29:23.472,1:29:28.730
What we will have is the [br]last adjusting entry.

1:29:29.245,1:29:36.092
$8000 account receivable debit,[br]and credit $8000 service revenue.

1:29:36.701,1:29:41.347
So we've completed [br]all the adjusting entries.

1:29:41.700,1:29:45.801
Before we go to how we prepare the [br]adjusted trial balance,

1:29:46.611,1:29:50.884
any questions about the adjusting entries?

1:29:57.565,1:30:00.077
All good? Ok.

1:30:02.876,1:30:06.791
Excellent Jade, very good.[br]That's my purpose.

1:30:06.791,1:30:10.961
How we prepare the adjusted trial balance?

1:30:11.145,1:30:16.598
Before we prepare that, [br]remember these are journal entries,

1:30:16.598,1:30:20.402
so the name is adjusted journal entries,[br]they are journal entries,

1:30:20.402,1:30:26.617
so after you prepare the adjusting entries[br]what is the next step?

1:30:26.617,1:30:30.470
You need to post these entries[br]to the ledger.

1:30:30.470,1:30:33.575
The same as we did last week,[br]exactly Joshua,

1:30:33.575,1:30:38.576
we need to post them to the ledger, [br]all of them to adjust the balance

1:30:38.576,1:30:40.690
of each of these accounts.

1:30:40.690,1:30:44.594
We will not do that, ok?[br]You already learnt last week

1:30:44.594,1:30:48.456
how to post transactions from the journal [br]to the ledger,

1:30:48.456,1:30:52.439
and it's a very repetitive process [br]and it's the same in this case

1:30:52.439,1:30:57.791
so we will not go again through that part[br]we will assume that we already did that,

1:30:57.791,1:31:02.886
Ok, we post all of these [br]to the ledger accounts,

1:31:02.886,1:31:06.229
so the ledger accounts are updated.

1:31:06.229,1:31:12.175
But I will show you how to prepare [br]the adjusted trial balance,

1:31:12.175,1:31:14.867
using the worksheet, ok?

1:31:14.867,1:31:18.020
Using a worksheet, it has the advantage[br]that you can see

1:31:18.020,1:31:22.926
what is the unadjusted trial balance, [br]you can see the adjustments

1:31:22.926,1:31:25.695
and how to prepare the [br]adjusted trial balance,

1:31:25.695,1:31:28.879
how you can explain the difference [br]between the adjusted

1:31:28.879,1:31:32.642
and the unadjusted trial balance.

1:31:34.036,1:31:37.421
So here you have this worksheet.

1:31:37.421,1:31:44.688
In the worksheet what we do [br]is you copy here in this part, ok?

1:31:45.228,1:31:49.960
You copy the unadjusted trial balance.

1:31:50.634,1:31:54.730
Of course, total debit should [br]be equal to total credit.

1:31:55.512,1:32:02.884
You just copy that and then you go [br]through all the adjusting entries

1:32:02.884,1:32:11.664
and you put in the adjustment column,[br]this, I will do just the first two, ok?

1:32:12.202,1:32:14.104
Only the first two.

1:32:14.413,1:32:17.483
So in the first one, [br]what do we have here?

1:32:17.483,1:32:22.231
We debit 6400 in the supplies [br]expense account

1:32:22.231,1:32:27.387
and we credit 6400 [br]in the supplies account,

1:32:27.387,1:32:31.731
so we look at this supplies [br]expense account.

1:32:31.731,1:32:38.266
This is the supplies expense account,[br]we debit 6400, so we just copy there

1:32:38.266,1:32:43.068
And the we go to the supplies account[br]this is the supplies account,

1:32:43.068,1:32:48.005
you debit this account, ok?

1:32:48.005,1:32:50.600
You just copy here in these two columns

1:32:50.600,1:32:54.667
what you have done [br]in the adjusting entries.

1:32:54.667,1:33:01.313
The second, we will do just the first two.[br]The second, what do we have?

1:33:01.313,1:33:05.477
1200 debit in electricity expense account

1:33:05.477,1:33:09.898
1200 credit electricity payable account.

1:33:09.898,1:33:15.515
So you copy that electricity [br]expense account,

1:33:15.515,1:33:22.005
1200 debit, you copy there[br]and then you look for electricity payable.

1:33:22.005,1:33:29.567
Electricity payable credit 1200,[br]and you continue with all of this.

1:33:29.567,1:33:33.304
The only thing that you need to be careful[br]is that sometimes,

1:33:33.304,1:33:37.632
one account appears more than one time [br]in the adjusting entries.

1:33:38.032,1:33:43.163
So if you look at the adjusting entries,[br]there is one account

1:33:43.163,1:33:47.016
that appears two times, [br]so service revenue.

1:33:47.016,1:33:52.676
You have here service revenue, [br]credit 3000,

1:33:52.676,1:33:58.260
and then you have here service revenue,[br]8000.

1:33:58.260,1:34:03.964
So the total amount that we will add [br]to service revenue is 11000.

1:34:03.964,1:34:10.520
That's why here service revenue [br]in the credit is 11000,

1:34:10.520,1:34:14.145
so its the sum of 3000+8000.

1:34:14.145,1:34:18.500
That you need to be careful because [br]we need to add the total amounts,

1:34:18.500,1:34:23.508
that increase the credit [br]of this account.

1:34:23.508,1:34:26.989
Ok, so we complete these, [br]the adjustments.

1:34:26.989,1:34:30.589
We just copy all the adjusting entries, [br]debit or credit

1:34:30.589,1:34:34.354
in the corresponding accounts.

1:34:36.323,1:34:39.877
Well, it's a really (INAUDIBLE)

1:34:40.164,1:34:44.483
because very few accounts[br]you will have more than one entry.

1:34:44.483,1:34:50.260
In this case we have only service revenue[br]but you know the to not make a mistake

1:34:50.260,1:34:56.507
and I did that in the next exercise,[br]is this things.

1:34:56.507,1:35:00.889
Do not make a mistake, I will give you [br]a clue to not make a mistake.

1:35:00.889,1:35:03.432
Instead I've put here the total.

1:35:03.432,1:35:07.327
Every time you have an amount there[br]just put how much,

1:35:07.327,1:35:11.818
so you put here the 3000,[br]I will put in thousands

1:35:11.818,1:35:19.133
and then you simply add 8,[br]so every time you put the number there.

1:35:19.133,1:35:21.787
Then you know that it's 11000.

1:35:21.787,1:35:25.832
In this way you will not skip anything.

1:35:26.057,1:35:32.730
Ok, that is just a way to do[br]to not make that mistake.

1:35:35.941,1:35:39.380
How we prepare now the [br]adjusted trial balance.

1:35:40.877,1:35:45.647
The adjusted trial balance is the same [br]as the unadjusted trial balance

1:35:45.647,1:35:47.595
with all the adjustments.

1:35:47.595,1:35:52.621
So you can see for the cash accounts, [br]there are no adjustments.

1:35:52.621,1:35:58.124
Ok, no adjustments, so the adjusted[br]trial balance is the same

1:35:58.124,1:36:00.828
as the unadjusted trial balance.

1:36:01.852,1:36:06.517
Accounts receivable, the unadjusted [br]is 23 and 40.

1:36:06.517,1:36:12.754
The ajustment is debit 8000[br]so it directly increases the debit

1:36:12.754,1:36:19.028
so the adjusted will be the sum[br]of all of them.

1:36:20.252,1:36:25.045
Prepaid insurance we have a debit,[br]9600.

1:36:25.045,1:36:31.442
The adjustment is a credit of 1600,[br]a credit decreases a debit,

1:36:31.442,1:36:34.481
it's the opposite, ok?[br]So it will be the difference

1:36:34.481,1:36:37.812
and there we adjusted this 8000.

1:36:38.668,1:36:42.394
The same for supplies, [br]we have 13600,

1:36:42.394,1:36:47.560
the adjustment is a credit,[br]therefore the credit decreases debit,

1:36:47.560,1:36:54.198
that will be 7200, ok?

1:36:54.916,1:36:56.130
And so on.

1:36:56.130,1:36:59.742
Office equipment there is no adjustment[br]accumulated depreciation

1:36:59.742,1:37:01.877
of office equipment, [br]there is nothing here,

1:37:01.877,1:37:06.690
because this is an account that was [br]in zero but we have an adjustment

1:37:06.690,1:37:13.230
2880, so the adjusted trial balance [br]will be a credit 2880.

1:37:16.019,1:37:19.681
So you can see to prepare the adjusted [br]trial balance is simple.

1:37:19.681,1:37:26.463
If we're working with the worksheet,[br]we just add or subtract the adjustment

1:37:26.463,1:37:30.460
depending on whether they are [br]on the same side or the opposite side.

1:37:30.460,1:37:33.446
If they are on the same side, [br]a debit increases a debit,

1:37:33.446,1:37:38.108
a credit increases a credit, [br]but in the opposite side

1:37:38.108,1:37:44.471
a credit will decrease a debit[br]or a debit will decrease a credit.

1:37:47.080,1:37:50.111
Any question?

1:37:53.205,1:37:58.829
So once you have this worksheet...[br]Excellent Joshua,

1:37:59.623,1:38:03.052
Once you have the worksheet, [br]the adjusted trial balance

1:38:03.052,1:38:06.670
you can just copy.[br]You have the list of...

1:38:08.516,1:38:13.121
You have the list of all this, ok?[br]The list of the accounts,

1:38:13.121,1:38:18.198
you have the balance, [br]the debit balance or the credit balance

1:38:18.198,1:38:22.568
of all of these accounts,[br]and you can just copy them

1:38:22.568,1:38:29.462
to have the adjusted trial balance[br]so if this is the adjusted trial balance

1:38:29.462,1:38:33.356
the list of the accounts, [br]what accounts have a debit balance

1:38:33.821,1:38:39.629
after the adjustments, [br]or credit balance, all of these accounts.

1:38:45.474,1:38:51.490
That's the complete exercise and [br]the adjusted trial balance.

1:38:53.044,1:38:55.198
Any question?

1:38:58.065,1:39:01.856
I think maybe we will use again [br]the four hours

1:39:01.856,1:39:04.697
because we still do not finish [br]the lecture,

1:39:04.697,1:39:06.715
we have the second exercise [br]of the lecture

1:39:06.715,1:39:09.502
and then we have the exercise [br]of the workshop

1:39:09.502,1:39:13.699
so definitely we are using [br]the consultation time of the

1:39:13.699,1:39:18.586
four hours to complete,[br]but at this point,

1:39:18.586,1:39:22.982
we are already one hour 40 minutes.

1:39:22.982,1:39:28.288
It's good for you to have a break[br]so you can just prepare your coffee.

1:39:32.165,1:39:35.332
No Natalia, I will answer that.[br]You prepare your coffee,

1:39:35.384,1:39:41.798
you're soft drink, take a rest,[br]and we will meet in 10 minutes.

1:39:43.365,1:39:48.467
Before I go I will just answer [br]the question to Natalia.

1:39:48.467,1:39:52.585
Still accountants do this step manually?[br]No, Natalia, no.

1:39:52.906,1:39:57.033
I will talk about this when we come back [br]after 10 minutes

1:39:57.033,1:40:01.737
because I will talk about the assignment.[br]That will answer your question.

1:40:02.322,1:40:05.433
And Tablynn, can you explain profit thing?

1:40:05.433,1:40:10.130
Yes I will do that in the next exercise,[br]need more exercise,

1:40:10.130,1:40:13.233
we will do four Abdul, today.

1:40:13.233,1:40:17.926
If we aren't late, pm, [br]no problem for me,

1:40:17.926,1:40:23.761
but if you have the strength [br]to still be there,

1:40:23.761,1:40:25.528
we'll be good...

1:40:25.863,1:40:29.816
We will...[br]We will do many exercises today,

1:40:29.816,1:40:36.635
but for now take a rest, relax.[br]I need to grab my coffee as well,

1:40:36.920,1:40:44.426
and 10 minutes, so it's 2.40. [br]At 2.50 we continue.

1:40:44.630,1:40:51.704
I will disconnect the microphone,[br]2.50 we continue, ok?

1:51:17.211,1:51:21.526
Ok, here we are again, more relaxed

1:51:21.526,1:51:26.363
and ready for another one[br]and a half hours.

1:51:35.263,1:51:39.431
Before starting with the next exercise

1:51:39.431,1:51:46.355
I will just give you some information

1:51:46.743,1:51:48.852
about your first assignment.

1:51:50.618,1:51:56.534
The assignment that you will have[br]is a very practical assignment

1:51:57.358,1:52:05.553
and this will address one of the questions[br]about Natalia,

1:52:06.444,1:52:10.946
Natalia asked, still accountant do [br]these steps manually?

1:52:11.116,1:52:17.015
Well, accountants do not do this manually[br]but of course the need to understand

1:52:17.015,1:52:20.967
what the system does because if not,[br]the possibility of errors

1:52:20.967,1:52:22.203
could be very big.

1:52:22.203,1:52:26.157
When you enter a journal entry [br]you need to understand

1:52:26.157,1:52:31.348
what continues after that, [br]even the system is doing that

1:52:31.348,1:52:35.360
but you need to know how your ledger[br]is updated,

1:52:35.360,1:52:38.779
how the trial balance is prepared,[br]it's very important to do that.

1:52:38.779,1:52:44.093
That's why you learn to do this manually[br]even though then

1:52:44.093,1:52:46.593
the system will do this for you.

1:52:46.593,1:52:52.169
OK, but you need to be able to check[br]whether the system is doing well or not.

1:52:52.673,1:52:55.976
In this course you will have [br]the opportunity to deal with

1:52:55.976,1:53:01.928
one of the most commonly used [br]Accounting software,

1:53:01.928,1:53:08.796
it's a cloud accounting because [br]everything is in the cloud

1:53:08.796,1:53:12.258
and not in the computer of [br]the organization,

1:53:12.258,1:53:14.440
and that is Xero.

1:53:14.440,1:53:21.238
Xero is used by many small [br]and medium companies.

1:53:21.238,1:53:25.150
Not the very big ones because they [br]have their own systems,

1:53:25.150,1:53:30.661
but many small and medium companies[br]use Xero.

1:53:30.661,1:53:37.614
Accounting Pod is an organization[br]that facilitates

1:53:37.614,1:53:42.901
the learning of this software.

1:53:42.901,1:53:49.477
Griffith University has an arrangement[br]with Accounting Pod

1:53:49.477,1:53:55.364
to provide this facilitation, [br]for learning Xero,

1:53:55.364,1:54:00.616
and we have set up the assignment [br]that you will have in this,

1:54:00.616,1:54:03.745
using this software.

1:54:03.745,1:54:11.669
So next Monday, 3rd August,[br]the module,

1:54:11.669,1:54:18.807
the practice module of Accounting Pod[br]will be open for you.

1:54:18.807,1:54:24.101
And it will be open practically [br]the whole month of August,

1:54:24.101,1:54:28.718
until the 27th of August,[br]that will be closed at 5.00 pm.

1:54:28.718,1:54:36.664
So what is the idea is that you do this.[br]You follow step by step

1:54:36.664,1:54:41.742
all the processes and you will learn[br]how to use this software,

1:54:41.964,1:54:46.215
so you will do what accountants do[br]in the practice, ok?

1:54:46.416,1:54:52.739
And this assessment, the assignment[br]we have two parts,

1:54:52.739,1:54:57.549
we have the practice module [br]that it's called,

1:54:57.549,1:55:01.746
that will be open next Monday,

1:55:01.746,1:55:07.801
and then after it is closed,[br]that means the 27th of August.

1:55:07.801,1:55:13.792
On the 1st of September we will open [br]the second part of this assessment

1:55:13.792,1:55:17.078
which is the Xero assessment.

1:55:17.078,1:55:19.548
That will be opened on the [br]1st of September,

1:55:19.548,1:55:24.320
and it will be closed on the 23rd [br]of September, 5.00 pm,

1:55:24.320,1:55:28.147
so at that point you need to finish [br]the second part.

1:55:28.412,1:55:34.490
Your marks will be based on what you do [br]in this task.

1:55:34.775,1:55:37.295
The marks are allocated...

1:55:40.631,1:55:45.098
The marks are allocated to the task[br]that you are doing.

1:55:45.272,1:55:50.559
Now, in the question by Jade,[br]what learning modules

1:55:50.559,1:55:53.163
will the practice on Xero cover?

1:55:53.163,1:56:00.615
What you need to know is just the basics[br]of the accounting cycle,

1:56:00.615,1:56:07.036
so to understand what is a journal entry,[br]what are the ledger accounts.

1:56:07.223,1:56:12.528
But the training that you will do,[br]you will see it's very...

1:56:12.528,1:56:18.868
Totally different to what we are doing[br]in the accounting period,

1:56:18.982,1:56:25.792
because you will do tasks related [br]to a software.

1:56:25.792,1:56:30.393
I will explain in a bit of detail [br]but next week, on Tuesday of next week,

1:56:30.497,1:56:34.458
I will dedicate more time to explain [br]to you in more detail

1:56:34.458,1:56:39.786
what you have to do because at that point[br]you will have this already open, ok?

1:56:40.082,1:56:46.827
Now it's not there, [br]you cannot see this software yet.

1:56:48.979,1:56:54.001
There are three modules in each [br]assessment task,

1:56:54.216,1:56:57.006
the practice and the assessment.

1:56:57.006,1:57:01.170
Your marks for the assignment[br]will be the average of all these,

1:57:01.661,1:57:04.593
ok, the practice and the assessment.

1:57:04.593,1:57:08.830
You will have a rubric for this[br]so you will know exactly how

1:57:08.830,1:57:11.447
your marks will be allocated.

1:57:11.447,1:57:15.463
The system marks you, so it's not that[br]I will mark this.

1:57:15.463,1:57:22.247
For each task completed, [br]the system will mark you,

1:57:22.247,1:57:25.412
and you will have the marks [br]according to the task.

1:57:25.412,1:57:28.723
I will give you some guidelines [br]next week on that.

1:57:28.723,1:57:38.443
But in the first part, the practice set, [br]there are three modules, actually four,

1:57:39.068,1:57:44.408
but the important models [br]are modules two and three.

1:57:44.408,1:57:50.756
The module one is just a welcome for you[br]to have a welcome to the system,

1:57:50.756,1:57:53.839
there are no marks allocated there.

1:57:53.839,1:57:59.020
Module two is the basics, [br]and there are 20 marks allocated there.

1:57:59.020,1:58:07.087
There are very simple tasks that will [br]tell you how to work in Xero.

1:58:07.087,1:58:13.664
One of the tasks is for example to set up[br]an authentication in door,

1:58:14.214,1:58:22.560
so it's not related to accounting at all,[br]but is related to working with this...

1:58:23.009,1:58:25.677
with the system.

1:58:25.677,1:58:31.350
My suggestion would be to always [br]look at the question that you have

1:58:31.350,1:58:36.770
for each task and the possible answer,[br]and then look at the content.

1:58:37.861,1:58:44.552
Try to not answer the question immediately[br]but go through the content.

1:58:44.552,1:58:49.498
You will learn through the content, [br]not just answering the questions.

1:58:49.498,1:58:54.519
Try not to do what is...[br]You look at the question, possible answer,

1:58:54.519,1:58:57.512
and then you try to find the answer[br]in the content,

1:58:57.512,1:58:59.935
because you will not learn a lot.

1:58:59.935,1:59:05.729
The idea is that you learn how [br]to use Xero, this system, ok?

1:59:05.921,1:59:09.203
And to learn that it's good that you [br]go through the content

1:59:09.203,1:59:12.797
trying to learn what is this about?

1:59:12.797,1:59:16.734
And the next module, [br]the module three that is Xero,

1:59:16.734,1:59:19.676
in that module you will work in Xero.

1:59:19.676,1:59:26.410
So module two is just to prepare,[br]you will be prepared to work with Xero

1:59:26.791,1:59:31.718
but it's not yet the working withing Xero.

1:59:31.718,1:59:35.515
Module three yes, [br]you will have a number of tasks

1:59:35.515,1:59:40.980
following the instructions that [br]Accounting Pod will give you

1:59:40.980,1:59:45.006
to complete this task [br]and provide the answers.

1:59:46.697,1:59:51.042
So then the module four is just to wrap up[br]a couple of questions,

1:59:51.042,1:59:53.414
but not really important.

1:59:53.414,1:59:56.513
Module two and three are [br]the most important.

1:59:56.513,2:00:00.627
Now when you finish one module, [br]then you will have access to the next one

2:00:00.627,2:00:04.145
and so on, [br]so you need to go step by step.

2:00:04.145,2:00:11.998
In this sense, this is,[br]even though you need some knowledge

2:00:11.998,2:00:15.874
in accounting that you already have,[br]you don't need more than that

2:00:15.874,2:00:21.708
because it's different to learn how to [br]work with a software in accounting

2:00:21.708,2:00:27.105
than how to do accounting, [br]that is what you are doing now.

2:00:27.510,2:00:32.050
Then the assessment part is just the [br]application of all what you have learned

2:00:32.050,2:00:36.957
in the practice part, [br]and in a different case scenario.

2:00:37.606,2:00:42.497
So that is in general what you will [br]from next week,

2:00:42.497,2:00:46.241
there is time, [br]don't wait till the last two days.

2:00:46.241,2:00:51.670
For example, it opens 2nd August, [br]it will be closed 27th of August,

2:00:51.670,2:00:56.283
do not wait until the 25th of August[br]for all the task,

2:00:56.283,2:01:00.044
because you need time for that.

2:01:00.362,2:01:02.739
You need time to reflect on what [br]you're learning,

2:01:02.739,2:01:08.523
you need time to properly do the task[br]and go just a little bit

2:01:09.070,2:01:13.057
during the time this will be open.

2:01:13.721,2:01:18.571
It will not take a long time, ok?[br]it will not take a very long time,

2:01:18.571,2:01:22.895
probably you can do this in three[br]or four days, if you dedicate full time,

2:01:22.895,2:01:27.210
but that is not the best way to learn.

2:01:28.286,2:01:32.503
Yes, you will have marks Cecilia[br]in the practice part

2:01:32.503,2:01:38.555
and actually the total marks [br]that you will have is the average

2:01:40.011,2:01:44.712
weighted average of the practice part [br]and the assessment part.

2:01:44.996,2:01:48.164
I also considered to give marks[br]for the practice part

2:01:48.164,2:01:51.907
because in the practice part,[br]it will be easier for you,

2:01:51.907,2:01:56.250
but the intention is that you learn[br]how to use the software

2:01:56.250,2:01:59.908
and how to use this software [br]is in the practice part.

2:02:00.171,2:02:03.429
In the assessment part [br]you will apply all of this,

2:02:03.429,2:02:07.200
so there are marks allocated [br]in the practice part as well, yeah.

2:02:09.286,2:02:13.039
So this is just some information that [br]I want to give you in advance

2:02:13.189,2:02:21.231
and next week with this open,[br]I will show you the screens

2:02:21.541,2:02:25.946
and I can share screens [br]for you to do this.

2:02:27.289,2:02:32.369
Cecilia, is there any way we can practice [br]using the system without getting marks?

2:02:32.369,2:02:36.443
Yes, because you don't need to submit

2:02:36.443,2:02:40.232
but now you will see [br]it's very straightforward,

2:02:40.232,2:02:43.378
the system will tell you [br]exactly what to do,

2:02:43.378,2:02:46.746
so if you do well, you don't need[br]to do it again,

2:02:46.746,2:02:48.351
but try to do well.

2:02:48.351,2:02:54.207
Now there is some not in the practice part[br]but in the assessment part

2:02:54.207,2:03:02.708
there is feedback that you can receive[br]and also you can ask questions.

2:03:02.708,2:03:09.575
Now the specific question of the software[br]please do not ask me that way

2:03:09.575,2:03:13.279
but to the system, there is a box[br]that you will see next week,

2:03:13.279,2:03:16.276
that says 'leave us a message'.

2:03:16.276,2:03:21.554
You leave all the questions there [br]and they will answer you immediately.

2:03:21.554,2:03:24.224
If you have a problem with this,[br]of course you contact me

2:03:24.224,2:03:32.544
and I will deal with them, but they [br]answer quite quick all your questions.

2:03:33.729,2:03:39.201
Ok, now I have another message,

2:03:39.201,2:03:42.912
and this is another caption.

2:03:43.802,2:03:48.725
Who sent me a message about captioning?[br]They'll need the captioning.

2:03:51.548,2:03:59.770
Cassandra is that you?[br]Ok, I've added you.

2:04:05.927,2:04:11.299
Ok, so now we can continue[br]with the next exercise.

2:04:15.665,2:04:21.160
And we are still in the lecture[br]so definitely will end a bit late

2:04:23.605,2:04:29.787
but I prefer to clarify anything you need[br]it's important for you.

2:04:36.168,2:04:37.695
Ok, so...

2:04:42.501,2:04:50.439
I guess we don't need to put this...[br]Ok.

2:04:52.114,2:04:58.631
Here you have the next question.[br]This is...

2:04:59.307,2:05:01.813
I do not know if you can see well [br]in your screen

2:05:01.813,2:05:05.149
because this uses the whole one[br]in my screen.

2:05:05.149,2:05:07.801
Can you see we're on this table?

2:05:10.998,2:05:14.582
Yes, ok, excellent.[br]Excellent, thank you.

2:05:17.008,2:05:26.095
So this exercise starts as well[br]from the unadjusted trial balance,

2:05:26.367,2:05:28.425
the same as this one.

2:05:28.425,2:05:34.427
And they open for business [br]on 1st of April 2019

2:05:34.427,2:05:40.630
and the trial balance is on 30th of June,[br]so how many months do we have?

2:05:40.630,2:05:46.611
This is important because we will need [br]this to calculate the adjusting entries,

2:05:46.611,2:05:50.478
how many months since we started? [br]Three months.

2:05:50.478,2:05:55.017
So remember that from 1st of April[br]until the date,

2:05:55.047,2:05:57.193
very good Natalia, three months,

2:05:57.193,2:06:02.715
until the date of these financial [br]statements, three months,

2:06:02.715,2:06:04.616
that is what we will consider.

2:06:04.616,2:06:08.028
So what we have here in this,[br]this is the worksheet.

2:06:08.028,2:06:11.487
You can see we add more columns.

2:06:11.487,2:06:18.813
What we have at the beginning is the[br]unadjusted trial balance,

2:06:18.813,2:06:22.795
that I am showing you there,[br]unadjusted trial balance.

2:06:22.795,2:06:27.424
Then we put in the adjustments,[br]all the adjusting entries,

2:06:27.424,2:06:32.753
we will do that in this exercise as well,[br]and from this we prepare what is called

2:06:32.753,2:06:36.016
the adjusted trial balance.

2:06:36.709,2:06:43.597
But now we will add the last part [br]for today which is the closing entries

2:06:43.597,2:06:48.113
so you can see we have now [br]three types of entries.

2:06:48.113,2:06:54.675
Just the general entries, or journal [br]entries that come from transactions

2:06:54.675,2:06:56.746
that we did last week.

2:06:56.746,2:07:02.215
We have the adjusting entries [br]that we prepared in the first part,

2:07:02.215,2:07:07.174
and we have the closing entries and we[br]will see what are the closing entries.

2:07:07.174,2:07:11.363
After the closing entries we prepare [br]another trial balance

2:07:11.363,2:07:14.813
which is the post-closing trial balance.

2:07:14.813,2:07:20.127
And with this we complete, [br]almost complete the accounting cycle.

2:07:20.127,2:07:24.964
After this we only need to prepare [br]the financial statements.

2:07:25.824,2:07:32.085
So we have the list of accounts,[br]here you have all the list of accounts

2:07:32.085,2:07:38.407
that we will use in this and we have the[br]ending balance of each of these accounts

2:07:39.723,2:07:43.750
in the unadjusted trial balance,[br]that means before adjustment,

2:07:43.750,2:07:50.062
these are the balances [br]of all of these accounts, ok?

2:07:53.970,2:07:59.356
Here we continue with different [br]types of accounts,

2:07:59.356,2:08:01.895
we will go in detail with all of them.

2:08:01.895,2:08:04.925
And of course, [br]the unadjusted trial balance

2:08:04.925,2:08:09.212
the total debits should be equal [br]to total credit.

2:08:09.212,2:08:15.373
That's in all the trial balances, [br]total debit equals total credit.

2:08:17.243,2:08:20.388
So here we have the additional data.

2:08:20.388,2:08:24.007
The additional data as you already know[br]is the data that we need

2:08:24.007,2:08:30.804
to prepare the adjusting entries,[br]so we will go through these six entries,

2:08:30.804,2:08:38.448
six additional data to prepare [br]the adjusting entries.

2:08:38.734,2:08:43.433
We will journalize the adjusting entries[br]so we will record them,

2:08:43.433,2:08:48.044
what is the debit, what is the credit[br]of each of this adjusting entries.

2:08:48.044,2:08:50.845
And then with this adjusting entries,

2:08:50.845,2:08:55.755
we will complete the adjusted trial [br]balance in the worksheet.

2:08:58.104,2:09:01.417
Then from the adjusted trial balance[br]in the worksheet,

2:09:01.417,2:09:05.102
we will prepare the closing entries.

2:09:05.812,2:09:08.404
And using the information [br]of the closing entries,

2:09:08.404,2:09:12.752
we will prepare the post-closing entries[br]trial balance.

2:09:12.752,2:09:15.168
So this is a very complete exercise,

2:09:15.168,2:09:17.773
the starting with the unadjusted [br]trial balance

2:09:17.773,2:09:23.282
until the post-closing entries[br]trial balance.

2:09:23.282,2:09:28.156
So we will start with [br]the adjusting entries.

2:09:28.156,2:09:34.507
The first one, insurance expires [br]at a rate of $900 per month

2:09:34.507,2:09:41.240
and is an annual premium commencing[br]1st April 2019.

2:09:41.240,2:09:49.780
So what might this description[br]be telling us?

2:09:49.780,2:09:55.299
It says that three months, so it's already[br]calculated the total policy divided by 12,

2:09:55.299,2:10:00.026
it should be 900 per month,[br]that is the insurance expense per month

2:10:00.026,2:10:05.252
when this started on 1st of April,[br]at the beginning of this period

2:10:05.252,2:10:08.626
and we have already three months[br]if you remember.

2:10:08.626,2:10:15.307
So in three months by $900[br]is 2700.

2:10:15.307,2:10:21.297
We need to record the debit,[br]the insurance expense clearly,

2:10:21.297,2:10:24.631
then prepaid insurance.

2:10:24.631,2:10:33.450
So we look at our journal entries,[br]insurance expense, and prepaid insurance.

2:10:33.450,2:10:37.704
Here you have debit 2700 [br]insurance expense,

2:10:37.704,2:10:43.950
credit 2700 prepaid insurance,[br]and that is the first one, ok?

2:10:47.268,2:10:52.238
I will go a bit quicker in this [br]but please stop me at any time

2:10:52.238,2:10:55.612
and ask me if there is something that[br]you would like to clarify.

2:10:55.612,2:10:59.840
Of course I will explain well but because[br]we've gone through this already

2:10:59.840,2:11:01.690
they are similar.

2:11:01.690,2:11:09.354
If it is clear just..[br]Just (INAUDIBLE).

2:11:10.527,2:11:16.104
Ok, sorry.[br]What was the question?

2:11:17.691,2:11:22.555
Here is it prepaid insurance?[br]Yes it is prepaid insurance.

2:11:22.985,2:11:29.857
Ok, ok. So to answer that question we[br]need to look at from where comes this.

2:11:30.189,2:11:35.770
Insurance expires at the rate of $900[br]per month.

2:11:35.770,2:11:42.404
From where does this come?[br]This comes from a prepaid insurance

2:11:42.404,2:11:47.235
so that means the company paid in advance[br]it's a prepayment,

2:11:47.235,2:11:53.209
the insurance for the next 12 months[br]on 1st April.

2:11:53.209,2:12:00.448
1st April the company paid the whole year,[br]that means 12 months insurance.

2:12:00.448,2:12:01.739
What amount?

2:12:01.739,2:12:08.380
To know that you need to look [br]at the account prepaid insurance,

2:12:08.380,2:12:14.580
here you have, ok, [br]prepaid insurance debit 10800.

2:12:14.580,2:12:18.502
If you divide this by 12 it's 900.

2:12:18.502,2:12:22.732
That means every month you need [br]to record an insurance expense

2:12:22.732,2:12:27.740
because you will consume this policy[br]in 12 months.

2:12:27.740,2:12:33.903
So every month you need to record [br]an insurance expense of 900 every month

2:12:33.903,2:12:46.620
and we have three months so it will be[br]the total of 2700 as insurance expense

2:12:46.620,2:12:55.341
and we decrease the prepaid insurance,[br]very good, excellent.

2:12:55.759,2:13:02.813
Ok, the second one, [br]an inventory of supplies shows 7200

2:13:02.813,2:13:08.215
of unused supplies on 30th June.

2:13:08.215,2:13:14.715
So we still have 7200 supplies [br]in the inventory.

2:13:14.715,2:13:18.916
How much do we have in the [br]unadjusted trial balance?

2:13:20.983,2:13:30.028
Supplies, 11400,[br]and we have 7200 at the end of June

2:13:30.028,2:13:32.189
so we have use the difference.

2:13:32.189,2:13:39.664
What is the difference between 11400[br]and 7200? It's 4200.

2:13:39.664,2:13:47.660
So we have a supplies expense debit 4200[br]and we credit this account supplies

2:13:47.660,2:13:51.868
to reduce 4200 from here.

2:13:51.868,2:14:03.349
So the journal entry, the adjusting entry,[br]it will be supplies expense 4200 debit

2:14:04.019,2:14:09.728
and we credit supplies 4200.[br]With this we decrease the supplies account

2:14:09.728,2:14:16.123
and now we will have the balance[br]that we calculate here.

2:14:16.123,2:14:20.122
That we count, we count the items, [br]we value the items

2:14:20.122,2:14:24.128
and what we have [br]at the end of June is 7200, ok?

2:14:24.128,2:14:32.878
So that is the second adjustment.[br]The third one.

2:14:33.513,2:14:40.396
The depreciation for the year [br]ended 30 is 5400 on the building

2:14:40.396,2:14:43.231
and 4500 on furniture.

2:14:43.231,2:14:46.099
Here you have two items.

2:14:46.099,2:14:50.582
The two of them are what we call [br]the non-current assets,

2:14:50.582,2:14:57.784
so they're assets that last for more than [br]one accounting period.

2:14:57.784,2:15:06.104
We have buildings and furniture[br]and this description is telling us

2:15:06.104,2:15:12.599
that depreciation expense [br]for the year 30th June 2019,

2:15:12.599,2:15:15.236
that is the ending...

2:15:16.723,2:15:20.344
That is the date of the unadjusted [br]trial balance.

2:15:20.344,2:15:27.204
The deprecieation expense is 5400 [br]on the building, 4500 on furniture.

2:15:28.593,2:15:32.163
No we need to think in the accounts.

2:15:32.163,2:15:37.437
Depreciation expense is one account[br]so it doesn't matter how many items

2:15:37.437,2:15:39.285
we are depreciating

2:15:39.285,2:15:44.714
we need to add them and we will have [br]the depreciation expense,

2:15:44.714,2:15:46.460
the total depreciation expense.

2:15:46.460,2:15:52.680
If you add these two amounts, [br]5400 and 4500 it will be 9900

2:15:52.680,2:15:58.603
so we will have a debit of depreciation [br]expense, 9900.

2:15:58.603,2:16:00.714
What is the other account?

2:16:00.714,2:16:03.896
The other account is accumulated[br]depreciation

2:16:03.896,2:16:11.137
but we have one accumulated depreciation[br]account for each item

2:16:11.137,2:16:12.764
of the non-current asset.

2:16:12.764,2:16:15.602
How many items do we have here?[br]Two.

2:16:15.602,2:16:18.710
So we have building,[br]we have furniture.

2:16:18.710,2:16:23.872
So two different accounts, one account [br]will be accumulated depreciation,

2:16:23.872,2:16:29.559
building, the other account will be[br]accumulated depreciation furniture

2:16:29.559,2:16:33.894
We need to distinguish them [br]and to record them separately.

2:16:33.894,2:16:39.262
So we will have a depreciation expense[br]9900, one account,

2:16:39.262,2:16:45.086
and then we will have accumulated [br]depreciation of building, 5400.

2:16:45.086,2:16:48.987
Accumulated depreciation [br]of furniture, 4500.

2:16:48.987,2:16:53.463
and the journal entry, the adjusting [br]entry will be this one.

2:16:53.463,2:16:59.334
Here you can see 9900 depreciation[br]expense, one account.

2:16:59.334,2:17:01.699
All the depreciation expense together.

2:17:01.699,2:17:04.083
But then we have two different [br]accounts,

2:17:04.083,2:17:09.072
so accumulated depreciation [br]of the building, 5400,

2:17:09.072,2:17:12.421
accumulated depreciation[br]of furniture, 4500.

2:17:12.421,2:17:16.740
The sum of course is 9900 so...

2:17:20.609,2:17:24.831
it would be okay Jade that if you [br]separated depreciation expense

2:17:24.962,2:17:29.983
but we need to think that depreciation [br]expense is just one account.

2:17:29.983,2:17:34.974
It will not cause any problem[br]because at the end we will have two.

2:17:34.974,2:17:39.130
It's like we separate these [br]in two adjusting entries.

2:17:39.130,2:17:42.009
It is possible, it's ok, [br]it's not wrong,

2:17:42.009,2:17:46.457
but because we have one [br]depreciation expense,

2:17:46.457,2:17:48.945
we record them together.

2:17:48.945,2:17:54.069
Now this is a journal entry for adjusting [br]entries in which you have three entries.

2:17:54.069,2:17:58.162
Ok, I mentioned to you that most of [br]the you have two entries,

2:17:58.162,2:18:00.234
one debit, one credit,[br]there could be more.

2:18:00.234,2:18:01.205
this is the case.

2:18:01.205,2:18:05.623
In this case you have one debit[br]and you have two credits.

2:18:05.623,2:18:10.226
The important thing is any journal entry[br]or adjusting entry,

2:18:10.226,2:18:16.038
the total debit should be equal to [br]total credits which is the case here.

2:18:16.038,2:18:21.518
Ok, next one.

2:18:22.521,2:18:25.591
The mortgage interest rate is 6%.

2:18:25.591,2:18:28.625
The mortgage was taken out [br]on 1st April.

2:18:28.625,2:18:33.548
This is the only data that is given in the[br]additional data for adjusting entries,

2:18:33.548,2:18:39.310
so we need to look at the data in the[br]unadjusted trial balance to calculate this

2:18:39.310,2:18:43.192
so here we know 6% is the interest rate.

2:18:43.192,2:18:51.090
Always when it's given like this,[br]it's annual interest rate, ok?

2:18:51.090,2:18:54.511
Annual interest rate.[br]Always this is the annual,

2:18:54.511,2:19:00.879
that is the normal period for [br]the interest rate of a mortgage.

2:19:00.879,2:19:06.347
So we will need to see what is the total[br]of the mortgage

2:19:06.347,2:19:08.463
so we go to our...

2:19:13.512,2:19:15.962
And here you have mortgage payable.

2:19:15.962,2:19:21.900
This is the unadjusted trial balance,[br]mortgage payable 210000.

2:19:21.900,2:19:23.739
210000.

2:19:23.962,2:19:30.657
If you multiply 210000 by 6% [br]how much is that?

2:19:32.024,2:19:36.082
12600, very well Jade,[br]12600.

2:19:36.082,2:19:40.166
That is the interest for the year, ok?

2:19:40.166,2:19:46.137
But we need the interest for three months[br]so we divide this by 12

2:19:46.137,2:19:48.295
and we will have the interest [br]per month.

2:19:48.295,2:19:50.870
We multiply by 3, ok,

2:19:50.870,2:19:56.643
and that is the interest for [br]the three months

2:19:56.836,2:20:00.947
and for the three months [br]we will multiply that by three, Jade,

2:20:00.947,2:20:06.822
monthly it will be 3150, ok?

2:20:07.828,2:20:15.664
So 3150 is the interest expense [br]that we need to record here.

2:20:16.463,2:20:18.763
Good Jade.

2:20:19.951,2:20:24.517
Ok, so interest expense 3150.

2:20:25.995,2:20:30.581
Interest expense for the three months[br]and we have an interest payable

2:20:30.581,2:20:32.446
because we have not paid that.

2:20:32.446,2:20:38.521
So interest payable, 3150.[br]This is the adjusting entry.

2:20:42.361,2:20:44.408
Next one.

2:20:44.955,2:20:50.967
9000 of rent revenue paid in advance[br]pertains to June.

2:20:50.967,2:20:55.934
The remainder pertains to July,[br]so what does this mean?

2:20:55.934,2:21:01.670
The tenant paid in advance

2:21:03.720,2:21:06.068
for the rent until July,

2:21:06.485,2:21:14.913
but until June the tenant already used [br]$9000 of this payment

2:21:14.913,2:21:20.832
because they used the office [br]or the rent.

2:21:24.079,2:21:29.569
George, the previous one, [br]sorry, you're talking about the mortgage?

2:21:29.569,2:21:32.352
The mortgage interest?

2:21:35.587,2:21:38.017
It's that one?[br]Ok.

2:21:39.424,2:21:46.560
Ok, yeah, I will go through that George[br]as soon as I finish this that I started

2:21:46.560,2:21:50.708
so here we have the revenue [br]received in advance.

2:21:51.788,2:21:57.852
9000, that pertains to June,[br]that means the tenant already used this.

2:21:58.040,2:22:03.333
We have provided this credit to the tenant[br]until June for 9000.

2:22:03.333,2:22:09.793
So we need to record this income[br]because this is revenue

2:22:09.793,2:22:17.321
and we will credit rent revenue for 9000[br]and we will debit

2:22:17.321,2:22:22.479
the rent revenue received in advance [br]which is a liability

2:22:22.479,2:22:25.349
when the tenant pays in advance [br]the amount.

2:22:25.349,2:22:27.368
So this will be...

2:22:31.725,2:22:36.281
Debit rent revenue received in advance[br]we decrease the liability

2:22:36.281,2:22:40.801
because the tenant already used [br]this building until 30th June

2:22:40.801,2:22:45.955
and we record now the [br]rent revenue, ok?

2:22:45.955,2:22:51.298
So that is the number five.[br]I will go with the interest,

2:22:51.298,2:22:57.681
the interest of the number four.[br]I will go again with this.

2:22:57.681,2:23:00.874
The mortgage interest rate is 6%.

2:23:00.874,2:23:04.184
Please remember, always the interest [br]is per year,

2:23:04.184,2:23:08.292
so we need to know how much [br]is the interest per month.

2:23:08.292,2:23:10.306
How do we calculate that?

2:23:10.306,2:23:13.572
Well, 6% of what?

2:23:13.572,2:23:15.665
That is the thing that we need [br]to calculate.

2:23:15.665,2:23:20.036
6% of the total mortgage interest...[br]Sorry.

2:23:20.036,2:23:25.441
6% of the total mortgage that we have[br]for this loan that we have

2:23:25.441,2:23:31.952
so here you have, [br]this is our trial balance.

2:23:31.952,2:23:34.698
Remember this is our unadjusted [br]trial balance.

2:23:34.698,2:23:39.789
If we go down through the accounts[br]we will have this mortgage payable.

2:23:40.789,2:23:44.725
Credit because it's a loan,[br]it's a loan payable, it's a liability.

2:23:45.144,2:23:50.122
This is the total amount we borrow,[br]210000.

2:23:50.502,2:23:54.641
How much is the interest per year?[br]6% of this.

2:23:55.173,2:24:02.550
If you calculate your 6% of 210000,[br]then that is 12600,

2:24:03.140,2:24:05.541
but that is per year.

2:24:06.005,2:24:11.209
How many months is the period of time[br]here from 1st April to 30th June?

2:24:11.209,2:24:12.616
It's three months.

2:24:13.022,2:24:18.651
So 210000 divided by 12, [br]sorry.

2:24:18.707,2:24:23.860
210000 multiplied by 6% is 12600.

2:24:23.860,2:24:28.067
12600 divided by 12, [br]that will be per month

2:24:28.067,2:24:32.065
and then we multiply by three,[br]that will be three months.

2:24:32.065,2:24:37.279
The amount is 3150.

2:24:37.279,2:24:47.094
So we record that interest expense, 3150 [br]because it's an interest already accrued

2:24:47.699,2:24:52.033
in this specific time, until 30th June, [br]three months.

2:24:52.033,2:24:55.841
And the interest payable because [br]we had not paid that

2:24:55.841,2:24:59.097
is the same amount, [br]3150.

2:24:59.097,2:25:04.988
We have this liability for [br]the interest payable

2:25:04.988,2:25:09.650
and we have the interest expense,[br]that clarified the point George?

2:25:16.272,2:25:18.488
Ok, excellent.

2:25:19.661,2:25:27.342
Now the last adjusting entry [br]is salaries.

2:25:27.378,2:25:28.767
This is a simple one.

2:25:28.767,2:25:38.454
Salaries of 1800 are unpaid at 30th June.[br]So what does this mean?

2:25:39.073,2:25:44.373
That means that the employees [br]already work for this amount,

2:25:44.373,2:25:48.613
1800 but the company didn't pay them.

2:25:48.613,2:25:53.594
So we owe that salary, [br]so we will record the expense,

2:25:53.594,2:25:58.140
salaries expense 1800,[br]and we have to record the liability

2:25:58.140,2:26:02.460
because we owe the salaries,[br]that means salaries payable,

2:26:02.460,2:26:04.422
that is the liability.

2:26:04.422,2:26:12.817
So debit salaries expense, 1800[br]credit salaries payable, ok?

2:26:16.896,2:26:23.825
1800. So there you have [br]the last adjusting entry.

2:26:23.825,2:26:27.285
So we've finished the adjusting[br]entries,

2:26:27.285,2:26:30.570
and now we can put all of these[br]adjusting entries

2:26:30.570,2:26:34.602
to the spreadsheet.

2:26:39.515,2:26:47.047
So if we put them[br]to the spreadsheet,

2:26:47.778,2:26:51.048
you have here all the adjustments.

2:26:53.311,2:26:58.399
There is a number that you can see [br]in this column after adjustment,

2:26:58.399,2:27:03.231
this is just a column [br]that can help you to know

2:27:03.231,2:27:07.546
which are the transactions that the...

2:27:07.546,2:27:11.268
the adjustment that we are recording[br]in the adjustment.

2:27:11.268,2:27:13.868
I will look at that,[br]I will go through the first one

2:27:13.868,2:27:18.330
just for you to have the reference[br]because we did this already.

2:27:18.330,2:27:22.293
We don't need to go through all of them.

2:27:22.293,2:27:27.303
In the first, this is the number one, [br]the first adjusting entry.

2:27:27.303,2:27:38.127
We record debit 2700 insurance expense,[br]credit 2700 prepaid insurance.

2:27:39.976,2:27:44.913
So prepaid insurance is a credit...[br]there you have the number one

2:27:44.913,2:27:47.227
for you to have as a reference.

2:27:47.227,2:27:51.939
This is the adjusting one.[br]Credit 2700

2:27:52.241,2:27:55.953
and we have a debit in insurance expense,

2:28:00.253,2:28:02.554
insurance expense a debit, 2700

2:28:02.303,2:28:08.296
and here you can see the number one [br]again as a reference.

2:28:08.296,2:28:12.366
So all of them have a reference [br]to what transaction it is.

2:28:12.366,2:28:17.364
So we can complete this table

2:28:21.102,2:28:23.540
just copying all the adjustments,

2:28:23.540,2:28:26.409
the debit and the credit in the [br]corresponding account

2:28:26.409,2:28:28.763
and we will complete the adjustment.

2:28:28.763,2:28:31.654
Then we can prepare [br]the adjusted trial balance

2:28:31.654,2:28:35.595
the same as I explained [br]in the previous exercise.

2:28:35.595,2:28:39.555
Cash for example, 15000 debit,[br]there are no adjustments,

2:28:39.555,2:28:44.564
so the adjusted trial balance [br]is 15000 debit cash.

2:28:44.564,2:28:50.514
Prepaid insurance we have it there 10800[br]in the unadjusted balance,

2:28:50.514,2:28:53.109
the adjustment is credit,

2:28:53.109,2:28:56.632
so credit decreases the debit[br]we need to strike this,

2:28:56.632,2:29:01.263
so the adjusted trial balance [br]is debit 8100.

2:29:02.060,2:29:06.957
And we continue with all the adjustments[br]until we have really

2:29:06.957,2:29:11.095
the adjusted trial balance.

2:29:11.706,2:29:17.416
So we can copy all the amounts here, [br]in the adjusted trial balance

2:29:17.416,2:29:20.933
and this is our adjusted trial balance.

2:29:20.933,2:29:24.741
So in the first exercise we finished[br]in this part,

2:29:24.741,2:29:27.398
but now we will continue [br]with the second part

2:29:27.398,2:29:31.869
which is the closing entries.

2:29:34.142,2:29:37.978
What are closing entries, [br]what are the closing entries?

2:29:38.304,2:29:44.471
So now I will explain a bit conceptually[br]what are closing entries

2:29:44.471,2:29:49.131
and then we will apply them [br]in this exercise.

2:29:50.543,2:29:56.965
I mentioned last week that there [br]are permanent accounts

2:29:56.965,2:29:59.087
from all the accounts of the company.

2:29:59.087,2:30:04.647
There are permanent accounts[br]and there are temporary accounts.

2:30:04.647,2:30:07.772
What is the difference between [br]the permanent accounts

2:30:07.772,2:30:10.401
and the temporary accounts?

2:30:10.401,2:30:16.278
The permanent accounts are accounts [br]that the ending balance of any period

2:30:16.278,2:30:20.406
is the beginning balance [br]of the following period.

2:30:20.406,2:30:26.192
So we carry forward the balance[br]of the accounts to the following period

2:30:26.192,2:30:31.891
and we continue for all the [br]life of the company with this.

2:30:31.891,2:30:36.903
Ending balance becomes the opening balance[br]of the following period.

2:30:36.903,2:30:40.881
If you remember when we balanced[br]the accounts last week

2:30:42.361,2:30:47.864
we ended each of the ledger accounts[br]with what is the opening balance

2:30:48.058,2:30:52.785
for the following period which was [br]ending balance for the current period.

2:30:53.216,2:30:59.719
So these are the permanent accounts.[br]But we have also temporary accounts.

2:31:00.581,2:31:02.983
What are temporary accounts?

2:31:02.983,2:31:08.335
Temporary accounts are accounts [br]that must be closed

2:31:08.335,2:31:10.924
at the end of the accounting period.

2:31:12.419,2:31:15.058
Why do we have to close them?

2:31:15.058,2:31:18.936
Because we want to start [br]the following period

2:31:18.936,2:31:25.246
with zero balance in each [br]of these accounts, zero balance.

2:31:25.246,2:31:28.166
So we need to keep these accounts[br]with zero balance.

2:31:28.166,2:31:29.757
How can we do this?

2:31:31.019,2:31:35.570
Well, we need to transfer the [br]balance of these accounts

2:31:35.570,2:31:37.902
to a permanent account.

2:31:39.350,2:31:42.459
Then we can leave the account [br]in zero balance.

2:31:42.459,2:31:49.115
This is very important for, [br]very good Joshua, to retain earnings.

2:31:49.115,2:31:53.787
This is very important particularly for [br]all the accounts of the income statement

2:31:53.787,2:31:58.082
because we want to start [br]each accounting period

2:31:58.082,2:32:02.118
with zero balances in the income [br]statement accounts,

2:32:02.118,2:32:05.661
that means all the revenues [br]and expenses account

2:32:05.661,2:32:08.400
should be zero, why?

2:32:08.400,2:32:12.810
Because we want to menasure[br]the profit for the period.

2:32:12.810,2:32:18.784
If we do not start from a zero balance[br]we will not have the profit of the period

2:32:18.784,2:32:24.554
we will have a mix of profit [br]of the periods and the current period, ok?

2:32:24.554,2:32:31.867
So to know the profit of the period[br]we have to start with zero balance

2:32:31.867,2:32:33.782
in all of these accounts.

2:32:33.782,2:32:39.168
So what are the temporary accounts?[br]All the income statement accounts.

2:32:39.168,2:32:45.892
That means all the revenues accounts[br]or any other income

2:32:45.892,2:32:49.631
and all the expenses accounts.

2:32:50.235,2:32:54.164
All of them are temporary accounts.

2:32:54.164,2:32:58.705
In addition there is one account [br]that we add retained earnings

2:32:58.705,2:33:02.717
or the equity account [br]which is dividends.

2:33:02.717,2:33:08.605
Dividends is also very good Tamara,[br]dividends is also a temporary account

2:33:08.605,2:33:13.283
and we need to close dividends[br]at the end of the accounting period.

2:33:13.283,2:33:15.732
So how do we close them?

2:33:15.732,2:33:19.955
Well, to know that, [br]we can start from here,

2:33:19.955,2:33:23.175
the adjusted trial balance.

2:33:23.175,2:33:27.739
Now what type of account do we have here?[br]And we always put these in this order.

2:33:27.739,2:33:34.431
First we have the asset account,[br]so you have cash here, ok?

2:33:35.015,2:33:39.037
Prepaid insurance, supplies, land, [br]building,

2:33:39.037,2:33:43.202
accumulated depreciation is an asset [br]account even though it's a credit,

2:33:43.202,2:33:47.644
but I already explained that and we will [br]go in more detail with this account

2:33:47.644,2:33:51.331
in another topic.[br]That is an asset account,

2:33:51.331,2:33:54.240
same to accumulated [br]depreciation of credit.

2:33:54.240,2:33:58.673
All of these are asset accounts.

2:33:59.094,2:34:03.713
After the asset account we record [br]the liabilities account.

2:34:03.713,2:34:09.212
So here you have accounts payable, [br]rent revenue received in advance,

2:34:09.212,2:34:14.627
salaries payable, interest payable,[br]mortgage payable, ok?

2:34:14.627,2:34:18.942
All of these are liabilities accounts.

2:34:19.709,2:34:23.038
After the liabilities accounts[br]we have the equity accounts,

2:34:23.038,2:34:26.246
so we have check capital and rent revenue.

2:34:26.246,2:34:31.378
These two are the equity accounts,[br]sorry, only check capital,

2:34:31.378,2:34:33.131
and retained earnings.

2:34:33.131,2:34:37.821
Check capital and retained earnings,[br]that's what I mean.

2:34:37.821,2:34:41.114
Check capital and retained earnings[br]are equity accounts.

2:34:41.114,2:34:44.914
In this case in this company [br]we don't have retained earnings.

2:34:44.914,2:34:49.849
Why don't we have retained earnings? [br]Because this company just started, ok?

2:34:49.849,2:34:53.896
It started on 1st April,[br]so this is the first period,

2:34:53.896,2:34:56.157
30th June 2017.

2:34:56.157,2:35:01.085
And because it's the first period we [br]don't have yet retained earnings account.

2:35:01.085,2:35:06.731
So check capital and retained earnings [br]are equity accounts.

2:35:10.410,2:35:13.221
Then we have the income [br]statement accounts.

2:35:13.221,2:35:16.776
The first account that we have [br]all the revenues.

2:35:16.776,2:35:21.506
Rent revenue in this case, [br]it may be service revenue,

2:35:21.506,2:35:26.031
it may be sales revenue, [br]fees revenue, interest revenues,

2:35:26.031,2:35:29.237
all the revenues accounts,[br]they will be in this part.

2:35:29.754,2:35:32.012
And then all the expenses accounts,

2:35:32.012,2:35:36.229
so we have advertisement expense, [br]depreciation expense,

2:35:36.229,2:35:40.024
electricity expense, insurance, interest,[br]salaries, supplies expenses,

2:35:40.024,2:35:41.956
all the expense accounts.

2:35:43.137,2:35:45.910
So this is the adjusted trial balance.

2:35:45.910,2:35:48.607
What are the accounts that [br]we need to close?

2:35:48.607,2:35:54.198
In this case we don not have dividends,[br]we have revenue, rent revenue,

2:35:54.198,2:35:57.546
and we have all of these expenses.

2:35:57.546,2:36:00.119
These are the accounts that [br]we need to bring.

2:36:00.119,2:36:01.517
How will we close this?

2:36:01.517,2:36:06.200
There are two steps to close the accounts.

2:36:06.200,2:36:13.282
The first step we will close [br]all the expenses and then the revenues

2:36:13.282,2:36:18.636
to another temporary account [br]that we will create

2:36:18.636,2:36:23.632
that the name is the income [br]summary account.

2:36:24.044,2:36:29.030
Income summary account is the name of[br]another temporary account

2:36:29.030,2:36:33.126
and the purpose is to close [br]all the expenses

2:36:33.126,2:36:35.677
and the revenues to this account.

2:36:35.677,2:36:42.182
So how do we close the expense?[br]here you have advertisement expenses,

2:36:42.182,2:36:47.312
(INAUDIBLE) 3000,[br]depreciation expense the balance

2:36:47.312,2:36:53.371
is debit 9900 so we have [br]a number of expenses.

2:36:53.371,2:37:02.768
We add all of them and we will debit the[br]income summary accounts for the sum

2:37:02.768,2:37:06.562
and we will credit each of them [br]one by one

2:37:06.562,2:37:11.262
we cannot credit the total of them,

2:37:11.262,2:37:18.025
we need to close each account one by one[br]so we need to credit advertisement expense

2:37:18.025,2:37:23.536
credit 3000,[br]depreciation expense credit 9900.

2:37:23.536,2:37:27.122
Electricity expense we credit 6000[br]and so on

2:37:27.122,2:37:31.481
because if you credit advertisement [br]expense by 3000,

2:37:31.481,2:37:37.118
what is the balance of advertising expense[br]after that? Zero.

2:37:37.918,2:37:45.262
If you credit depreciation expense by 9900[br]what is the balance after that? Zero.

2:37:45.981,2:37:51.262
We're leaving each account at zero[br]that's why we need to do one by one.

2:37:51.262,2:37:56.695
But for the sum of all of this credit[br]we will have one debit which is

2:37:56.695,2:38:02.490
the income summary account,[br]or profit and loss summary account.

2:38:02.490,2:38:04.389
It could be any of these.

2:38:06.092,2:38:08.355
With revenue we do the same.

2:38:08.355,2:38:13.165
So to close these revenue accounts, [br]what we should do?

2:38:13.585,2:38:17.034
We need to debit by 64200.

2:38:17.034,2:38:23.862
We debit rent revenue by 64200,[br]what is the balance after this? Zero.

2:38:23.862,2:38:27.514
And what we credit?[br]Income summary account again.

2:38:27.514,2:38:35.768
So income summary account will be [br]the same account that we use for expenses

2:38:35.768,2:38:39.687
but in this case we credit the [br]income summary account.

2:38:39.687,2:38:44.331
So you can see what we have done[br]at this point is to transfer

2:38:44.331,2:38:49.014
the amount of all the expenses [br]and revenues to this temporary account

2:38:49.014,2:38:53.018
which is income summary account.

2:38:58.573,2:39:02.331
Here you have the closing entries.

2:39:02.854,2:39:09.051
We credit all of the expense accounts,[br]remember the normal balance is a debit

2:39:09.051,2:39:13.387
so to close them we credit.[br]This is a journal entry.

2:39:13.387,2:39:18.500
You can see this is a journal entry[br]in which we debit income summary,

2:39:18.500,2:39:20.730
the sum of all the expenses.

2:39:20.730,2:39:24.518
We debit income summary and [br]we credit each of these accounts.

2:39:24.518,2:39:27.404
How many entries has this journal entry?

2:39:27.404,2:39:33.171
You can see it has eight entries.

2:39:33.171,2:39:37.774
We have one debit, and seven credits.

2:39:38.145,2:39:43.571
So this is one journal entry,[br]with this journal entry we close

2:39:43.571,2:39:45.988
all the expense accounts.

2:39:45.988,2:39:49.662
That means these are closing entries.

2:39:49.662,2:39:54.658
We transfer the expenses [br]to the income summary accounts.

2:39:54.658,2:39:57.924
For debt revenue, the same.

2:39:57.924,2:40:03.176
In this case we need to debit [br]the revenue account

2:40:03.176,2:40:05.816
because the balance is credit [br]so when we credit,

2:40:05.816,2:40:10.585
we leave this account in zero,[br]and we debit the rent revenue

2:40:10.585,2:40:14.096
and we credit the income [br]summary account.

2:40:15.184,2:40:19.806
This is another journal entry,[br]a closing entry.

2:40:20.562,2:40:22.599
What is next?

2:40:22.980,2:40:26.360
Then we need to close[br]the income summary account.

2:40:26.360,2:40:30.020
What is the balance of the [br]income summary account?

2:40:30.020,2:40:33.466
The income summary account [br]is the difference

2:40:33.603,2:40:35.234
between the credit and the debit .

2:40:35.444,2:40:36.798
what is higher?

2:40:36.829,2:40:43.275
Well, we have 64200 credit[br]and 48750 debit.

2:40:43.734,2:40:49.338
so that difference is 15450 credit, ok?

2:40:49.515,2:40:52.563
That is the balance of the income [br]summary account at this point.

2:40:52.563,2:40:57.821
To close that, we need to debit,[br]it is the third closing entry.

2:40:57.821,2:41:02.810
We debit 15450 from the[br]income summary account

2:41:02.810,2:41:06.980
and we credit retained earnings.[br]This is a permanent account.

2:41:06.980,2:41:11.078
So we transfer this balance to [br]the retained earnings account.

2:41:11.382,2:41:14.575
Now the income summary account is closed.

2:41:14.575,2:41:17.966
You can verify this if you were [br]at all debit,

2:41:17.966,2:41:24.859
48750 + 15450 [br]will be equal to 64200.

2:41:25.068,2:41:30.612
Income summary account is closed[br]the ending balance in this case is zero

2:41:30.612,2:41:33.639
and all the balance is transferred [br]to retained profit.

2:41:33.639,2:41:39.819
You can see what we have done[br]is to transfer the profit

2:41:39.819,2:41:43.652
of the accounting period through [br]the journal entries

2:41:43.652,2:41:45.704
that are the closing entries.

2:41:45.704,2:41:49.572
We transfer the profit to[br]the retained earnings

2:41:49.572,2:41:54.957
an that is what we do every period[br]at the end of each period we do this.

2:41:54.957,2:41:57.178
So what is retained earnings?

2:41:57.178,2:42:03.122
It's the accumulation of all profits [br]and all losses since the company started

2:42:03.122,2:42:06.590
because we do this at the end[br]of this period.

2:42:07.039,2:42:11.746
So we are accumulating the profits [br]in this written profit account.

2:42:11.746,2:42:13.451
What about dividends?

2:42:13.451,2:42:16.707
Dividends is another temporary account[br]we will see another exercise

2:42:16.707,2:42:21.035
in which dividends is included[br]in the workshop exercise

2:42:21.035,2:42:24.544
in which dividends is also closed [br]to retained earnings,

2:42:24.544,2:42:27.901
so retained earnings are [br]decreased by dividends.

2:42:29.632,2:42:34.249
Now, one last word in relation [br]to closing entries.

2:42:34.249,2:42:38.047
Closing entries you can see [br]is very simple.

2:42:38.047,2:42:43.299
It's just to close each of the expense [br]and revenues accounts

2:42:43.299,2:42:44.590
and also dividends,

2:42:44.590,2:42:49.874
and leaving the accounts [br]with zero balance.

2:42:50.119,2:42:58.517
The normal mistake that the students do[br]in this part even is simple

2:42:59.031,2:43:03.835
is the confusion between the debit[br]or the credit to close the account.

2:43:03.835,2:43:10.941
So because students know that[br]expenses are debit,

2:43:10.941,2:43:15.260
they close all expense accounts [br]with the debit here.

2:43:15.655,2:43:19.834
Put the debit and put the income [br]summary account as the credit.

2:43:20.424,2:43:23.236
But that, what is the effect of that?

2:43:23.883,2:43:27.746
With that, the effect that will be [br]will be that you double

2:43:27.746,2:43:30.360
the balance of each account.

2:43:30.360,2:43:35.447
If you debit advertisement expenses[br]by 3000 and you have a balance of 3000

2:43:35.447,2:43:41.093
what is the ending balance of [br]the advertisement expenses? 6000.

2:43:41.093,2:43:46.987
Ok, you double the balance on the account[br]you are not closing the account.

2:43:46.987,2:43:49.883
To close the account should [br]be the opposite side,

2:43:49.883,2:43:56.304
it should be you credit 3000 because [br]the account has a balance of debit, 3000.

2:43:56.446,2:44:01.204
So be careful with that, I have seen[br]so many times the same mistake.

2:44:02.594,2:44:10.808
Remember that taking out on these[br]so do not make this type of mistake.

2:44:12.291,2:44:15.008
Any question about closing entries?

2:44:24.224,2:44:28.331
The whole point Natalia, [br]or the last part?

2:44:31.343,2:44:35.297
The last part?[br]Excellent, yes.

2:44:35.892,2:44:38.764
Ok, excellent.

2:44:40.177,2:44:43.568
For one second I thought [br]it was the whole point.

2:44:44.123,2:44:45.962
Excellent.[br]Thank you Natalia.

2:44:47.572,2:44:51.097
A common mistake, [br]what is the common mistake?

2:44:51.280,2:44:55.812
Here we are closing the account[br]to ...

2:44:56.272,2:45:01.353
Remember two things,[br]to close has a meaning.

2:45:01.353,2:45:03.608
What is the meaning to close?

2:45:03.608,2:45:10.103
To close means leave with zero balance[br]that is the meaning, ok.

2:45:10.103,2:45:13.247
Close means leave this account[br]with zero balance.

2:45:13.247,2:45:19.333
So if we close advertisement expense[br]it means leave this with zero balance

2:45:19.333,2:45:20.717
at the end of the period.

2:45:20.717,2:45:26.987
After closing entries we want [br]advertising expense equals zero balance

2:45:26.987,2:45:30.341
so that means we transfer [br]the balance to another account.

2:45:30.341,2:45:35.177
We're transferring here to income summary[br]in this first step.

2:45:35.532,2:45:41.705
So what about if we have instead of,[br]I will write over here,

2:45:42.426,2:45:51.942
instead of credit 3000, [br]we put 3000 here, we debit.

2:45:53.047,2:45:56.680
And we do the same with [br]all the other accounts.

2:45:57.557,2:46:03.951
That means that this, the income [br]summary will not be a debit of 48000

2:46:03.951,2:46:10.388
but will be a credit of 48750, ok?

2:46:10.388,2:46:13.653
So what will be the effect of this?

2:46:14.004,2:46:19.920
And we put here the 9900,[br]the 6000, the 2000...

2:46:19.920,2:46:22.264
All of them in debit.

2:46:22.264,2:46:26.957
What is the balance of all of these [br]accounts if you do that?

2:46:27.586,2:46:32.427
What is the balance after closing entries[br]if you debit this account?

2:46:32.427,2:46:35.770
What will be the balance [br]of advertisement expense?

2:46:37.400,2:46:46.661
It will be 6000 because the balance[br]before closing entries is debit 3000.

2:46:47.559,2:46:53.622
If you debit in the closing entry by 3000[br]the debit increases the debit

2:46:53.622,2:46:57.878
so a debit of 3000 will be added [br]to the debit of 3000,

2:46:57.878,2:47:01.370
that means now the balance is 6000.

2:47:01.370,2:47:07.553
You're not closing the account, [br]you double the balance of the account.

2:47:07.999,2:47:14.458
So that's why you need to be very careful[br]that the closing entry

2:47:14.458,2:47:20.198
should be the opposite side of the [br]accounts that we are closing.

2:47:21.828,2:47:27.752
All the expense accounts,[br]they have a debit balance.

2:47:27.752,2:47:30.361
What is the opposite side?[br]Credit.

2:47:30.361,2:47:33.918
So we need to credit all the [br]expense accounts.

2:47:34.565,2:47:38.980
The revenues accounts, [br]what is the normal balance? Credit.

2:47:38.980,2:47:43.899
To close we need to debit, [br]the opposite side.

2:47:45.120,2:47:50.799
That is the important thing[br]so be careful with that,

2:47:50.799,2:47:54.664
so do not make a mistake on this.

2:47:57.858,2:48:09.346
Ok, Yes, Zijing, only need to close [br]the temporary account.

2:48:09.534,2:48:13.660
The permanent account we will [br]carry forward the balance.

2:48:13.660,2:48:16.382
The ending balance at [br]the end of the period

2:48:16.382,2:48:19.049
will be the beginning balance [br]of the next period.

2:48:19.049,2:48:20.827
We do not start with a zero balance.

2:48:20.827,2:48:24.602
We start with the ending balance [br]of the previous period

2:48:24.842,2:48:29.631
so we only close temporary accounts.[br]What are the temporary accounts?

2:48:29.977,2:48:34.460
All the income statement accounts[br]plus dividends, ok?

2:48:38.109,2:48:43.936
So we finish with this and here [br]you have all the closing entries

2:48:45.046,2:48:52.563
and that's the last part of this [br]exercise I think, yes.

2:48:57.746,2:49:02.439
Yes, that was the last question [br]to prepare the closing entries.

2:49:03.493,2:49:06.700
So we finish, [br]just we finish the lecture,

2:49:06.700,2:49:12.151
and it is time to (INAUDIBLE)

2:49:13.503,2:49:18.790
We need still to go through [br]the workshop.

2:49:19.648,2:49:25.170
Yes I did here profit and loss, [br]there are different names for this,

2:49:25.170,2:49:29.772
and over time the name has changed[br]in the accounting standards,

2:49:29.772,2:49:37.307
but when we talk about income statements[br]it's the same as profit and loss statement

2:49:37.307,2:49:43.091
it's the same.[br]And we talk, there is another name,

2:49:43.413,2:49:45.949
it's not very used now,[br]but you can see in some books

2:49:45.949,2:49:50.280
that there's the statement [br]of financial performance.

2:49:50.280,2:49:53.634
That is also called the income statement.

2:49:53.634,2:49:58.676
And the balance sheet has another name,[br]it's the statement of financial position.

2:49:58.676,2:50:04.138
But for the names that we're using[br]is normally income statement

2:50:04.138,2:50:07.716
or statement of profit or loss.

2:50:08.024,2:50:10.864
And then we have,

2:50:12.003,2:50:15.263
retained profit will always credit, right?

2:50:15.263,2:50:17.664
Good question Ezekiel.

2:50:18.965,2:50:27.074
Retained profit normally should be[br]and has to be in the credit side

2:50:27.074,2:50:33.748
except if the company has a lot of loss[br]and then retained profit

2:50:33.748,2:50:36.861
will go to the other side,[br]we'll have a debit balance.

2:50:36.861,2:50:40.532
That is a company that has [br]accumulated losses,

2:50:40.532,2:50:43.697
and they don't have profit.[br]it's not the normal situation

2:50:43.697,2:50:50.332
and it will be very bad for the company.[br]Normally it should be on the credit side.

2:50:51.907,2:50:56.203
It is possible the debit side,[br]but not usual, and not good.

2:51:01.204,2:51:05.238
Ok, so now we can go [br]through the workshop.

2:51:05.238,2:51:10.041
So we need to plan a bit at this point[br]because 3.50.

2:51:11.702,2:51:19.184
The normal time from 1.00-4.00[br]is the workshop and the lecture,

2:51:19.801,2:51:22.279
and then 4.00-5.00 [br]I have the consultation

2:51:22.279,2:51:25.899
but what I am doing is just to answer [br]all the questions

2:51:27.229,2:51:33.422
while I am explaining the exercise,[br]so I go through the questions immediately.

2:51:35.665,2:51:40.192
That I think is better because we [br]don't need to go back

2:51:40.426,2:51:45.099
but we solve anything that you have,[br]any question you have immediately.

2:51:45.099,2:51:48.756
But because we have not gone [br]through the workshop,

2:51:49.746,2:51:53.503
I will use the consultation time[br]for the workshop.

2:51:53.752,2:51:58.503
Now I understand if any of you[br]cannot stay for the workshop,

2:51:58.503,2:52:02.091
for the consultation which is 4.00-5.00,

2:52:04.282,2:52:07.268
it's ok, so feel free to go,[br]no problem.

2:52:08.358,2:52:13.229
Remember the lecture and the workshop[br]will be recorded

2:52:13.229,2:52:17.176
and will be uploaded [br]on the ECOS 360 tab,

2:52:17.176,2:52:21.589
so you will have the complete record,[br]yes and there's no problem.

2:52:21.589,2:52:26.692
You will have the complete record[br]of the lecture and the workshop.

2:52:27.107,2:52:31.082
So I will explain this as part [br]of the consultation,

2:52:31.082,2:52:34.448
the exercise of the workshop, ok?

2:52:35.833,2:52:41.976
And then if you have more questions[br]yes, please feel free to ask

2:52:41.976,2:52:43.783
any question you may have.

2:52:45.209,2:52:49.051
Ok, so we go through the second one.

2:53:06.737,2:53:12.841
The workshop, the scheme that we have used[br]is similar to the lecture,

2:53:12.841,2:53:17.823
we start with four multiple choice [br]questions to revise some concepts

2:53:18.162,2:53:21.125
and then we go through the exercise.

2:53:21.125,2:53:27.841
And in the exercise we will do the same,[br]we will practice with adjusting entries,

2:53:27.841,2:53:34.903
we will practice with closing entries[br]and that is the topic for today,

2:53:35.237,2:53:38.911
so a lot of practice in this.

2:53:40.626,2:53:43.452
So we will start with this.

2:53:43.452,2:53:50.038
I will have a look at the first question[br]which is similar to the first question

2:53:50.038,2:53:51.552
of the lecture.

2:53:51.825,2:53:55.015
Ok, have a look at this, [br]I will update the poll.

2:54:42.545,2:54:47.686
Ok, so furniture factory employees[br]work overtime to finish an order

2:54:47.686,2:54:50.677
that was sold on 28th February.

2:54:50.677,2:54:54.030
The office sent a statement [br]to the customer in early March

2:54:54.030,2:54:58.783
and the payment is received[br]by mid March.

2:54:59.108,2:55:05.807
The overtime expenses should be [br]expressed in which period?

2:55:30.862,2:55:40.776
Ok, good practically most of you[br]have the right answer,

2:55:42.842,2:55:46.145
in February.[br]Why in February?

2:55:46.145,2:55:50.620
Because they said that when[br]it's sold this order?

2:55:50.620,2:55:53.446
On 28th February, so it's February,

2:55:53.446,2:55:59.168
the month is February and [br]the employees work during February.

2:55:59.168,2:56:05.306
So the resource, [br]that means the work of the employees

2:56:05.306,2:56:10.598
was used on February,[br]that means the right answer is that one,

2:56:10.598,2:56:12.137
February, A.

2:56:12.589,2:56:15.882
A is the right answer, ok?

2:56:17.875,2:56:24.720
Number two, have a look, [br]I will update the poll.

2:56:38.649,2:56:45.060
The company purchased office supplies[br]costing $4000 and debit office supplies

2:56:45.060,2:56:48.446
for the full amount.[br]At the end of the accounting period,

2:56:48.446,2:56:54.005
a critical count of supplies reveal 1600[br]is still on hand.

2:56:54.005,2:56:55.828
What is the appropriate journal entry?

2:56:55.828,2:56:59.356
We have done already two weeks [br]aside for this,

2:56:59.356,2:57:06.689
so if you understood well,[br]please apply the same as we have done

2:57:07.676,2:57:10.308
in the first two exercises.

2:58:29.625,2:58:33.968
Ok, most of you correct,[br]what is the...

2:58:35.529,2:58:41.378
The right answer is C.[br]Ok, why?

2:58:42.214,2:58:47.924
if the company purchases office supplies[br]costing 4000, debit all these supplies,

2:58:47.924,2:58:50.340
so what is the balance of these accounts?

2:58:50.340,2:58:56.931
The unadjusted balance is office supplies[br]or simply supplies, debit $4000,

2:58:56.931,2:59:01.897
that is the unadjusted balance[br]but at the end of the accounting period

2:59:01.897,2:59:06.435
the physical count revealed 1600.

2:59:06.435,2:59:10.356
So that is what we have [br]in the supplies account.

2:59:10.356,2:59:13.754
The rest were consumed, [br]what's due,

2:59:13.754,2:59:17.428
so we need to record a [br]debit supplies expense

2:59:17.428,2:59:20.591
by the difference, 2400,

2:59:20.591,2:59:24.378
that is the difference between [br]4000 and 1600.

2:59:24.378,2:59:28.593
And we credit office supplies so we [br]reduced the balance of office supplies

2:59:28.593,2:59:36.935
by 2400 and now what is the balance[br]after adjustment? 1600, ok?

2:59:37.328,2:59:41.979
This is the normal way that you will see[br]always what happened

2:59:41.979,2:59:45.247
with the supplies account, [br]but there is another way

2:59:45.247,2:59:48.502
that I will explain, [br]I will explain it now.

2:59:50.089,2:59:57.430
What about if this company purchased [br]office supplies that cost 4000 dollars,

2:59:57.430,3:00:04.926
but debit the supplies expense,[br]the office supplies expense.

3:00:04.926,3:00:07.475
So we debit, ok?

3:00:07.475,3:00:10.205
And that is the journal entry [br]that they record

3:00:10.205,3:00:13.083
because they thought that they would[br]consume all of this

3:00:13.083,3:00:15.333
in this accounting period.

3:00:15.333,3:00:20.801
So they debit supplies 4000.

3:00:25.061,3:00:29.750
They debit supplies 4000,[br]and then credit.

3:00:30.296,3:00:39.334
If they paid cash, 4000.[br]That is the original entry, ok?

3:00:40.527,3:00:43.580
Supplies expense.

3:00:46.568,3:00:52.172
So they debit an expense account.[br]Why do they do this?

3:00:52.172,3:00:58.204
Because they think that they will consume[br]all of these supplies in the month.

3:00:59.223,3:01:07.845
But at the end of the month they realize[br]that they still have 1600 on hand.

3:01:07.845,3:01:13.954
What will be the adjusting entry[br]in this case?

3:01:16.882,3:01:19.152
Think a bit.

3:01:20.580,3:01:23.855
And think what would be the [br]adjusting entry in this case

3:01:23.855,3:01:28.839
because we need to adjust this,[br]the expense was not 4000.

3:01:29.075,3:01:32.902
It was less than 4000 because we [br]still have 1600.

3:01:32.902,3:01:35.145
We need to adjust that.

3:01:35.145,3:01:41.211
What will be the adjusting entry[br]in this case if we record everything?

3:01:41.211,3:01:46.588
Debit office supplies,[br]and credit supplies expenses, very good.

3:01:47.297,3:01:51.684
For what amount? [br]For 1600.

3:01:51.684,3:01:59.512
So we will debit office supplies 1600

3:02:01.945,3:02:06.517
so now we have this, ok?

3:02:09.357,3:02:14.735
1600 debit, now we have the balance,[br]and we need to credit the expense

3:02:14.735,3:02:17.247
because the expense was not 4000.

3:02:17.247,3:02:25.513
The expense was the difference,[br]so we will credit the expense by 1600.

3:02:25.513,3:02:30.719
This is a different way to look at[br]the supplies expenses account.

3:02:30.719,3:02:37.142
It is possible, it's not frequent but it [br]is possible that this is what may happen.

3:02:47.185,3:02:51.700
A full reversal if it is...[br]if it is given.

3:02:51.864,3:02:57.459
It's not a reversal actually,[br]it depends on how the data is presented.

3:02:57.459,3:03:01.348
For example if the data is presented[br]as I did in this exercise

3:03:01.348,3:03:06.873
or all the previous ones,[br]you only need to adjust as we have done

3:03:06.873,3:03:12.315
but if the data is presented in this way[br]that all the expenses,

3:03:12.315,3:03:17.064
all the supplies purchased are recorded[br]as an expense,

3:03:17.064,3:03:22.855
then the other adjustment[br]should be reversed.

3:03:22.855,3:03:27.853
What will give you the clue is [br]how we record the purchase of this.

3:03:27.853,3:03:33.274
We record as supplies, [br]or we record as supplies expense.

3:03:33.274,3:03:35.317
That will make the difference.

3:03:38.507,3:03:44.830
Ok, it's good to clarify this,[br]because I have seen an exercise

3:03:44.830,3:03:48.820
in which they use the other way.

3:03:49.651,3:03:59.030
We have two possibilities and [br]I will put this in here.

3:04:03.135,3:04:14.175
First, all purchases are[br]recorded as supplies.

3:04:16.784,3:04:22.345
Ok, all purchases are [br]recorded as supplies.

3:04:23.563,3:04:25.697
Now this you want....

3:04:30.948,3:04:33.662
All purchases are recorded as supplies.

3:04:33.689,3:04:38.353
What we should do when all purchases[br]are recorded as supplies,

3:04:38.353,3:04:42.972
we do what you have learnt in [br]the two previous exercises

3:04:42.972,3:04:45.152
in the lecture and in this...

3:04:45.152,3:04:50.932
in this multiple choice question.

3:04:50.932,3:04:56.773
We adjust the ending balance [br]of supplies, ok?

3:04:58.016,3:05:06.427
But what about all purchases are [br]recorded as expenses?

3:05:11.670,3:05:15.104
That is the other situation,[br]all purchases are recorded as supplies

3:05:15.104,3:05:19.068
first situation we have worked with that, [br]the second situation,

3:05:19.068,3:05:25.998
all purchases are recorded as expenses[br]and we purchased $4000 of supplies

3:05:25.998,3:05:32.293
and because we think that we will use [br]all of them in this accounting period

3:05:32.293,3:05:38.570
we record the 4000 as supplies expense[br]when we purchase them.

3:05:38.858,3:05:46.057
At the end of the month we have [br]1600 on hand,

3:05:46.057,3:05:51.228
so we didn't spend all of them.[br]We still have supplies

3:05:51.228,3:05:54.913
and we need to prepare an adjusting [br]entry to reflect this.

3:05:55.768,3:06:03.930
So how we will reflect in this case, we [br]will record in this case a debit supplies

3:06:06.972,3:06:12.926
1600, ok?[br]We record 1600 supplies

3:06:14.315,3:06:23.479
and we credit supplies expense,[br]1600.

3:06:27.845,3:06:32.837
That will be the adjusting entry.[br]What do we do with this adjusting entry?

3:06:32.837,3:06:36.384
We put in supplies which is [br]an asset account,

3:06:36.384,3:06:42.071
we put the amount that we have on hand[br]at the end of the period, 1600.

3:06:42.071,3:06:48.732
And we reduce the supplies [br]expense by 1600

3:06:48.732,3:06:52.102
because we didn't consume[br]all of them, ok?

3:06:52.102,3:06:57.001
This is the situation when purchases [br]are recorded as expenses.

3:06:57.424,3:07:00.479
It's another situation, [br]it's not the most common situation

3:07:00.479,3:07:05.748
but it's good that you know that [br]adjustment is to reflect

3:07:05.748,3:07:10.191
what we have at the [br]end of the period, ok?

3:07:11.180,3:07:13.653
It's clear now?

3:07:18.783,3:07:20.855
What are the questions?

3:07:23.677,3:07:29.099
Ok, Tablynn,[br]Tablynn please clarify the point.

3:07:31.953,3:07:38.133
We go to the next one, number 3.

3:07:41.308,3:07:45.218
I will update the poll, [br]thank you Tablynn.

3:07:49.468,3:07:56.250
Ok, this company purchased a computer[br]for 3000 on 1st December.

3:07:56.250,3:08:00.881
It is estimated the annual depreciation[br]of the computer is $600,

3:08:00.881,3:08:02.911
the annual depreciation.

3:08:02.911,3:08:07.207
A financial statement had to be prepared[br]on 31st December.

3:08:07.207,3:08:09.905
The company should make[br]the following adjustment.

3:08:09.905,3:08:14.742
So it's not very difficult,[br]what is the adjusting entry in this case?

3:08:15.010,3:08:19.080
Have a look at the alternatives[br]and choose one of them.

3:09:37.830,3:09:42.252
Ok, are you ready?

3:09:43.630,3:09:49.342
We have most of you answered correctly[br]but we have a distribution

3:09:49.342,3:09:52.191
in the answer as well.

3:09:52.517,3:09:58.892
The correct answer is B.

3:10:02.060,3:10:05.641
What is the, I would not say tricky,

3:10:05.641,3:10:09.121
but what is the thing that you[br]need to be careful of

3:10:09.121,3:10:10.839
with the data provided?

3:10:10.839,3:10:18.957
It is important and this is a good [br]practice for you for the final exam

3:10:18.957,3:10:22.804
because in the final exam you will have[br]multiple choice questions

3:10:22.804,3:10:24.676
and you will have exercises.

3:10:24.676,3:10:27.674
And the multiple choice questions[br]what is essential?

3:10:27.674,3:10:35.197
In the multiple question it is to read[br]carefully everything in the question

3:10:35.197,3:10:40.249
before you choose one of the answers[br]because here I can see

3:10:40.249,3:10:44.968
why there are some errors.

3:10:44.968,3:10:50.108
It says this is the amount [br]of the computer, $3000.

3:10:50.108,3:10:58.612
It is estimated annual depreciation[br]is $600, annual depreciation.

3:10:58.949,3:11:02.513
Financial statements are to be prepared[br]on 31st December.

3:11:02.513,3:11:06.776
What is the period of time for[br]this accounting period?

3:11:06.776,3:11:12.100
It's from the 1st of December [br]to the 31st of December,

3:11:12.100,3:11:14.798
that's one month.

3:11:14.798,3:11:21.657
So were talking about an accounting[br]period of one month, exactly Joshua.

3:11:21.657,3:11:27.468
One month, and here we have the [br]depreciation of a whole year,

3:11:27.468,3:11:30.536
so to calculate the depreciation [br]for one month

3:11:30.536,3:11:32.917
you need to divide this by 12.

3:11:32.917,3:11:36.036
If you divide by 12 it's 50

3:11:36.036,3:11:45.626
so that immediately leaves out A and E[br]and also the answer,

3:11:45.984,3:11:49.429
so we're not only between B and C, ok?

3:11:49.429,3:11:53.927
Now to record the depreciation expense[br]debit always,

3:11:53.927,3:11:57.399
always debit depreciation expense[br]always it's a debit,

3:11:57.399,3:11:59.901
and credit the accumulated depreciation.

3:11:59.901,3:12:03.634
That's why this is the right answer, ok?

3:12:04.033,3:12:08.870
So this is a good opportunity I can use[br]to explain to you how to avoid

3:12:08.870,3:12:13.751
some common errors when you do this[br]in an exam,

3:12:13.751,3:12:16.664
and only, maybe you know the answer,

3:12:16.664,3:12:21.233
but because you didn't read [br]very carefully the data

3:12:21.233,3:12:22.926
then you can make a mistake.

3:12:22.926,3:12:29.180
So be careful with these types of things[br]when you answer these questions.

3:12:29.739,3:12:34.591
Ok, now the last multiple choice question,

3:12:38.785,3:12:41.587
is this one, [br]I will update the poll.

3:12:55.523,3:13:00.475
An entity failed to adjust the revenue[br]received in advance account

3:13:00.475,3:13:02.927
for rent that has been earned.

3:13:02.927,3:13:07.592
What effect will this have [br]on the financial statements?

3:13:14.239,3:13:15.595
(COUGHS)

3:14:33.660,3:14:39.396
Ok, most of you again are correct,

3:14:40.438,3:14:43.173
but there are different answers as well.

3:14:43.252,3:14:50.668
But the right answer is E, [br]ok? That is the right answer.

3:14:50.668,3:14:54.914
I will explain how to solve this [br]type of questions,

3:14:54.914,3:15:00.066
because there are many similar questions,[br]but the question is,

3:15:00.396,3:15:02.901
what is the effect on the [br]financial statement

3:15:02.901,3:15:07.521
if an adjustment entry is not prepared?

3:15:07.521,3:15:10.012
Ok, so how we answer [br]this type of question?

3:15:10.012,3:15:14.359
The best way is to go step by step.

3:15:14.605,3:15:20.361
It says the entity failed to adjust [br]revenue received in advance account

3:15:20.361,3:15:22.965
for rent that has bee earned.

3:15:23.358,3:15:26.979
So what happens when we have [br]a revenue received in advance?

3:15:26.979,3:15:29.957
Yes, it is a liability.

3:15:30.573,3:15:34.182
Revenue received in advance is [br]a liability account,

3:15:34.182,3:15:41.037
and what happens when we earn the rent[br]and we do not adjust this liability?

3:15:41.037,3:15:45.273
The adjustment means a decrease[br]of the liability.

3:15:45.273,3:15:49.325
If we do not decrease the liability,[br]revenue received in advance,

3:15:50.875,3:15:54.320
these liabilities will be overstated.

3:15:54.477,3:15:59.112
How many of the answers,[br]and that is the way that you can see

3:15:59.112,3:16:02.600
when you are answering this type [br]of question in an exam,

3:16:02.600,3:16:08.893
how many of the answers have that,[br]that the liabilities will be overstated?

3:16:08.893,3:16:12.567
Well, we have D and E only, [br]only two,

3:16:12.759,3:16:15.507
so you can discard already three.

3:16:15.691,3:16:19.013
So you are going step by step[br]answering the question,

3:16:19.013,3:16:26.212
and even you don't know the second part[br]but now your choice is only between two

3:16:26.538,3:16:29.776
so a better probability [br]to have the correct answer.

3:16:29.858,3:16:34.337
These are just some tricks that you [br]can apply when you answer

3:16:34.337,3:16:37.505
these types of questions, ok?

3:16:37.505,3:16:41.679
So first, liabilities will be overstated[br]and what else?

3:16:42.017,3:16:43.995
The difference is in revenue.

3:16:43.995,3:16:47.149
What happens in revenue [br]if we do not record this?

3:16:47.707,3:16:53.509
If we do not record this it means [br]we do not record revenue already earned,

3:16:54.254,3:17:01.860
so the revenue account will be understated[br]because we miss to record this revenue.

3:17:02.596,3:17:05.629
So this will be the second part,[br]understated,

3:17:05.763,3:17:09.804
and that's why the right answer is E.

3:17:12.001,3:17:14.902
Any questions? Any conceptual questions?

3:17:14.902,3:17:20.214
Because with these four questions [br]we finished up the conceptual part.

3:17:20.337,3:17:26.221
Excellent Jade, we finished all the [br]conceptual part about adjusting entries

3:17:26.476,3:17:31.130
but now we will apply them again[br]in a couple of exercises.

3:17:33.696,3:17:41.906
So we go through the first exercise[br]which is this.

3:17:43.739,3:17:50.255
This company began operations [br]1st February 2019

3:17:50.255,3:17:52.778
and the trial balance is at 30th June.

3:17:52.778,3:17:57.959
So how many months is [br]this accounting period?

3:17:57.959,3:18:03.826
The accounting period is five months, [br]very good.

3:18:03.826,3:18:08.692
We need to keep that in mind,[br]five months is the accounting period

3:18:08.692,3:18:13.846
to calculate the revenues, expenses[br]or anything that we will need.

3:18:13.846,3:18:16.529
What we have here is the [br]trial balance again,

3:18:16.529,3:18:18.991
the unadjusted trial balance.

3:18:18.991,3:18:24.686
We have all the debit accounts,[br]all the credit accounts.

3:18:24.686,3:18:28.588
They are not all the accounts because[br]there are other accounts here,

3:18:28.588,3:18:34.281
you can see other accounts that have [br]zero balance at this moment

3:18:34.281,3:18:38.349
but they are accounts of the company[br]that we will use.

3:18:38.349,3:18:44.310
And then we have the transactions,[br]not transactions, sorry.

3:18:45.059,3:18:49.662
Not transactions, [br]the data for the adjustments.

3:18:51.466,3:18:55.641
The first again we have supplies,[br]so these are similar,

3:18:55.641,3:18:56.970
so I will go a bit quick,

3:18:56.970,3:19:02.454
but please stop me if there's anything[br]that you don't follow well.

3:19:02.454,3:19:06.106
So supplies on hand, 490,

3:19:06.106,3:19:10.930
how much we have in the [br]unadjusted trial balance?

3:19:10.930,3:19:18.795
supplies, 2350, so 2350 less 490

3:19:19.416,3:19:24.266
that will be 1860.

3:19:27.558,3:19:34.234
Less 490 that will be 1860,

3:19:34.234,3:19:37.004
so we record supplies expense [br]and supplies.

3:19:37.004,3:19:41.431
We'll record expense for the [br]supplies consumed

3:19:41.431,3:19:45.492
and we decrease the balance [br]of the supplies accounts.

3:19:47.854,3:19:52.633
Ok, second, electricity bill 110 [br]has not been recorded,

3:19:52.633,3:19:55.285
and will not be paid until next month.

3:19:55.285,3:19:59.623
Quite similar to what we have done,[br]we need to record the expense,

3:19:59.623,3:20:03.192
electricity expense debit 110,

3:20:03.192,3:20:08.131
and electricity payable credit 110.

3:20:08.399,3:20:15.357
So here you have electricity expense 110,[br]electricity payable 110.

3:20:19.394,3:20:24.175
The insurance policy is for the year[br]commencing 1st February 2019.

3:20:24.175,3:20:27.577
This is the day that the company started[br]for the year,

3:20:27.577,3:20:30.873
so we need to see here how much is...

3:20:30.873,3:20:36.378
prepaid insurance in total for [br]a year is 2520,

3:20:36.378,3:20:43.117
so if we divide this by 12[br]and we have five months in this period

3:20:43.117,3:20:49.985
we will need to multiply by 5,[br]so dividing this by 12, multiplied by five

3:20:49.985,3:20:55.885
the insurance expense will be 1050

3:20:56.969,3:21:03.596
so we have insurance expense debit 1050

3:21:03.596,3:21:06.948
credit prepaid insurance will decrease[br]the amount that we have

3:21:06.948,3:21:11.644
in prepaid insurance, 1050.

3:21:15.421,3:21:19.679
Services were performed during the period[br]in relation to 800 of revenue

3:21:19.835,3:21:22.206
received in advance.

3:21:22.206,3:21:26.852
So we have a revenue received in advance[br]and we need to decrease that 800

3:21:26.852,3:21:29.515
to record the service revenue.

3:21:29.515,3:21:33.454
We will debit revenue received [br]in advance by 800,

3:21:33.454,3:21:38.026
we will credit service revenue[br]by the same amount.

3:21:40.740,3:21:45.302
So we debit the service revenue [br]received in advance, 800

3:21:45.302,3:21:48.757
and we credit service revenue.

3:21:52.823,3:21:54.413
Next one.

3:21:56.283,3:21:59.875
Ok, yes. [br]Yeah, that's good.

3:22:00.230,3:22:03.128
Services were perfomed during the period

3:22:03.128,3:22:06.369
in relation to 800 of revenue [br]received in advance

3:22:06.369,3:22:08.045
What does that mean?

3:22:08.591,3:22:13.486
That means that previously [br]we have received cash

3:22:13.486,3:22:20.333
for services that we have not provided, [br]we received in advance,

3:22:20.333,3:22:23.355
so we record this as a liability.

3:22:23.355,3:22:28.200
The liability, the name of the account[br]is service revenue received in advance

3:22:28.200,3:22:33.466
and we can confirm this[br]in the trial balance.

3:22:35.394,3:22:40.511
The liability here you can see[br]service revenue received in advance.

3:22:40.511,3:22:47.501
We have received cash for 1500[br]for services we have not provided, ok?

3:22:47.501,3:22:53.632
Now in this data it says services were [br]performed during the period

3:22:53.632,3:23:01.222
for 800 of this 1500 that we received cash[br]we provide service for 800,

3:23:01.222,3:23:05.918
so we will have this revenue credit[br]and we need to decrease

3:23:05.918,3:23:11.152
the liability that we have[br]by the same amount, by 800.

3:23:11.282,3:23:19.459
Ok, so the journal entry will be service [br]revenue received in advance we credit

3:23:19.459,3:23:22.810
so we decrease that 1500 that we have

3:23:22.810,3:23:27.115
we decrease for the services[br]already performed.

3:23:27.471,3:23:30.663
And we record the service revenue credit.

3:23:32.173,3:23:34.846
Now it's better George?

3:23:42.605,3:23:45.335
Shouldn't we be deducting?

3:23:45.335,3:23:47.930
(INAUDIBLE)

3:23:49.855,3:23:58.227
Actually we are deducting 800 [br]from the 1500 we have with this

3:23:58.393,3:24:04.168
in the debit entry because we debit.

3:24:05.096,3:24:09.418
We are reducing the balance of service[br]revenue received in advance

3:24:09.418,3:24:13.004
that has a credit balance of 1500.

3:24:14.291,3:24:21.815
We debit 800 because we performed[br]services for 800,

3:24:21.815,3:24:24.284
so we deduct that.

3:24:24.284,3:24:30.762
With the debit entry we are reducing[br]an account that has a credit balance.

3:24:34.388,3:24:36.921
Excellent, very good.

3:24:38.042,3:24:39.740
You're welcome.

3:24:39.740,3:24:45.805
Ok, so the next one, salaries.

3:24:46.794,3:24:50.433
Salaries of 770 are owed [br]at 30th June,

3:24:50.433,3:24:52.180
we have done something similar.

3:24:52.180,3:24:57.898
So what are the accounts to record [br]the expense, salaries expense 770

3:24:57.898,3:25:00.457
and because we have not paid [br]these salaries,

3:25:00.457,3:25:05.502
they will be liability [br]salaries payable, 770.

3:25:07.657,3:25:12.377
Here you have salaries [br]expense 770 debit,

3:25:12.377,3:25:16.697
salaries payable liability 770.

3:25:19.889,3:25:25.846
The next one, office equipment has[br]a five year life with no resale value

3:25:25.846,3:25:31.431
and is being depreciated at $375 [br]per month for 60 months.

3:25:32.143,3:25:36.419
Ok, this is the amount per month,[br]depreciation expense per month.

3:25:36.419,3:25:40.041
But how many months do we have?[br]Five months.

3:25:40.041,3:25:45.949
So we need to multiply 375 by five,[br]that is 1875

3:25:45.949,3:25:52.151
so we record depreciation expense[br]here is the adjusting entry,

3:25:52.151,3:25:58.102
depreciation expense 1875 debit

3:25:58.102,3:26:05.121
and we credit the accumulated [br]depreciation office equipment 1875.

3:26:08.336,3:26:10.381
And the last.

3:26:10.837,3:26:15.950
Invoices representing 1500[br]of services performed during the month

3:26:15.950,3:26:18.020
have not been recorded.

3:26:18.020,3:26:25.800
So we provide services, we send [br]the invoice but we have not recorded

3:26:25.800,3:26:30.589
so we need to record, simply record[br]that we have not received cash

3:26:30.589,3:26:36.363
so we record a debit to [br]accounts receivable

3:26:36.363,3:26:40.217
and a credit to service revenue.

3:26:43.733,3:26:48.247
And here you have 1500[br]debit account receivable,

3:26:48.247,3:26:50.689
credit service revenue.

3:26:52.603,3:26:59.516
So we went a bit more faster through[br]the adjusting entry

3:26:59.516,3:27:02.416
because you have seen they're [br]very similar,

3:27:02.416,3:27:09.372
so if you become accustomed with this[br]you will do well in any adjusting entries

3:27:09.557,3:27:12.282
that you may face in any exercise.

3:27:12.282,3:27:17.460
They're similar once you become accustomed[br]to how to record adjusting entries,

3:27:17.460,3:27:22.267
it will be easier for you to do this.

3:27:25.599,3:27:32.170
Invoices...[br]sorry, what was the question reading?

3:27:32.348,3:27:35.731
Invoices we did combine them.

3:27:37.311,3:27:42.187
You mean in the last transaction [br]the number seven?

3:27:42.755,3:27:50.201
The number seven when it says[br]invoices representing 1500 of services,

3:27:50.201,3:27:55.505
yes, it could be one, it could be two,[br]it could be more than one,

3:27:55.505,3:27:58.006
but here we put all together

3:27:58.006,3:28:01.726
because all of them are [br]for the same period

3:28:01.726,3:28:07.714
so we can add them and in total [br]it's 1500.

3:28:07.954,3:28:13.060
We do not record invoice by invoice[br]unless they're from different dates

3:28:13.060,3:28:16.051
and we're preparing

3:28:17.173,3:28:21.080
each day by day as we did last week,[br]that is day by day,

3:28:21.080,3:28:25.772
in that case we need to record each time[br]but we're preparing adjusting entries.

3:28:25.772,3:28:29.330
Adjusting entries is for the whole month

3:28:29.330,3:28:33.424
so we need to include all the invoices[br]of the month, ok?

3:28:33.424,3:28:36.702
Because the one point in time[br]that we're doing this

3:28:36.702,3:28:39.649
is the last day of the [br]accounting period

3:28:39.649,3:28:42.773
so we add all the invoices for the month.

3:28:47.051,3:28:52.769
Just because we have only one[br]service revenue account,

3:28:53.163,3:28:58.331
we have one service revenue account[br]and therefore we add them.

3:28:59.333,3:29:06.605
If you remember the ledger last week,[br]we have one service revenue account

3:29:06.605,3:29:08.245
or sales revenue account.

3:29:08.245,3:29:11.814
Now if we have two different accounts[br]for example

3:29:11.814,3:29:16.141
we have invoices for services [br]that we provided

3:29:16.141,3:29:21.453
and we have invoices for products [br]that we delivered

3:29:21.453,3:29:27.698
and we have one service account[br]and we have one sales revenue account,

3:29:27.698,3:29:30.713
two different accounts,[br]one for services one for products,

3:29:30.713,3:29:37.464
in that case we need to add [br]all the services invoices

3:29:37.464,3:29:40.219
and to put them in the service[br]revenue account

3:29:40.219,3:29:44.015
and all the sales of products[br]and we put them in the other account

3:29:44.015,3:29:46.477
in that case we need to [br]keep them separated.

3:29:46.477,3:29:49.267
But if it is only one account [br]that we are using

3:29:49.267,3:29:52.236
this is the adjusting entry,[br]we add all of them.

3:29:55.513,3:30:01.851
Ok, accounts receivable debit [br]and services performed credit

3:30:01.851,3:30:04.708
for the seventh transaction.

3:30:06.411,3:30:07.762
Ok, well yes.

3:30:07.762,3:30:12.312
The seventh transaction we have [br]a number of invoices

3:30:12.312,3:30:14.661
but the total is 1500.

3:30:14.661,3:30:16.151
Services performed.

3:30:18.013,3:30:21.228
Invoices for services performed [br]means service revenue,

3:30:21.228,3:30:25.929
we've earned this revenue because[br]we provided the services

3:30:26.275,3:30:31.747
so we have a credit in the account [br]of service revenue, 1500.

3:30:31.747,3:30:35.371
But we have not received the cash[br]for this.

3:30:35.371,3:30:39.521
It doesn't say here that we [br]buy services for cash

3:30:39.521,3:30:42.230
so therefore it is an account receivable.

3:30:42.494,3:30:46.371
We need to debit the [br]accounts receivable

3:30:50.522,3:31:00.832
Ok, so once we have this,[br]all the adjusting entries recorded

3:31:01.915,3:31:05.775
we can go to our worksheet

3:31:06.026,3:31:09.275
and here in the worksheet, [br]the same as we have done,

3:31:09.275,3:31:11.651
we have the unadjusted trial balance.

3:31:11.651,3:31:19.615
We copy all the adjtustments here and[br]we prepare the adjusted trial balance.

3:31:20.393,3:31:23.312
Ok, I will not repeat this part[br]because it's very simple.

3:31:23.312,3:31:29.302
You know for example if you[br]have account receivable

3:31:29.302,3:31:35.943
this is the unadjusted trial balance [br]3150, ok, in here.

3:31:37.327,3:31:41.108
Debit and in the adjustment [br]you have another debit.

3:31:41.108,3:31:45.557
You need to add the two of them[br]to have the adjusted trial balance.

3:31:45.999,3:31:49.872
If you have the prepaid insurance debit[br]and the adjustment is a credit,

3:31:49.872,3:31:54.715
you need to subtract this and [br]to calculate the adjusted trial balance.

3:31:55.230,3:31:59.604
So it's exactly the same as [br]we have done before.

3:31:59.604,3:32:05.205
The important thing, all of them,[br]the unadjusted trial balance,

3:32:05.205,3:32:07.892
total debit equals total credit.

3:32:07.892,3:32:11.904
The adjustment, this is the sum[br]of all the adjusting entries,

3:32:11.904,3:32:14.647
total debit again equals total credit.

3:32:15.283,3:32:21.001
The adjusted trial balance again,[br]total debit again equals total credit.

3:32:22.175,3:32:27.131
So always in the trial balance,[br]total debit equals total credit.

3:32:27.339,3:32:32.222
The same as any journal entry.[br]Total debit equals total credit.

3:32:37.105,3:32:41.871
So from that worksheet we can prepare [br]what is the adjusted trial balance

3:32:41.871,3:32:44.847
at 30th June after all the adjustments

3:32:44.847,3:32:47.547
and here you have the adjustment[br]trial balance.

3:32:47.547,3:32:51.585
It's just a copy of what we have [br]in the worksheet.

3:32:55.581,3:33:02.565
The last problem for today is this one.

3:33:03.552,3:33:08.001
Here we will start with [br]the adjusted trial balance.

3:33:08.611,3:33:11.785
If you remember the previous problem,[br]we had started the problem

3:33:11.785,3:33:18.173
with the unadjusted trial balance[br]and we prepared all the adjustments

3:33:18.173,3:33:21.401
and at the end we end with [br]the adjusted trial balance.

3:33:21.401,3:33:26.065
In this problem we will start[br]with the adjusted trial balance.

3:33:26.065,3:33:31.494
So here you have the trial balance[br]after all adjustments.

3:33:31.494,3:33:36.156
All adjustments we have [br]the trial balance.

3:33:37.945,3:33:42.507
In this exercise which is a different [br]exercise of course from the previous one

3:33:43.688,3:33:47.316
you can see trial balance have [br]the same structure.

3:33:47.716,3:33:53.219
We have first all the asset accounts,[br]cash, accounts receivable,

3:33:53.219,3:33:58.058
office supplies, equipment,[br]accumulated depreciation equipment

3:33:58.058,3:34:01.855
which is an asset account [br]but is credit balance, ok?

3:34:01.855,3:34:06.794
Then we have the liabilities, [br]accounts payable, salaries payable,

3:34:06.794,3:34:09.966
interest payable, [br]rent revenue received in advance

3:34:09.966,3:34:14.568
bank loans, all of these are [br]liabilities accounts.

3:34:15.749,3:34:19.569
Then we have check capital [br]and retained earnings.

3:34:19.569,3:34:22.262
These are equity accounts.

3:34:23.103,3:34:27.411
Here we have one temporary account, [br]part of equity dividends.

3:34:29.060,3:34:30.847
Why is dividends on the debit side?

3:34:30.847,3:34:33.493
Because dividends decrease[br]retained earning, ok?

3:34:33.667,3:34:36.770
But this is a temporary account[br]that we need to close

3:34:36.770,3:34:39.617
to retained earnings account,

3:34:39.855,3:34:42.677
and then we have the income [br]statements account.

3:34:42.677,3:34:48.263
Revenues, we have two revenues accounts,[br]sales revenue and rent revenue,

3:34:48.263,3:34:51.707
and we have all of these [br]expenses accounts.

3:34:53.339,3:34:57.464
And the total of course should be equal.[br]Total debit equals total credit.

3:34:57.464,3:35:04.713
So the question or the exercise,[br]start with the adjusted trial balance.

3:35:10.197,3:35:13.058
What is required in this question?

3:35:13.058,3:35:19.940
Prepare the closing entries and prepare[br]a post closing entries trial balance,

3:35:20.604,3:35:21.773
just that.

3:35:21.967,3:35:26.361
Prepare closing entries and prepare[br]post closing entries trial balance

3:35:26.361,3:35:30.215
starting with the adjusted trial balance.

3:35:31.177,3:35:34.036
So we will return to the [br]adjusted trial balance.

3:35:35.246,3:35:38.002
How will we prepare the closing entries?

3:35:38.497,3:35:40.498
We will start with the expenses.

3:35:40.864,3:35:43.589
Here you have all the expense accounts.

3:35:43.838,3:35:49.949
How do we close these expenses?[br]All the expenses accounts?

3:35:50.775,3:35:54.794
Well, the balance of these accounts [br]is debit,

3:35:54.794,3:35:58.160
so to close them, [br]to leave them with zero balance

3:35:58.160,3:36:03.006
we need to credit for the same amount.

3:36:03.006,3:36:06.265
That is the part that I mentioned before,[br]don't make a mistake.

3:36:06.347,3:36:10.180
To close these we need to credit,[br]not to debit.

3:36:10.180,3:36:15.579
If you debit you will double the balance[br]of these accounts.

3:36:16.147,3:36:19.619
So we need to credit by the same amounts.

3:36:19.619,3:36:24.448
It's very simple, the journal entry.

3:36:24.448,3:36:28.828
The income summary debit [br]and expenses credit, exactly George.

3:36:28.828,3:36:30.888
That is the point.

3:36:31.075,3:36:38.788
So the journal entry will be [br]credit salaries expense 11340,

3:36:38.788,3:36:44.268
credit rent expense 6000,[br]credit depreciation expense,

3:36:44.268,3:36:47.191
equipment 1750.

3:36:47.191,3:36:52.506
Credit supplies expense 900,[br]credit electricity expense 750.

3:36:52.506,3:36:54.723
Credit interest expense 500.

3:36:54.723,3:37:00.057
So you can see, you have to go one by one[br]closing each of these accounts

3:37:00.057,3:37:05.102
with a credit entry of the same amount[br]that we have in the balance.

3:37:05.982,3:37:10.993
Then you add all of these and you will [br]record a debit entry

3:37:10.993,3:37:14.006
in the income summary account[br]for the sum of all of that.

3:37:14.006,3:37:18.275
In this case if you add this it's 20990

3:37:18.275,3:37:26.303
so you record your first closing entry[br]which is this one.

3:37:26.303,3:37:31.231
Profit and loss summary or [br]income summary accounts, 20990,

3:37:31.231,3:37:35.593
and the credit in all the[br]expense accounts, ok?

3:37:35.750,3:37:39.062
Salaries expense, rent expense, [br]depreciation expense.

3:37:39.062,3:37:44.660
After this, the balance of all of this [br]expense accounts will be zero, ok?

3:37:45.002,3:37:50.456
Because we have the same amount[br]debits and credits so the balance is zero.

3:37:51.934,3:37:57.562
Then we close the revenues accounts[br]and we have two.

3:37:57.938,3:38:03.393
So we have sales revenue, [br]and we have rent revenue.

3:38:03.393,3:38:08.917
Credit balance, so to close this,[br]we need to debit for the same amount.

3:38:08.917,3:38:12.681
We need to debit sales revenue,[br]18600.

3:38:12.681,3:38:17.608
We need to debit rent revenue 12000,[br]one by one again.

3:38:17.608,3:38:20.582
And then we will credit the income[br]summary account

3:38:20.582,3:38:21.790
for the total.

3:38:21.790,3:38:26.851
How much is the total?[br]30600, the sum of these two,

3:38:26.851,3:38:32.556
and we have the second closing entry[br]which is this.

3:38:34.249,3:38:39.567
Here we have debit, the sales revenue,[br]the rent revenue, now the balance is zero

3:38:39.567,3:38:45.164
and we credit the profit and loss summary[br]or income summary account,

3:38:45.164,3:38:48.167
you can put the name profit[br]and loss summary

3:38:48.167,3:38:50.881
or income summary accounts, [br]correct.

3:38:50.881,3:38:53.996
You credit by that amount.

3:38:55.703,3:38:59.876
So we closed all the expenses[br]and revenue accounts.

3:38:59.876,3:39:02.619
But we have opened this [br]temporary account

3:39:02.619,3:39:05.663
that is the profit and loss [br]summary account.

3:39:05.663,3:39:11.218
We need to close that because [br]it's also a temporary account.

3:39:11.218,3:39:16.027
What is the balance of this account[br]after all of these closing entries?

3:39:16.537,3:39:21.932
The balance is the difference between [br]30600 credit

3:39:22.307,3:39:25.760
and 20990 debit,

3:39:25.760,3:39:28.999
so the difference will be a credit[br]because this is higher,

3:39:28.999,3:39:39.057
will be a credit of 9610.[br]That is the next closing entry.

3:39:40.039,3:39:43.687
Because it will be a credit balance[br]we need to debit this account

3:39:43.861,3:39:46.571
by 9610.

3:39:47.163,3:39:50.236
Now this account is zero, ok?

3:39:50.369,3:39:53.088
The profit and loss summary account,[br]the balance is zero,

3:39:53.088,3:39:56.420
we've closed that with this debit entry?

3:39:56.420,3:39:57.820
What is the credit entry?

3:39:57.820,3:40:01.473
Retained earnings account [br]which is a permanent account.

3:40:05.830,3:40:08.548
So we close all the [br]income statement accounts

3:40:08.548,3:40:12.031
and the profit and loss summary accounts[br]and we only need to close now

3:40:12.531,3:40:20.358
one additional account that we have[br]in the adjusted trial balance.

3:40:20.688,3:40:22.130
Yes Josh?

3:40:22.394,3:40:27.962
JOSHUA: Could you explain the second last,[br]the (INAUDIBLE)

3:40:29.567,3:40:33.853
HERMAN: Sorry, I couldn't hear very well,[br]can you repeat please?

3:40:33.853,3:40:37.020
JOSHUA: Yeah, could you explain[br]the second last transaction

3:40:37.020,3:40:39.531
which was about the retained earnings?

3:40:39.531,3:40:42.623
The income summary to retained earnings.

3:40:42.623,3:40:44.219
HERMAN: Yes, sure, sure.

3:40:46.749,3:40:54.794
Here you have the...[br]How many closing entries do we have?

3:40:55.943,3:41:01.295
The first closing entry we close [br]all the expenses as I said here.

3:41:01.711,3:41:06.083
All the expenses are closed[br]to profit and loss summary account.

3:41:06.083,3:41:09.302
The second entry we close the revenues.

3:41:09.302,3:41:14.086
So all the revenues are closed [br]to profit and loss summary account.

3:41:14.300,3:41:20.157
Now we need to close the profit [br]and loss summary account.

3:41:20.157,3:41:24.911
How much is the balance of [br]profit and loss summary accounts

3:41:24.911,3:41:28.416
after the first two closing entries?

3:41:29.880,3:41:36.155
In the first closing entry we have [br]a debit of 20990.

3:41:37.185,3:41:42.206
In the second closing entry [br]we have a credit of 30600.

3:41:42.594,3:41:44.575
It's the same account, ok?

3:41:44.575,3:41:50.250
So we have a credit of 30600,[br]we have a debit of 20900,

3:41:50.250,3:41:52.316
what is the balance?

3:41:52.316,3:41:56.873
The balance will be a credit[br]because this is higher, ok?

3:41:56.873,3:41:59.794
We have more credit than debit.

3:42:00.160,3:42:04.408
We subtract this from the credit[br]that we have,

3:42:04.408,3:42:09.731
and the difference will be a credit[br]of 9610.

3:42:10.889,3:42:14.573
That is after the second closing entry.

3:42:14.870,3:42:20.382
We have a debit balance [br]in this temporary account 9610.

3:42:20.382,3:42:23.627
Now we want to close that.[br]How do we close it?

3:42:23.627,3:42:27.323
Because we have a debit balance,[br]we need to credit,

3:42:27.323,3:42:32.657
so we credit by that amount 9610

3:42:32.657,3:42:38.011
and with that the balance of the profit [br]and loss summary account is zero now.

3:42:38.233,3:42:43.432
But in this third closing entry, [br]the other entry is retained earnings.

3:42:44.067,3:42:49.894
So in retained earnings, we credit [br]retained earnings by this amount.

3:42:50.707,3:42:54.551
You can see that this is the way[br]that you transfer the profits

3:42:54.551,3:43:00.510
to retained earnings because the profit[br]is revenues less expenses.

3:43:00.510,3:43:04.191
That difference is included [br]in the profit and loss summary account.

3:43:04.191,3:43:06.692
We've closed the revenue, [br]we've closed expenses

3:43:06.692,3:43:11.893
to profit and loss summary account[br]so we have a profit of 9610

3:43:11.893,3:43:15.254
and we close that to retained earnings.

3:43:19.627,3:43:23.835
And we have one more account.

3:43:24.705,3:43:28.114
That is dividends.[br]Here you can see dividends.

3:43:28.114,3:43:31.754
They will balance 600.

3:43:31.754,3:43:35.716
Dividends we know is a temporary account[br]that decrease retained earnings,

3:43:35.716,3:43:39.610
dividends are paid from retained earnings.

3:43:39.610,3:43:42.617
We need to close this.[br]How do we close this?

3:43:42.617,3:43:45.660
We close to retained earnings account.

3:43:45.820,3:43:50.767
So to close this which has a debit balance[br]we need to credit this account

3:43:50.767,3:43:54.147
and we will debit retained earnings.

3:43:54.147,3:43:56.883
You can see we've done a[br]debit to retained earnings,

3:43:56.883,3:43:59.608
decreased retained earnings.

3:43:59.608,3:44:04.389
So that last closing entry

3:44:06.507,3:44:10.678
in which we debit the [br]retained earnings account.

3:44:10.678,3:44:14.835
600 and we credit dividends by 600.

3:44:15.117,3:44:19.192
What is the balance of dividends after[br]this closing entry? Zero

3:44:20.114,3:44:24.994
And retained earnings are decreased [br]by this amount.

3:44:25.546,3:44:33.359
If you think about what we've learnt[br]in the first or the second module,

3:44:34.982,3:44:37.592
how the retained earnings account changed

3:44:37.592,3:44:41.488
from the beginning of the period[br]until the end of the period,

3:44:41.841,3:44:45.515
well we start with the beginning balance[br]of the retained earnings.

3:44:46.595,3:44:50.777
We add the profits, we subtract [br]the dividends

3:44:51.374,3:44:54.512
and then we have the ending balance [br]of retained earnings.

3:44:54.512,3:44:59.216
Now you can see how we do this[br]through journal entries,

3:44:59.216,3:45:02.149
actually closing entries.

3:45:02.149,3:45:05.483
It is exactly the same thing.

3:45:06.445,3:45:10.465
So now we have the closing entries.

3:45:12.214,3:45:17.370
We can prepare the post[br]closing entries trial balance.

3:45:19.271,3:45:23.597
To prepare the post closing entries[br]trial balance is very simple

3:45:23.597,3:45:27.169
and I will show you exactly [br]how to do this

3:45:27.169,3:45:29.572
from the adjusted trial balance.

3:45:29.572,3:45:33.040
This is the adjusted trial balance,[br]we start with this.

3:45:33.040,3:45:36.124
What do we have in the [br]adjusted trial balance?

3:45:36.124,3:45:40.405
Asset accounts, liabilities accounts,[br]equity accounts

3:45:40.405,3:45:44.962
and then we have the revenues, [br]expenses and dividends accounts

3:45:44.962,3:45:47.018
that are all temporary.

3:45:47.018,3:45:50.930
The post closing entry trial balance,[br]the main difference

3:45:50.930,3:45:56.946
with the adjusted trial balance is that[br]in the post closing entry trial balance

3:45:56.946,3:46:00.488
you only have permanent accounts.

3:46:01.105,3:46:04.580
Is there any change between[br]the adjusted trial balance

3:46:04.580,3:46:09.345
and the post closing entry trial balance[br]in the asset accounts? No.

3:46:09.721,3:46:12.334
Because we didn't close any of them.

3:46:12.334,3:46:17.793
In the liabilities accounts? No.[br]Because we didn't close any of them.

3:46:18.795,3:46:22.678
What about equity?[br]Well, in share capital no,

3:46:22.678,3:46:25.050
but retained earnings yes.

3:46:25.050,3:46:29.269
That is the only account[br]that will be different

3:46:29.269,3:46:33.895
in the post closing entry trial balance,[br]compared with the adjusted trial balance.

3:46:33.895,3:46:36.250
Of course the post closing [br]entry trial balance,

3:46:36.250,3:46:41.949
they do not have any income [br]statement accounts or dividend accounts.

3:46:42.544,3:46:48.231
We can see easily how we calculate that[br]going from the retained earnings

3:46:48.231,3:46:51.494
that you have here, ok?

3:46:51.787,3:46:54.515
Look at here, 1500.

3:46:54.515,3:46:58.777
What is that 1500 that we have...

3:47:00.467,3:47:03.959
That we have in the adjusted [br]trial balance? Retained earnings.

3:47:04.159,3:47:11.675
This retained earnings balance is the[br]beginning balance of retained earnings

3:47:11.675,3:47:13.163
not the ending balance.

3:47:13.163,3:47:17.367
This is not the balance at 30th June.

3:47:18.661,3:47:21.904
This is the beginning balance [br]of retained earnings.

3:47:21.904,3:47:24.288
Why is it the beginning balance?

3:47:24.288,3:47:29.468
Because in this statement which is [br]the adjusted trial balance

3:47:29.468,3:47:33.182
you have all revenues, [br]you have all the expenses,

3:47:33.182,3:47:38.608
you have the dividends,[br]so all the accounts that affect

3:47:38.934,3:47:42.107
the ending balance of retained earnings[br]are here,

3:47:42.107,3:47:46.389
and because they are here,[br]this is the beginning balance.

3:47:46.389,3:47:52.326
How we transform this to the ending[br]balance of retained earnings?

3:47:52.326,3:47:56.833
First we need to add the profit.[br]What is the profit?

3:47:56.833,3:48:02.487
We calculate the profit through[br]the profit and loss summary account.

3:48:02.487,3:48:06.634
This is the profit 9610

3:48:06.634,3:48:13.889
so we will need to add 1500 plus 9610

3:48:13.889,3:48:19.573
and we need to deduct the dividends 600.

3:48:19.935,3:48:24.428
That's why in the post closing [br]entries trial balance,

3:48:24.428,3:48:28.825
all the accounts are the same [br]as the adjusting trial balance

3:48:28.825,3:48:34.932
after adjustment but retained earnings[br]is 10510.

3:48:35.230,3:48:37.009
How do we calculate this?

3:48:37.009,3:48:39.683
This is the ending balance [br]of retained earnings.

3:48:39.683,3:48:41.727
Here you have the explanation.

3:48:41.727,3:48:47.445
Beginning balance 1500 that we have[br]in the adjusted trial balance

3:48:47.445,3:48:51.768
plus the profit 9610

3:48:51.768,3:48:56.237
which is the result of the profit [br]and loss summary account

3:48:56.237,3:48:59.109
less the dividends, 600.

3:48:59.362,3:49:02.298
If you calculate this you get,

3:49:02.298,3:49:07.199
you will get the ending balance [br]of retained earnings

3:49:09.456,3:49:12.195
And this will be the total.

3:49:12.195,3:49:15.391
Total debit, total credit,[br]that should be the same

3:49:17.670,3:49:20.236
Any question?

3:49:24.822,3:49:27.957
All good? [br]Excellent.

3:49:28.876,3:49:30.985
Excellent, we've finished.

3:49:30.985,3:49:35.246
At least we finished earlier [br]than last week.

3:49:35.246,3:49:41.836
Last week was a marathon that we did

3:49:41.836,3:49:45.742
but today we finished earlier [br]than last week.

3:49:45.742,3:49:50.127
But if you have any last questions[br]of course I will be happy to answer you.

3:49:50.918,3:49:54.954
Anything that you would like [br]to ask or discuss?

3:49:56.174,3:50:00.052
Yeah last week was a lot,[br]yes.

3:50:01.964,3:50:04.621
Okay, thank you very much.

3:50:04.815,3:50:08.700
Have a great evening and a great week.

3:50:09.079,3:50:11.266
Ok, see you next week.

3:50:11.266,3:50:16.740
Bye, thank you all of you.[br]Thank you.