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LECTURER: Ok, hello everyone.

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Welcome again to the Accounting
and Governance class.

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Could anyone please tell me
if the volume is ok?

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Perfect. Ok, thank you.
Thank you.

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So, I hope you have had 
a very good week,

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

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that is in the process of marking

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by another lecturer, 
that is the person who will mark

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all our assessment.

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So just be a bit patient,
during this week

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we will release the results of the 
first assessable homework.

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Now today we will continue 
with what we started last week.

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Last week what you learnt was
how to record transactions

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using debits and credits 
and preparing the journal entries

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and you know that for
each journal entry

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you need at least two entries, 
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
and one credit

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and of course the total debit 
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
today is

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another type of entries
which is adjusting entries.

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I hope you have studied the 
material that is posted

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on the course learning at Griffith,
you have watched the videos

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

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

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how to deal with these
different types of entries

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that are the adjusting entries.

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The purpose of this session 
is that you will end the session

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with a clear understanding of that,
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
learnt last week

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are entries that you prepare 
from transactions

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

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the accountant receives information
that is mainly through the cash received

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and cash paid so they are 
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 
cash received and cash paid

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but sometimes the accountant also receives
information of invoices

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that are sent to customers so they record
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
but most of them I would say yes.

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The first difference with adjusting entries
is in adjusting entries,

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we do not involve cash.

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Cash is never involved 
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
as a normal activity

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then it will not be such 
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 
our accounting period.

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It depends on the company.

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The normal accounting period 
is one year.

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If a company does not prepare 
financial statements every month

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

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The adjusting entries are 
at the end of the year.

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But what's happening there 
in the real world

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companies prepare the financial 
statement

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every quarter or even every month

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

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

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The concept of adjusting entries is that
we prepare adjusting entries

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at the end of the accounting period,
ok?

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That is the thing.
At the end of the accounting period.

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If the accounting period is one month
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
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 
have in relation to adjusting entries.

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The other thing is what we are adjusting
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 
and expenses.

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

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all the income or revenue 
that has earned in the period,

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

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That is what we show with 
the adjustment entries.

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That's why we cannot do adjustment entries
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 
because at the end of the period

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we want to have in our 
financial statement

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all the income earned in that period

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and all the expenses incurred 
in that period.

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So this is the most 
important concept

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to start with adjusting entries.

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

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

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we need to adjust to have 
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 
activity statement,

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the business activity statement 
is a tax concept.

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In many cases the tax period is the same
as the accounting period

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

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with the tax concept when we
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 
with the lecture

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in which I will pose
four multiple choice questions.

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

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for you and for me about 
the understanding of some basic concepts

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of this topic.

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

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

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why this answer is correct 
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 
these questions to explain

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probably some of the concepts
if they are not clear.

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So please feel free as usual to ask 
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 
four and a half hours

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in the whole thing because 
of the number of questions

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

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

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my main purpose is for you
to understand these topics.

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

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The second assessable homework 
will be next week

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after the topic four, 
module four.

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So that assessable homework two 
includes this module,

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module three, 
adjusting and closing entries

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and also the module four.

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That's why it's very important, 
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 
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 
to beat four and a half hours.

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I feel sorry for you sometimes but 
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 
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
considered to be earned?

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

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

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and you can vote for your answer

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When they are earned?
Take your time.

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Pima can't see properly, ok.

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Pima, you can zoom,
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 
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,
so if there are

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a whole distribution
of your answers means, yeah.

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

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Most of you actually answered correctly
but there are of course,

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there are many other different answers.

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So this question is about 
when revenue is earned, ok?

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That is the question, 
we are using accrual accounting.

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In accrual accounting revenue is recorded
when it is earned

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not when cash is received,

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and expenses when they are incurred
not when they are paid, ok?

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

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The dress manufacturer received
a purchase order for 10 dresses

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

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On 15th November the manufacturer
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 
on 30th November.

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Delivered means that revenue is earned.

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When is revenue earned?

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When the products are delivered 
to the customer.

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They are passed from the company 
to the customer.

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At that point, revenue is earned.

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

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When the service is provided,
service revenue is earned.

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So that is the correct answer, ok?

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There is some echo, probably 
somebody has the microphone on.

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So this is the correct answer,
and the other dates,

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the customer is sent an invoice 
on 5th December.

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No, the producer already delivered it, 
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 
is received 10th December.

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

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or when we bank the payment.

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So, the correct answer is that.
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, 
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 
because I drew a blue circle in C

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Can you see that?

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Ah, it's not a line.
Double is in the white space.

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Ah, I didn't know that. Ok.
Ok, interesting.

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In my screen it's exactly in C
but probably there are differences in this

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Probably just zoom each, 
probably.

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I move my zoom in and out
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 
but an invoice has not been received

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

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I will update...
It doesn't move the page.

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Ok, if you cannot follow this 
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
but an invoice has not been received

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at the end of the accounting period,
what is the situation?

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

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The correct answer is B.

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

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Why is this? 
Because the resource has been consumed.

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

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That means that we need to record 
an expense, ok?

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So in this case the only one, 
and adjusting entry should be recorded

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to recognize the expense.

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Any question on this?

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Is it clear?

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Ok, we will go to the next one,
thank you Jade.

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Number three,

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if an entity fails to adjust
the prepaid rent account

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for rent that has expired,

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what effect will this have on the 
monthly financial statement?

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Here you need to think a bit more
because it's what's happening,

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the adjusting entry was not recorded,
what would be the effect on that?

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I will update the poll.

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The previous answer was B.

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It is prepaid rent failed to adjust
for the month that was paid.

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This is the prepaid rent that was recorded
as a prepaid rent

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but now in this month the rent has expired
so it was used,

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the office or the building
that we are renting was used, yeah.

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You see in my poll you still chose 
number one, is it correct?

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Ah, yes, yes. 
I didn't change the numbers,

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I just updated the poll solutions,
but I didn't change the number.

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This is for the question three, for each 
question I update the poll,

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I do not change the number because that 
takes a bit more time

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to change that number
so I just update the answers

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to lead them in zero, 
you come out again for each question.

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Ok, so we have a distribution of answers
and now there is a whole distribution

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of the answers,
so I think this is important to explain.

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If an entity fails to adjust 
a prepaid rent account

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that means we have a 
prepaid rent account

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we pay in advance the rent 
of the office,

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we'll assume that this is the rent 
of the office.

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We pay in advance the rent of the office
before we use the office, we pay.

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How do we record that?

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We record that as a prepayment
which is an asset, we debit that,

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and we credit cash.

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So we debit prepayment,
we credit cash.

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That was the original entry.

239
00:24:07,522 --> 00:24:13,218
Now at the end of this period,
it says that the rent has expired

240
00:24:13,218 --> 00:24:18,629
so we used the office for this period
so that is what we need to adjust.

241
00:24:18,629 --> 00:24:26,923
We need to credit the prepaid rent
for the amount of the rent that expired

242
00:24:27,624 --> 00:24:31,838
we need to credit prepaid rent
and we need to debit the expense.

243
00:24:33,538 --> 00:24:35,454
What happens if we do not do this?

244
00:24:35,454 --> 00:24:40,405
I will write in the same paper 
what this means,

245
00:24:40,405 --> 00:24:42,575
so we will...

246
00:24:42,600 --> 00:24:49,440
when we do the adjustment 
we will increase, ok, the expenses,

247
00:24:55,636 --> 00:24:59,595
we increase expenses, 
that is one of the entries,

248
00:24:59,595 --> 00:25:06,405
we debit rent expense
and we will decrease the prepaid rent,

249
00:25:06,638 --> 00:25:08,785
the prepayment, ok?

250
00:25:08,785 --> 00:25:11,908
I will just put prepayment, 
pre.

251
00:25:12,194 --> 00:25:17,522
This is the prepaid rent 
which is an asset.

252
00:25:19,352 --> 00:25:24,170
What effect will this have 
on the monthly financial statement

253
00:25:24,170 --> 00:25:26,418
if we do not record this?

254
00:25:26,418 --> 00:25:30,440
If we do not do this, 
what is the effect?

255
00:25:30,440 --> 00:25:33,648
What happened with the expenses?

256
00:25:34,162 --> 00:25:41,853
Expenses will be understated 
because we didn't record this.

257
00:25:42,472 --> 00:25:49,549
What happens we will have in assets,
assets will be overstated.

258
00:25:49,549 --> 00:25:53,708
So to find the right answer here
you need to look at all the answers.

259
00:25:53,708 --> 00:26:01,214
What answers we had that assets 
are overstated? Only D and E.

260
00:26:01,493 --> 00:26:05,820
In C, well...
Sorry, C, D and E.

261
00:26:05,962 --> 00:26:12,841
In A it doesn't say anything 
about assets

262
00:26:12,841 --> 00:26:15,556
B, nothing about assets,

263
00:26:16,629 --> 00:26:21,285
so only C, D and E assets 
will be overstated.

264
00:26:21,516 --> 00:26:27,499
That is one thing because of this,
because we didn't decrease the prepayment

265
00:26:27,499 --> 00:26:28,566
which is an asset.

266
00:26:28,566 --> 00:26:32,200
Assets will be all overstated.

267
00:26:32,200 --> 00:26:36,210
How will we know which one is correct?
C, D or E?

268
00:26:36,193 --> 00:26:41,571
We need to look at those expenses
will be understated,

269
00:26:41,571 --> 00:26:49,357
but we don't have this,
C, D and E talk about profits.

270
00:26:49,357 --> 00:26:54,517
Then you need to relate profit 
with expenses.

271
00:26:54,517 --> 00:26:59,553
If expenses are understated,
what happens with profits?

272
00:27:00,559 --> 00:27:06,496
Profit will be overstated, ok?
Profit will be overstated.

273
00:27:07,860 --> 00:27:11,175
That's why E will be incorrect answer.

274
00:27:12,558 --> 00:27:16,328
Is that clear that, very well?
Profit increases?

275
00:27:16,449 --> 00:27:20,356
So we need to relate this, 
you can see now we are using

276
00:27:20,360 --> 00:27:23,443
all the elements that you had
planned before, ok?

277
00:27:23,609 --> 00:27:26,557
Profit equals revenues plus expenses.

278
00:27:26,849 --> 00:27:31,723
These expenses are understated, 
profit is overstated.

279
00:27:32,790 --> 00:27:34,965
Any question?
Ok.

280
00:27:46,522 --> 00:27:51,855
Yes, (INAUDIBLE)
I need to add one more thing.

281
00:27:51,855 --> 00:27:57,600
Profit will be overstated and that is 
the answer for question D and E.

282
00:27:57,600 --> 00:28:00,725
What is the difference between D and E?

283
00:28:01,689 --> 00:28:08,929
Equity in D will be understated,
in E equity will be overstated.

284
00:28:09,835 --> 00:28:13,982
So now we need to relate 
the profit with equity.

285
00:28:14,467 --> 00:28:19,708
So when profit is overstated,
equity is overstated.

286
00:28:19,708 --> 00:28:22,770
If profit is understated, 
Equity is understated.

287
00:28:22,770 --> 00:28:24,761
So what is correct?

288
00:28:24,761 --> 00:28:30,813
Asset overstated, profit and equity 
would be overstated.

289
00:28:31,891 --> 00:28:39,361
Ok, that answer your question Jade?
Good.

290
00:28:41,334 --> 00:28:44,658
Ok, so we will go through the last one.

291
00:28:51,710 --> 00:28:54,504
Here you have the last one

292
00:28:56,892 --> 00:29:04,447
On 1st September Carlson Limited borrowed 
$10,000 from the bank for three months

293
00:29:04,447 --> 00:29:11,960
at the annual interest rate of 9%.
Annual interest rate 9%.

294
00:29:11,960 --> 00:29:16,571
Principal and interest are payable 
to the bank on 1st December,

295
00:29:16,571 --> 00:29:21,837
so this is for three months long.

296
00:29:21,837 --> 00:29:24,678
If the company prepares monthly 
financial statements

297
00:29:24,678 --> 00:29:29,530
the adjusting entry that the company 
should make for interest on 30th September

298
00:29:29,530 --> 00:29:35,440
that means after one month would be
which of these ones?

299
00:29:35,440 --> 00:29:39,570
I will reupdate the poll.

300
00:31:38,220 --> 00:31:44,868
Ok. So how we determine this,

301
00:31:44,868 --> 00:31:50,112
we need to look at what is the interest
for one month

302
00:31:50,112 --> 00:31:54,790
because the expense incurred in this case
the interest expense,

303
00:31:54,790 --> 00:31:59,175
is the interest that...

304
00:31:59,175 --> 00:32:03,364
that is the interest for only one month.

305
00:32:03,364 --> 00:32:07,633
We are preparing the adjusting entry 
at 30th of September.

306
00:32:07,633 --> 00:32:14,645
The loan started on 1st September
so it's the interest for one month.

307
00:32:14,645 --> 00:32:20,658
This will clarify the answer for if you
calculate the interest for the year.

308
00:32:20,658 --> 00:32:27,210
The annual interest rate is 9%,
for one month it will be 9% divided by 12

309
00:32:27,210 --> 00:32:31,367
that is the interest per month,
and then you multiply by $10000

310
00:32:31,521 --> 00:32:36,512
to calculate what is the interest 
per month which is $75.

311
00:32:36,895 --> 00:32:40,380
So at the end of September 
we need to record,

312
00:32:40,380 --> 00:32:46,192
debit interest expense $75,
and credit interest payable

313
00:32:46,192 --> 00:32:52,384
because it will not be paid until
1st December.

314
00:32:52,659 --> 00:32:59,989
So we debit interest expense $75
we credit interest payable, $75,

315
00:32:59,989 --> 00:33:03,741
the correct answer is D, ok?

316
00:33:07,344 --> 00:33:09,995
Ok at that?

317
00:33:12,221 --> 00:33:16,332
When we have a loan 
we need to pay interest.

318
00:33:16,413 --> 00:33:18,833
What is that interest?
It's an expense.

319
00:33:18,833 --> 00:33:23,468
It's the expense incurred because 
we borrowed money.

320
00:33:23,468 --> 00:33:28,886
And we can calculate based on 
the interest rate.

321
00:33:28,886 --> 00:33:33,540
The interest rate is always given 
and always is given per annum

322
00:33:33,866 --> 00:33:36,567
so what is the annual interest rate?

323
00:33:36,567 --> 00:33:41,911
In this case it is 9%, 
you can see here.

324
00:33:41,911 --> 00:33:45,858
9% is the interest rate,
but this is the interest rate

325
00:33:45,865 --> 00:33:48,263
for 12 months, ok?

326
00:33:49,134 --> 00:33:52,998
So to calculate, very well Joshua,
to calculate per month

327
00:33:52,998 --> 00:33:59,918
we need to multiply the 9% by 112,
or simply divide it by 12, ok?

328
00:33:59,918 --> 00:34:04,126
And then you will have what is 
the interest per month

329
00:34:04,126 --> 00:34:09,735
because between the 1st of September
and 30th September

330
00:34:09,735 --> 00:34:13,765
we need to prepare the adjusting entries,
it's one month.

331
00:34:13,765 --> 00:34:19,705
so the interest expense will be 
the interest for only one month, ok?

332
00:34:20,148 --> 00:34:26,750
So very good.
Good Adash and that is $75.

333
00:34:27,648 --> 00:34:30,242
Ok, so we've finished 
the multiple choice questions,

334
00:34:30,242 --> 00:34:36,580
do you have any questions about concept
because now we will apply the concept

335
00:34:36,580 --> 00:34:40,856
in exercises about adjusting entries,

336
00:34:40,856 --> 00:34:45,518
so any question about concepts that 
you would like to ask at this point?

337
00:34:49,307 --> 00:34:53,115
All good?
Ok.

338
00:34:53,808 --> 00:34:58,440
So, we will go...
Excellent Ruby, thank you.

339
00:34:59,341 --> 00:35:06,655
Yes, yeah, we will go through 
the practice questions now.

340
00:35:07,450 --> 00:35:12,416
And I will start briefly with a very...

341
00:35:13,150 --> 00:35:15,980
a very brief review of what
you have learnt

342
00:35:15,980 --> 00:35:18,499
about adjusting entries.

343
00:35:21,465 --> 00:35:24,459
It is only three months,
just another.

344
00:35:24,459 --> 00:35:28,102
It's only three months long because 
it starts on 1st September

345
00:35:28,102 --> 00:35:32,437
and is payable on 1st December.

346
00:35:32,555 --> 00:35:35,413
The interest and the principal both.

347
00:35:35,413 --> 00:35:43,740
So you pay back the $10000 on 1st December
with all the interest of the three months.

348
00:35:45,972 --> 00:35:54,631
Ok, now we will talk a bit about
adjusting entries.

349
00:35:59,407 --> 00:36:03,119
I will explain using this diagram 
that you have in your PowerPoint

350
00:36:03,119 --> 00:36:07,590
and you have seen in your videos,
I will not go into whole detail of course

351
00:36:07,590 --> 00:36:12,646
but just with this...
this is the big summary.

352
00:36:12,837 --> 00:36:15,274
The big summary of adjusting entries.

353
00:36:15,793 --> 00:36:21,928
We have two types 
of adjusting entries

354
00:36:21,928 --> 00:36:25,435
or I would say four types
if we combine revenues and expenses.

355
00:36:25,435 --> 00:36:30,214
But we have the accruals 
and we have the prepayments, ok?

356
00:36:30,214 --> 00:36:34,442
They are two different adjusting entries.
What means accrual?

357
00:36:34,442 --> 00:36:39,583
Accrual if we're talking about revenue 
means receivable, ok?

358
00:36:39,583 --> 00:36:47,481
Accrued revenue it will be the same as 
to say revenue receivable.

359
00:36:48,178 --> 00:36:52,611
Accrued expenses when you see this term,
accrued expenses,

360
00:36:52,611 --> 00:36:56,630
that means expenses payable, ok?

361
00:36:56,630 --> 00:37:00,659
So accruals means receivable or payable

362
00:37:00,659 --> 00:37:05,097
depending on whether it's revenues 
or expenses.

363
00:37:05,830 --> 00:37:08,825
And then we have the prepayments.

364
00:37:08,825 --> 00:37:14,014
Prepayments means payments in advance, 
ok?

365
00:37:14,274 --> 00:37:20,879
We can receive a payment in advance
and that is what we call

366
00:37:21,161 --> 00:37:25,809
unearned revenue or revenue received 
in advance, ok?

367
00:37:25,809 --> 00:37:30,018
That is the payment received 
in advance,

368
00:37:30,168 --> 00:37:36,344
Or we can pay in advance and that is 
what we call prepayments.

369
00:37:38,188 --> 00:37:43,141
So these adjustments, 
and these are all the adjustments,

370
00:37:43,141 --> 00:37:47,460
there are no other adjustments for 
timing differences.

371
00:37:47,460 --> 00:37:50,797
There are adjustments to correct errors,
we will not go there,

372
00:37:50,797 --> 00:37:53,416
we are talking about the timing difference

373
00:37:53,416 --> 00:37:57,612
that means to record revenues 
when they are earned,

374
00:37:57,612 --> 00:37:59,852
expenses when they are incurred.

375
00:37:59,852 --> 00:38:03,301
All the purpose of adjusting entries 
is that,

376
00:38:03,301 --> 00:38:06,594
to record the revenues 
in the accounting period

377
00:38:06,594 --> 00:38:12,992
that are earned in that accounting period
and to record expenses that are incurred

378
00:38:12,992 --> 00:38:16,222
in that accounting period.

379
00:38:16,222 --> 00:38:20,810
From the normal transactions that
you learnt last week,

380
00:38:20,810 --> 00:38:25,358
we may have many cases in which revenue 
was not recorded,

381
00:38:25,358 --> 00:38:30,128
expenses was not recognized as well, 
and we need to adjust them

382
00:38:30,128 --> 00:38:33,167
because the main purpose 
of the financial statements

383
00:38:33,167 --> 00:38:38,850
in particular the income statement
is to show the revenues

384
00:38:38,850 --> 00:38:43,144
earned in that period,
in the period of the income statement

385
00:38:43,144 --> 00:38:48,143
and to show the expenses incurred 
in the same period.

386
00:38:48,143 --> 00:38:51,120
So that is the purpose 
of adjusting entries,

387
00:38:51,120 --> 00:38:58,742
to reflect revenues earned and expenses 
incurred in the accounting period.

388
00:38:59,127 --> 00:39:03,012
So this is the big summary.
Now how do we deal with this?

389
00:39:03,012 --> 00:39:09,316
Well, in the case of prepayments

390
00:39:09,316 --> 00:39:11,691
in the case of prepayments

391
00:39:11,691 --> 00:39:18,496
we have different accounts that can
be considered as a prepayment.

392
00:39:18,496 --> 00:39:23,228
One is the prepaid expenses like

393
00:39:23,228 --> 00:39:27,064
prepaid insurance, prepaid rent,

394
00:39:27,064 --> 00:39:32,587
but there are others that we can give 
the same treatment of this prepayment

395
00:39:32,587 --> 00:39:36,644
which is supplies or depreciations.

396
00:39:36,644 --> 00:39:41,831
That means the payments that 
the company makes in advance

397
00:39:41,831 --> 00:39:45,224
and therefore they are considered 
as prepayments.

398
00:39:45,224 --> 00:39:50,326
So what are the terms involved 
in this prepaid expenses?

399
00:39:50,326 --> 00:39:56,233
Well, we have an asset that has an 
unadjusted balance.

400
00:39:56,233 --> 00:40:03,169
For example, we have prepaid insurance.
That is an account of asset.

401
00:40:03,169 --> 00:40:09,239
And we do not adjust this because we pay 
for that at the beginning of the t,

402
00:40:09,239 --> 00:40:15,375
ok, 1st of January for example,
and then on the 30th June we are halfway

403
00:40:15,375 --> 00:40:19,095
of the total period provided 
by the policy.

404
00:40:19,095 --> 00:40:24,319
The policy normally, 
the insurance policy covers 12 months.

405
00:40:24,319 --> 00:40:27,631
So we are using the policy 
during 12 months.

406
00:40:27,631 --> 00:40:30,099
But what's happening in June?

407
00:40:30,099 --> 00:40:35,796
Well, we do not have the same amount 
in assets because we already consumed

408
00:40:35,796 --> 00:40:41,811
half of the policy, six months,
so half of the policy has been consumed.

409
00:40:42,597 --> 00:40:46,739
Then we need to adjust the amount
in assets.

410
00:40:46,739 --> 00:40:52,340
Here you had the unadJusted balance 
of the asset,

411
00:40:53,010 --> 00:40:56,220
that is the total amount of the policy,
we need to adjust that.

412
00:40:56,422 --> 00:41:00,526
How do we adjust that?
We need to record an expense.

413
00:41:00,526 --> 00:41:05,873
An expense for the six months use 
of the policy.

414
00:41:05,873 --> 00:41:10,485
So we will record debit expense,
that is the adjusting entry,

415
00:41:10,485 --> 00:41:15,689
we debit the expense, 
and we decrease the asset

416
00:41:15,689 --> 00:41:21,224
that means we credit 
the prepaid insurance.

417
00:41:21,224 --> 00:41:26,732
So you can see here,
this is your adjusting entry.

418
00:41:26,732 --> 00:41:29,940
We have a debit entry, 
we have a credit entry.

419
00:41:29,940 --> 00:41:35,539
We debit insurance expense, 
we credit prepaid insurance.

420
00:41:35,539 --> 00:41:39,956
So this is one case.

421
00:41:39,956 --> 00:41:43,882
And the same we will use for prepaid rent,

422
00:41:43,882 --> 00:41:49,556
for supplies, for depreciation, ok?

423
00:41:49,556 --> 00:41:52,519
Jade did the question.

424
00:42:00,957 --> 00:42:03,840
Oh good, excellent Jade.
That's my purpose,

425
00:42:03,921 --> 00:42:08,760
just to explain in detail what it means, 
this thing.

426
00:42:08,760 --> 00:42:12,478
Is there anybody that might have 
a question on this?

427
00:42:15,421 --> 00:42:19,849
We will go through the four
that are adjusting entries.

428
00:42:19,849 --> 00:42:24,651
This is related to the prepaid expenses.

429
00:42:26,994 --> 00:42:30,579
Ok, we go through the second one.

430
00:42:30,960 --> 00:42:35,972
The second one is what we call
the un-earned revenues.

431
00:42:35,972 --> 00:42:41,869
So revenues received in advance,
what is the concept?

432
00:42:42,343 --> 00:42:46,967
Imagine that the company 
has a building,

433
00:42:46,967 --> 00:42:50,618
and they are renting offices

434
00:42:50,618 --> 00:42:56,641
from this building so they have a 
number of clients that rent offices.

435
00:42:57,331 --> 00:43:02,371
And they ask the tenants
to pay in advance

436
00:43:02,371 --> 00:43:05,526
before they start using the building,

437
00:43:05,526 --> 00:43:10,682
they have to pay for example 
three months in advance.

438
00:43:10,682 --> 00:43:14,341
So the company received the cash 
for this,

439
00:43:14,341 --> 00:43:18,327
but the tenant still is not using 
the office,

440
00:43:18,327 --> 00:43:20,480
so how will we record this first entry?

441
00:43:20,480 --> 00:43:22,776
This is the entry that you learnt 
last week,

442
00:43:22,776 --> 00:43:24,505
this is a normal transaction.

443
00:43:24,505 --> 00:43:28,881
The company receives cash 
so we will debit cash, ok?

444
00:43:28,881 --> 00:43:33,829
And we will have this 
unearned revenue

445
00:43:33,829 --> 00:43:37,820
or rent revenue received in advance

446
00:43:37,820 --> 00:43:42,335
which is a liability for that amount.

447
00:43:42,515 --> 00:43:44,388
Why is this a liability?

448
00:43:44,388 --> 00:43:49,347
Because at this point the company 
has not provided yet

449
00:43:49,347 --> 00:43:53,167
the office for the tenant to use, ok?

450
00:43:53,167 --> 00:43:58,676
The tenant has not used the office yet,
they pay in advance.

451
00:43:58,676 --> 00:44:02,515
So we have a liability because we have 
an obligation to provide the office,

452
00:44:02,515 --> 00:44:05,800
the tenant already paid.

453
00:44:05,800 --> 00:44:09,097
Now, what happens after one month

454
00:44:09,097 --> 00:44:12,168
if we are doing financial statements 
every month.

455
00:44:12,168 --> 00:44:17,360
We need to prepare an adjusting entry
because we already provided this service

456
00:44:17,360 --> 00:44:20,024
to the tenant,
we already provided the office,

457
00:44:20,024 --> 00:44:24,569
the tenant used this resource 
already one month,

458
00:44:24,569 --> 00:44:29,265
so we need to adjust 
our liability accounts.

459
00:44:29,265 --> 00:44:33,740
So the liability account has 
an adjusted balance, ok?

460
00:44:33,740 --> 00:44:38,921
When the tenant pays in advance,
and now after one month

461
00:44:38,921 --> 00:44:44,526
we need to reduce this for the month
the office was already used.

462
00:44:44,526 --> 00:44:50,036
So we will debit this liability
that is part of the adjusting entry,

463
00:44:50,036 --> 00:44:57,010
and we will credit revenue because now
we earn this revenue,

464
00:44:57,010 --> 00:44:59,862
that is the rent revenue.

465
00:44:59,862 --> 00:45:03,753
We earn that because 
we already provided one month

466
00:45:03,753 --> 00:45:09,106
the renting of the office to the tenant.

467
00:45:09,106 --> 00:45:13,480
So here you have again, 
the adjusting entry.

468
00:45:13,480 --> 00:45:17,149
We have one debit entry,

469
00:45:17,149 --> 00:45:22,003
the rent revenue received in advance,

470
00:45:22,003 --> 00:45:25,405
a debit entry, 
and we will have a credit entry

471
00:45:25,405 --> 00:45:30,128
which is simply rent revenue.

472
00:45:33,221 --> 00:45:36,352
Any question on this second one?

473
00:45:40,498 --> 00:45:44,468
We will practice with many
exercises today

474
00:45:44,468 --> 00:45:50,096
for you to have a very, very clear 
understanding of the adjusting entries.

475
00:45:51,183 --> 00:45:54,743
Ok, the last two.

476
00:45:54,743 --> 00:45:59,424
The last two I would say they are simple
adjusting entries.

477
00:45:59,852 --> 00:46:04,864
We have accrued revenues.
As I mentioned before,

478
00:46:04,864 --> 00:46:11,580
accrued revenues means 
revenues receivable.

479
00:46:11,580 --> 00:46:18,933
This is the case when the company
sells products or provides services

480
00:46:19,146 --> 00:46:23,979
but we still do not record that sale

481
00:46:24,077 --> 00:46:27,947
and we have not received the cash yet,

482
00:46:27,947 --> 00:46:32,154
but the service is provided
or the products are delivered

483
00:46:32,154 --> 00:46:34,165
so we need to record revenue.

484
00:46:34,165 --> 00:46:38,985
If we have not recorded this 
in the normal journal entry

485
00:46:38,985 --> 00:46:44,525
that you learnt last week,
we will need to record the revenue.

486
00:46:44,525 --> 00:46:49,439
Sales revenue or service revenue,
so we credit this.

487
00:46:49,439 --> 00:46:53,925
What will be the other accounting ball?
It will be the receivable.

488
00:46:53,925 --> 00:46:56,579
An accounts receivable which is an asset

489
00:46:56,579 --> 00:47:00,844
so here you have debit 
the accounts receivable

490
00:47:00,844 --> 00:47:05,273
credit service revenue 
or sales revenue,

491
00:47:05,273 --> 00:47:10,324
depending on whether we are 
selling produce or providing services.

492
00:47:10,324 --> 00:47:13,454
So that is the third adjusting entry

493
00:47:13,454 --> 00:47:17,980
and the last adjusting entry 
is accrued expenses.

494
00:47:17,980 --> 00:47:23,171
That means expenses payable.

495
00:47:23,171 --> 00:47:29,596
So this is the case when we have 
an expense incurred

496
00:47:29,596 --> 00:47:35,908
but we have not recorded that,
the most typical case is employees

497
00:47:35,908 --> 00:47:40,791
that work during the month.
We have not paid their salaries yet

498
00:47:40,791 --> 00:47:45,246
because we pay the first days 
of the following month,

499
00:47:45,246 --> 00:47:49,147
so we didn't record the expense
but they already worked,

500
00:47:49,147 --> 00:47:52,503
so there is a resource that has 
been consumed

501
00:47:52,503 --> 00:47:56,612
and therefore we need 
to record an expense.

502
00:47:56,612 --> 00:48:04,786
We need to record an expense 
and so we debit salaries expense,

503
00:48:04,786 --> 00:48:09,284
for example, but because we have 
not paid yet in this period,

504
00:48:09,284 --> 00:48:14,855
we need to record a credit in this 
liability which is salaries payable.

505
00:48:14,855 --> 00:48:20,223
So here we have our adjusting entry.

506
00:48:20,833 --> 00:48:28,367
This is in a very brief summary what 
you have learnt about adjusting entries.

507
00:48:28,367 --> 00:48:31,025
Any question at this point?

508
00:48:37,439 --> 00:48:39,089
All good?

509
00:48:39,089 --> 00:48:43,885
So we can now apply these two 
practical exercises

510
00:48:43,885 --> 00:48:47,621
and we will work with many 
adjusting entries,

511
00:48:47,621 --> 00:48:52,948
so you will have the opportunity,
to practice now with this

512
00:48:55,675 --> 00:48:57,664
so I will put that...

513
00:49:22,822 --> 00:49:26,713
Can you see the exercise?
I am not sure about the zoom,

514
00:49:26,786 --> 00:49:32,234
if it is ok or not,
but I hope it's ok.

515
00:49:32,729 --> 00:49:36,765
Ok, excellent, excellent.
Thank you Jade, thank you all of you.

516
00:49:37,105 --> 00:49:44,169
Ok, so we will apply to this exercise
and we will start the exercise

517
00:49:44,169 --> 00:49:47,828
at the point that we left last week.

518
00:49:47,828 --> 00:49:50,516
Do you remember what we did last week?

519
00:49:50,516 --> 00:49:55,753
We prepared the normal journal entries 
that come from transactions

520
00:49:55,753 --> 00:50:00,390
and then we post the journal entries 
into ledger accounts,

521
00:50:00,390 --> 00:50:04,027
and then we prepare a trial balance.

522
00:50:04,027 --> 00:50:08,359
And we call that the unadjusted 
trial balance

523
00:50:08,359 --> 00:50:14,052
because it's a trial balance that 
is prepared before the adjusting entries.

524
00:50:14,052 --> 00:50:21,048
Ok, so we will start with this,
the unadjusted trial balance, ok?

525
00:50:21,048 --> 00:50:24,151
at 30th June.

526
00:50:24,151 --> 00:50:29,977
And as you remember the trial balance
is simply the list of all the accounts,

527
00:50:29,977 --> 00:50:34,291
here you can see cash, account receivable,
prepaid insurance, supplies,

528
00:50:34,291 --> 00:50:37,366
all the accounts of the company, ok?

529
00:50:37,366 --> 00:50:41,263
With the ending balance at 
the end of the period

530
00:50:41,263 --> 00:50:44,760
so you can see the trial balance,
the unadjusted trial balance

531
00:50:44,760 --> 00:50:49,603
is prepared at the end of the period
is the first thing that we do

532
00:50:49,603 --> 00:50:54,480
at the end of the period before preparing
the adjusting entries, ok?

533
00:50:54,480 --> 00:50:57,204
So we prepare the unadjusted trial balance

534
00:50:57,204 --> 00:51:01,653
and we have the ending balance 
for each of these accounts.

535
00:51:01,653 --> 00:51:06,518
The ending balance of cash,
the ending balance of accounts receivable

536
00:51:06,518 --> 00:51:13,539
and service revenue is sitting 
on the fence, yes.

537
00:51:14,129 --> 00:51:16,255
It moves to the fence, 
it should be here.

538
00:51:16,255 --> 00:51:19,093
It should be on the column of credit 
of course,

539
00:51:19,093 --> 00:51:21,474
that is a typing thing.

540
00:51:21,474 --> 00:51:25,383
Service revenue should be 
in the credit side of course,

541
00:51:26,033 --> 00:51:28,554
76,600.

542
00:51:28,554 --> 00:51:33,495
Salaries expense, rent expense,
so you have all of these.

543
00:51:33,948 --> 00:51:39,420
The characteristic of the trial balance is
that total debit should equal total credit

544
00:51:39,420 --> 00:51:46,195
and you can see total debit, 201200
and the same as total credit.

545
00:51:46,195 --> 00:51:51,282
So this is our starting point 
for this exercise.

546
00:51:51,282 --> 00:51:52,546
What means this?

547
00:51:52,546 --> 00:51:56,087
All the normal journal entries
are already recorded,

548
00:51:56,087 --> 00:51:59,611
all of them are posted to 
the general ledger

549
00:51:59,611 --> 00:52:02,959
and we prepare this unadjusted 
trial balance.

550
00:52:02,959 --> 00:52:08,458
What is next?
Well, here you have the exercise.

551
00:52:08,458 --> 00:52:15,881
One thing before we go to the next page
these are not the total,

552
00:52:15,881 --> 00:52:19,362
all the accounts of the company.

553
00:52:19,362 --> 00:52:24,130
There are accounts that they have
zero balance,

554
00:52:24,130 --> 00:52:27,324
and of course they are not in the 
unadjusted trial balance

555
00:52:27,324 --> 00:52:30,134
but here you have them listed.

556
00:52:30,134 --> 00:52:32,995
The accumulated depreciation 
is one account,

557
00:52:32,995 --> 00:52:37,774
office equipment another,
electricity payable, salaries payable,

558
00:52:37,774 --> 00:52:38,868
and so on.

559
00:52:38,868 --> 00:52:42,204
So there are a number of accounts 
that have zero balance,

560
00:52:42,204 --> 00:52:48,200
and therefore they are not in this
unadjusted trial balance,

561
00:52:48,200 --> 00:52:52,332
but they are accounts.

562
00:52:53,200 --> 00:52:58,745
So we will go through the exercise.

563
00:52:59,079 --> 00:53:01,498
Here we have added data.

564
00:53:01,498 --> 00:53:06,184
This added data refers to 
the adjusting entries

565
00:53:06,184 --> 00:53:08,658
that we need to prepare.

566
00:53:08,658 --> 00:53:13,106
They are related to revenues earned

567
00:53:13,106 --> 00:53:16,175
or income earned and expenses incurred

568
00:53:16,175 --> 00:53:23,127
so we need to prepare one adjusting entry
for each of this additional data

569
00:53:23,127 --> 00:53:26,700
and that is what is required,
if you look at the question requirements,

570
00:53:26,700 --> 00:53:29,805
prepare the adjusting entries 
for the month of June

571
00:53:29,805 --> 00:53:32,502
so this is just for one month.

572
00:53:32,502 --> 00:53:35,167
Prepare the adjusted trial balance

573
00:53:35,167 --> 00:53:38,419
that is prepared after
the adjusting entries

574
00:53:38,419 --> 00:53:42,033
and we will calculate the profit 
for the month.

575
00:53:42,033 --> 00:53:48,050
So we will go one by one
to see how to prepare this.

576
00:53:48,050 --> 00:53:53,938
And I will detail all of them 
in this first exercise

577
00:53:53,938 --> 00:53:58,187
and then I will go a bit more quick
in the second exercise,

578
00:53:58,187 --> 00:54:01,451
or in the exercise of the workshop.

579
00:54:01,451 --> 00:54:07,813
So the first, supplies on hand 
at 30th June total 7200.

580
00:54:08,759 --> 00:54:18,775
What this tells you,
supplies on hand total 7200.

581
00:54:19,432 --> 00:54:25,677
Well, if this is the data we have
that means somebody went to the...

582
00:54:25,677 --> 00:54:29,916
To the place that we have the supplies,
they count them,

583
00:54:29,916 --> 00:54:33,127
they value them and at the end 
the conclusion is

584
00:54:33,127 --> 00:54:38,626
we have 7200 supplies on hand.
That means not used.

585
00:54:39,457 --> 00:54:44,951
How much do we have in our 
unadjusted trial balance?

586
00:54:44,951 --> 00:54:52,406
So we need to look at here, 
supplies. 13,300.

587
00:54:52,406 --> 00:54:59,068
But it says that we have only 7200 so 
that means we need to make an adjustment.

588
00:54:59,469 --> 00:55:04,754
We need to reduce this 13,600

589
00:55:05,242 --> 00:55:09,677
and to record an expense,
a supplies expense for the difference.

590
00:55:09,709 --> 00:55:18,381
So 13600 less 7200 that we have,

591
00:55:18,381 --> 00:55:21,672
that means we have consumed

592
00:55:21,672 --> 00:55:26,615
or used 6400 of supplies,

593
00:55:26,615 --> 00:55:28,883
and that is the adjusting entry.

594
00:55:28,883 --> 00:55:32,186
We need to record the expense for this

595
00:55:32,186 --> 00:55:37,391
so we will have a supplies expense of 6400

596
00:55:37,391 --> 00:55:43,392
and we will credit supplies to reduce
the supplies account.

597
00:55:43,771 --> 00:55:50,924
So here you have the first journal entry,
adjusting entry.

598
00:55:50,924 --> 00:55:58,922
Supplies expense debit 6400,
and supplies credit 6400.

599
00:56:00,392 --> 00:56:06,246
When you do this and you credit supplies
by 6400,

600
00:56:06,775 --> 00:56:11,748
if you remember the ledger accounts
when we credit one of the ledger accounts

601
00:56:11,748 --> 00:56:18,007
that is supplies, that will decrease 
the balance of supplies account

602
00:56:18,007 --> 00:56:22,858
which is 13600,
so now the new balance of supplies

603
00:56:22,858 --> 00:56:31,015
is 7200 which is the amount that we 
really have in supplies.

604
00:56:34,733 --> 00:56:38,433
Any question on this?

605
00:56:38,433 --> 00:56:42,410
So this is the first adjusting entry.

606
00:56:42,410 --> 00:56:44,948
Yes Natalia, yes please tell me.

607
00:56:45,026 --> 00:56:49,842
NATALIA: Hello Herman,
yeah I see...

608
00:56:49,842 --> 00:56:54,040
I print out this, I guess many
of us do print out

609
00:56:54,040 --> 00:56:58,017
this worksheet information

610
00:56:58,017 --> 00:57:04,225
of the sample of the questions,
and we have ended one,

611
00:57:04,225 --> 00:57:09,888
and last lecture I was asking you 
to let us print full ones

612
00:57:09,888 --> 00:57:15,560
because it's hard to follow up because 
our worksheet is empty at the moment,

613
00:57:15,560 --> 00:57:22,671
it means we follow up on the computer
but can't do notes straight on our papers.

614
00:57:23,036 --> 00:57:27,014
Yeah, this will be great because...

615
00:57:27,014 --> 00:57:33,616
HERMAN: Yeah, actually I remember that
and at 10 am today,

616
00:57:33,616 --> 00:57:40,100
I uploaded the solution for the lecture 
exercise and the workshop exercise.

617
00:57:40,100 --> 00:57:44,721
I opened that for you and for everybody,

618
00:57:44,721 --> 00:57:49,525
so you can print them and you can be 
with the solutions

619
00:57:49,525 --> 00:57:53,593
and you can follow the solutions
NATALIA: Ok, now yeah...

620
00:57:53,593 --> 00:57:57,978
You do this adjusting notes 
much in advance

621
00:57:57,978 --> 00:58:03,235
but is it, you can give us indication
when you do apply the solution

622
00:58:03,235 --> 00:58:07,838
on a regular basis because our paper 
is usually a couple days before

623
00:58:07,838 --> 00:58:10,889
I print out,
and have this, yeah.

624
00:58:10,889 --> 00:58:16,241
HERMAN: I will do that because I agree
with what you asked me last week.

625
00:58:16,241 --> 00:58:19,772
I agree that it's good that 
you have the solution

626
00:58:19,772 --> 00:58:24,471
to follow the lecture and the workshop
with the solution so you can take notes

627
00:58:24,471 --> 00:58:26,897
in the solution which will be easier.

628
00:58:26,897 --> 00:58:34,058
That' s why I opened today at 10 am and 
I put an announcement on the blackboard

629
00:58:34,058 --> 00:58:38,575
for all of you to know that they are ready
for you to print,

630
00:58:38,575 --> 00:58:43,840
and I think that is what we talked
because the idea

631
00:58:43,840 --> 00:58:48,502
is that you try to do this by yourself
without the solutions,

632
00:58:48,502 --> 00:58:50,204
and that is the main purpose,

633
00:58:50,204 --> 00:58:53,535
that's why I put in the same day 
of the lecture and workshop.

634
00:58:53,535 --> 00:58:58,683
I will release these only for you 
to print out and to take that today,

635
00:58:58,683 --> 00:59:00,669
later in workshop.

636
00:59:00,669 --> 00:59:05,312
NATALIA: Ok, and how many it means
they're empty for purpose,

637
00:59:05,312 --> 00:59:10,208
we have a chance to try,
and field solution is gonna be

638
00:59:10,208 --> 00:59:14,529
in the very last day before lecture,
for future use.

639
00:59:14,529 --> 00:59:17,976
HERMAN: Yes, I will do that in that way
all the time.

640
00:59:17,976 --> 00:59:21,081
So I actually did the two purposes.

641
00:59:21,081 --> 00:59:24,012
One purpose is for you to try 
without solutions,

642
00:59:24,012 --> 00:59:26,763
just with your learning from the videos 
and PowerPoints,

643
00:59:26,763 --> 00:59:31,587
and second, to have the solutions 
before the lecture and workshop

644
00:59:31,587 --> 00:59:36,399
so you can go through them as well.

645
00:59:38,033 --> 00:59:44,240
Ok, good. 
Excellent Natalia, thank you.

646
00:59:44,682 --> 00:59:48,373
Now we can go to the second one.

647
00:59:51,862 --> 00:59:58,856
The second says an electricity bill 
for 1200 has not been recorded

648
00:59:58,856 --> 01:00:04,908
and will not be paid until next month,
so what does this description mean?

649
01:00:04,908 --> 01:00:09,713
If the company receives an electricity 
bill for 1200,

650
01:00:09,713 --> 01:00:14,563
it means that they used, 
they consumed electricity for this amount.

651
01:00:14,563 --> 01:00:17,126
It is already consumed therefore 
it is an expense,

652
01:00:17,126 --> 01:00:18,862
but has not been recorded.

653
01:00:18,862 --> 01:00:21,933
So the only thing, 
this is a simple adjusting entry,

654
01:00:21,933 --> 01:00:26,339
the only thing that we need to do 
is to record the expense,

655
01:00:26,339 --> 01:00:32,746
so we will have electricity expense, 1200,
but because it was not paid this month,

656
01:00:32,746 --> 01:00:37,570
next month will be paid,
so we will credit a liability

657
01:00:37,570 --> 01:00:43,909
which is electricity payable,
and that is what you have here.

658
01:00:44,062 --> 01:00:48,061
So in this adjusting entry 
we will record

659
01:00:48,061 --> 01:00:51,826
debit electricity expense 1200,

660
01:00:51,826 --> 01:00:57,356
credit electricity payable 1200.
Yes Natalia?

661
01:01:01,052 --> 01:01:05,831
Stella, Stella. I need to put you 
as a caption here...

662
01:01:09,988 --> 01:01:11,212
Stella.

663
01:01:20,284 --> 01:01:24,684
Give me a second because I need 
to put the caption here of Stella

664
01:01:24,684 --> 01:01:30,619
but I don't find you in the list,
we have a big list of students.

665
01:01:42,231 --> 01:01:45,610
Near the top, ok?

666
01:01:46,147 --> 01:01:50,947
Ah, there it is. T
Ok, thank you Stella

667
01:01:56,544 --> 01:02:04,888
Ok, yes Jade.
You have a question?

668
01:02:05,377 --> 01:02:06,695
JADE: I do, yes.

669
01:02:06,695 --> 01:02:11,808
I put there instead of electricity payable
I put accounts payable.

670
01:02:11,808 --> 01:02:15,222
would that be okay or is that a problem?

671
01:02:15,222 --> 01:02:17,550
HERMAN: It is ok.

672
01:02:18,598 --> 01:02:23,465
If we are very strict in that

673
01:02:23,465 --> 01:02:27,860
which is not the case because accounts 
payable is reasonable to use this.

674
01:02:27,860 --> 01:02:33,797
When we talk about accounts payable,
It's the accounts payable to suppliers,

675
01:02:33,797 --> 01:02:40,630
so we always link accounts payable
for the amount that we owe to suppliers.

676
01:02:40,630 --> 01:02:45,635
That's why it's better, 
I would not consider it wrong

677
01:02:45,635 --> 01:02:50,879
but it's better to put this explicitly
electricity payable because this is...

678
01:02:50,879 --> 01:02:58,373
These are utilities that the company 
received,

679
01:02:58,373 --> 01:03:01,824
so electricity or water 
or that type of thing.

680
01:03:01,824 --> 01:03:05,592
So I would prefer to put separated 
from accounts payable

681
01:03:05,592 --> 01:03:11,397
just because the concept of accounts 
payable is linked to suppliers of produce.

682
01:03:11,397 --> 01:03:16,256
Ok? But it's not wrong.

683
01:03:16,256 --> 01:03:21,713
Ok, any other question for the second...

684
01:03:21,713 --> 01:03:25,992
for the second adjusting entry?

685
01:03:29,295 --> 01:03:33,845
So we'll go through the third 
adjusting entry.

686
01:03:34,256 --> 01:03:40,375
Insurance policy, here you can see 
one statement that didn't say anything,

687
01:03:40,375 --> 01:03:43,975
and you cannot do anything unless 
you go to the data

688
01:03:43,975 --> 01:03:48,198
that is in the unadjusted trial balance.

689
01:03:48,198 --> 01:03:54,346
The statement says the insurance policy 
is for a year commencing 1st May 2019.

690
01:03:54,346 --> 01:03:58,207
Well, this is all what you need to
prepare the adjusting entries,

691
01:03:58,207 --> 01:04:00,981
because you have the unadjusted 
trial balance.

692
01:04:00,981 --> 01:04:06,032
The only information here is that the 
insurance policy is for one year,

693
01:04:06,032 --> 01:04:09,528
12 months, and starts on 1st May 2019,

694
01:04:09,528 --> 01:04:15,493
so we will see what is the information 
we have in the unadjusted trial balance.

695
01:04:15,493 --> 01:04:21,174
First, this company started 
on 1st May 2019

696
01:04:21,174 --> 01:04:25,167
which is the same day 
of the insurance policy, ok?

697
01:04:25,167 --> 01:04:28,736
Insurance policy is added 1st May 2019.

698
01:04:28,736 --> 01:04:34,921
And the trial balance is at June 30.

699
01:04:37,121 --> 01:04:42,598
What is the prepaid insurance?
9600.

700
01:04:43,145 --> 01:04:51,058
9600, this is for 12 months, 
so how much is per month?

701
01:04:52,045 --> 01:04:56,902
It is 800, so this is equal, ok,

702
01:04:56,902 --> 01:05:03,365
800. 
800 per month.

703
01:05:05,956 --> 01:05:11,115
800 per month.
Sorry for my numbers, I'm not very good.

704
01:05:12,935 --> 01:05:18,374
So 800 is the insurance expense
that how much we use

705
01:05:18,704 --> 01:05:23,365
or consume of this policy per month.
800 per month.

706
01:05:23,365 --> 01:05:30,079
Now how many months between 
1st May until 30th June?

707
01:05:31,619 --> 01:05:34,219
Two months, exactly.
Two months.

708
01:05:34,448 --> 01:05:38,607
So what will be the expense 
that we have to recognize

709
01:05:38,607 --> 01:05:42,895
or to record on the 30th of June?

710
01:05:42,895 --> 01:05:47,112
The expense for two months, 
that means 1600.

711
01:05:47,694 --> 01:05:51,777
That should be a debit 
in insurance expense,

712
01:05:51,777 --> 01:05:57,752
and a credit to prepaid insurance
to reduce this 9600

713
01:05:57,752 --> 01:06:02,817
because we already consumed 1600
of insurance.

714
01:06:02,817 --> 01:06:10,224
So the journal entry, 
the adjusting entry for this will be

715
01:06:10,224 --> 01:06:19,778
debit insurance expense 1600,
credit prepaid insurance 1600.

716
01:06:22,803 --> 01:06:25,500
Ok, any question on this?

717
01:06:30,492 --> 01:06:35,119
Ok, so we can have a look at the...
Thank you Jade.

718
01:06:36,072 --> 01:06:42,160
We can have a look at the next one.
Salaries, sorry, not salaries.

719
01:06:42,160 --> 01:06:44,341
That is the next one.

720
01:06:44,487 --> 01:06:49,282
Number four, services were 
performed during the period

721
01:06:49,282 --> 01:06:54,681
in relation to $3000 
of revenue in advance.

722
01:06:56,689 --> 01:07:00,294
What does this description tell us?

723
01:07:00,470 --> 01:07:06,703
First the description is telling us that 
we received revenue in advance,

724
01:07:06,703 --> 01:07:09,744
that mean we received a payment 
in advance

725
01:07:09,744 --> 01:07:16,427
and now in this period we provide services
for 3000 of that payment.

726
01:07:16,773 --> 01:07:22,374
We need to link this with how much 
we have in revenue received in advance

727
01:07:22,374 --> 01:07:27,691
in the unadjusted trial balance
so we will have a look.

728
01:07:27,691 --> 01:07:35,835
The unadjusted trial balance, state this 
revenue received in advance, 4800.

729
01:07:35,835 --> 01:07:42,435
Debit because we received this amount
and we didn't provide the services

730
01:07:42,435 --> 01:07:47,949
so we have an obligation to provide them
and therefore it is a liability, ok?

731
01:07:47,949 --> 01:07:52,080
Now we provide services for 3000 
of this 4800,

732
01:07:52,080 --> 01:07:59,271
so we need to record a decrease in service
revenue received in advance,

733
01:07:59,271 --> 01:08:06,085
that means we debit 3000 in this account
and we will have the current balance

734
01:08:06,085 --> 01:08:07,945
of all these accounts,

735
01:08:07,945 --> 01:08:11,343
so we debit 3000 in service revenue 
received in advance

736
01:08:11,343 --> 01:08:14,758
and we will have a credit in service

737
01:08:14,758 --> 01:08:19,211
because we earned already this revenue.

738
01:08:19,211 --> 01:08:23,166
We provided the service.
Yes Jade?

739
01:08:24,917 --> 01:08:30,744
JADE: Is this classified as an adjustment
or is it just as a mistransaction?

740
01:08:30,744 --> 01:08:35,627
HERMAN: It's an adjustment because 
the original transaction

741
01:08:35,627 --> 01:08:40,298
that we already recorded, it is here
in the unadjusted trial balance.

742
01:08:40,298 --> 01:08:43,731
What was the original transaction?

743
01:08:44,223 --> 01:08:49,762
When this happens, the service revenue
received in advance I will write here, ok?

744
01:08:50,242 --> 01:08:55,973
We have debit cash because 
we received the payment, ok?

745
01:08:56,403 --> 01:08:59,197
That was in the previous period.

746
01:08:59,197 --> 01:09:06,058
We record cash for 4800.
Sorry for the numbers.

747
01:09:07,047 --> 01:09:13,354
So 4800. We debit cash,
and we credit, ok?

748
01:09:13,354 --> 01:09:19,980
This revenue received in advance,
I will put it just like that.

749
01:09:19,980 --> 01:09:24,941
Revenue received in advance 
we credit 4800.

750
01:09:24,941 --> 01:09:29,014
This is the normal journal entry. 
This is the normal transaction

751
01:09:29,014 --> 01:09:34,895
that we recorded in the last period,
and that's why when you look at this entry

752
01:09:34,895 --> 01:09:41,692
and we post the accounts in the ledger,
this is what we have there, ok?

753
01:09:42,791 --> 01:09:45,524
That is the original transaction.

754
01:09:45,524 --> 01:09:50,075
What happens now is that 
we just provide services.

755
01:09:50,422 --> 01:09:54,523
Of course we didn't receive more money
because already we were paid in advance

756
01:09:54,523 --> 01:10:00,411
but we provide the service 
so we need to decrease this

757
01:10:00,411 --> 01:10:05,192
obligation or liability
for the 3000 already provided.

758
01:10:09,722 --> 01:10:15,705
Well, George, it says because the concept
of revenue received in advance,

759
01:10:16,293 --> 01:10:20,879
the concept of that account 
is that we received cash in advance.

760
01:10:20,879 --> 01:10:24,730
That is what we received in advance,
cash, the payment,

761
01:10:25,122 --> 01:10:29,782
so if you look at the description,

762
01:10:31,634 --> 01:10:34,160
services were performed 
during the period

763
01:10:34,160 --> 01:10:37,538
in relation to.
In relation to what?

764
01:10:37,538 --> 01:10:41,419
To revenue received in advance.

765
01:10:41,455 --> 01:10:45,380
If you look at this description,
revenue received in advance,

766
01:10:45,380 --> 01:10:51,242
what it means is that the company 
received cash in advance

767
01:10:51,475 --> 01:10:53,497
to provide the services.

768
01:10:53,527 --> 01:10:58,991
The customer paid before we provide 
the service to the customer.

769
01:10:58,991 --> 01:11:03,489
Ok, so cash was involved
in the original transaction

770
01:11:03,489 --> 01:11:08,687
and that is the transaction that 
I showed you that I prepared,

771
01:11:08,687 --> 01:11:13,363
so how was it recorded the cash received?

772
01:11:13,363 --> 01:11:19,582
We debit cash and we credit revenue 
received in advance from 4800,

773
01:11:19,582 --> 01:11:22,864
that was the original transaction,
it's not for this period,

774
01:11:22,864 --> 01:11:28,650
that was before the 30th of June
and that's why we have in the balance,

775
01:11:28,650 --> 01:11:31,302
on 30th June we have that amount.

776
01:11:31,302 --> 01:11:36,777
Now in this period the adjusting entry
at the end of the period,

777
01:11:36,777 --> 01:11:42,310
we need to include how much 
we provide of services.

778
01:11:42,310 --> 01:11:46,703
And we provide 3000 of this 4800.

779
01:11:46,703 --> 01:11:51,753
So because we provide services, 
now we can record the service revenue,

780
01:11:51,753 --> 01:11:56,549
it's a credit service revenue,
and we decrease the obligation.

781
01:11:56,549 --> 01:12:03,814
To put the things in context,
here we are in the month of June.

782
01:12:04,816 --> 01:12:10,132
So in June the unadjusted trial balance
is for June.

783
01:12:14,395 --> 01:12:19,935
I will go through the depreciation
but do not change them...

784
01:12:20,189 --> 01:12:24,058
I will go through them,
but here... Ok.

785
01:12:24,724 --> 01:12:27,600
This is the unadjusted...

786
01:12:28,931 --> 01:12:31,246
I am clear now, excellent Ann.

787
01:12:31,279 --> 01:12:37,290
This is the unadjusted trial balance
at 30th June.

788
01:12:37,290 --> 01:12:42,294
Here means that before 30th June
we received the cash.

789
01:12:42,294 --> 01:12:47,661
Now in the adjusting entry it means that
also during this period before 30th June

790
01:12:47,661 --> 01:12:55,708
we provide 3000 of this 4800,
services provided, ok?

791
01:12:57,478 --> 01:13:00,754
Does this answer your question George?

792
01:13:06,412 --> 01:13:12,157
Ok, excellent, good.
So we can go through the next one.

793
01:13:16,052 --> 01:13:17,896
I am here...

794
01:13:17,922 --> 01:13:25,193
The next one is quite simple because 
salaries, 6400 are owed on 30th June.

795
01:13:26,416 --> 01:13:29,666
What does this mean?
Salaries owed means that

796
01:13:29,666 --> 01:13:36,855
the employees worked,
so we already consumed these results.

797
01:13:36,855 --> 01:13:44,878
The work of our employees and therefore
we should record a salaries expense.

798
01:13:44,878 --> 01:13:48,054
But they are owed, 
that means we have not paid them,

799
01:13:48,054 --> 01:13:55,201
and that's why we did not record this as a
transaction like you learned last week.

800
01:13:55,201 --> 01:14:00,267
We need to prepare the adjusting entry,
so we need to record the pays,

801
01:14:00,267 --> 01:14:06,191
salaries expense 6400 debit, 
and a salaries payable

802
01:14:06,191 --> 01:14:10,645
because it's owed at the end of the month
so it will be salaries expense

803
01:14:10,645 --> 01:14:17,130
and salaries payable.

804
01:14:17,130 --> 01:14:23,400
Here you have debit salaries 
expense 6400

805
01:14:23,400 --> 01:14:27,073
credits salaries payable 6400, ok?

806
01:14:28,093 --> 01:14:30,748
That I think is simple.

807
01:14:33,508 --> 01:14:36,377
Then we have the number six.

808
01:14:37,116 --> 01:14:41,249
Office equipment has a five year life
with no resale value,

809
01:14:41,249 --> 01:14:48,001
and is being depreciated at 
$1440 per month for 60 months.

810
01:14:48,001 --> 01:14:54,960
In this description they are telling you
how much is the expense, ok?

811
01:14:55,494 --> 01:15:02,001
But if it is not, if it is only they said
the office equipment has a five year life

812
01:15:02,001 --> 01:15:07,143
with no resale value depreciated using
the straight line method,

813
01:15:07,143 --> 01:15:13,711
you will learn this in another lecture
the depreciation for 60 months.

814
01:15:13,711 --> 01:15:20,232
If we do not have the amounts, you can
just go to the unadjusted trial balance

815
01:15:20,232 --> 01:15:27,329
look at the office equipment account,
86400.

816
01:15:28,776 --> 01:15:31,924
If you divide this by 60,

817
01:15:31,924 --> 01:15:37,514
you will have exactly 1440 per month, ok?

818
01:15:38,284 --> 01:15:42,245
So that is the depreciation expense.

819
01:15:42,245 --> 01:15:45,982
Yes, a couple of work, I will not go in
deep in this topic

820
01:15:45,982 --> 01:15:49,506
because there is a whole topic 
about depreciation.

821
01:15:49,506 --> 01:15:54,603
Yeah, I will go why credit and...

822
01:15:54,786 --> 01:15:59,720
Ok, you let me finish this part 
and I will answer the question

823
01:15:59,720 --> 01:16:01,974
of the previous one.

824
01:16:02,590 --> 01:16:07,561
So we had this depreciation,

825
01:16:07,561 --> 01:16:09,896
what does depreciation mean?

826
01:16:10,465 --> 01:16:14,421
When we purchase an equipment like this, 
office equipment,

827
01:16:14,421 --> 01:16:19,109
and we pay a big amount of money,
in this case how much we paid

828
01:16:19,109 --> 01:16:24,770
for this office equipment,
it was 86400, ok?

829
01:16:25,676 --> 01:16:32,761
Do you think we can put as an expense
86400 in the first month?

830
01:16:32,761 --> 01:16:40,169
Well, of course not because we will use
this equipment during 60 months,

831
01:16:40,169 --> 01:16:46,789
and remember an expense 
is when we use

832
01:16:46,789 --> 01:16:48,689
or consume resources.

833
01:16:48,689 --> 01:16:52,744
This resource that is 86400,

834
01:16:52,744 --> 01:16:58,167
it will be consumed or used 
during 60 months

835
01:16:58,167 --> 01:17:04,939
so we need to calculate how much of this
we use in one month,

836
01:17:06,029 --> 01:17:07,986
or in two months in this case.

837
01:17:07,986 --> 01:17:11,976
In two months because it's from 
1st of May till 30th June.

838
01:17:11,976 --> 01:17:18,663
How much we use of this in two months,
ok? Two months.

839
01:17:19,607 --> 01:17:23,968
So we divide this by 60, 
we multiply by two,

840
01:17:23,968 --> 01:17:28,658
and that will be 2880

841
01:17:28,658 --> 01:17:34,986
because per month is 1440 
when you divide by 60,

842
01:17:34,986 --> 01:17:37,556
you multiply by two because 
it's two months

843
01:17:37,556 --> 01:17:39,467
and now we can record the expense.

844
01:17:39,467 --> 01:17:45,392
The name of this expense
is depreciation expense,

845
01:17:45,594 --> 01:17:51,621
so we record debit depreciation expense.
What is the other account?

846
01:17:52,419 --> 01:17:58,611
Well the other account will be to decrease
this account,

847
01:17:58,611 --> 01:17:59,592
office equipment,

848
01:17:59,592 --> 01:18:02,778
so you can say well, 
we credit office equipment.

849
01:18:02,778 --> 01:18:07,891
That would be the case that we are doing 
in all of these accounts,

850
01:18:07,891 --> 01:18:10,634
but in the case of non-current assets

851
01:18:10,634 --> 01:18:16,400
we use what we call a contra asset account

852
01:18:16,400 --> 01:18:20,143
that means we keep separated 
the decrease of this account

853
01:18:20,143 --> 01:18:24,490
and the name of that account
is accumulated depreciation.

854
01:18:25,402 --> 01:18:29,546
The effect is the same as you reduce
directly office equipment,

855
01:18:29,546 --> 01:18:34,069
you credit office equipment
but in non-current assets like this,

856
01:18:34,069 --> 01:18:37,062
this is a topic that we will explore
in detail,

857
01:18:37,062 --> 01:18:44,802
we use another account and the name is
the accumulated depreciation.

858
01:18:45,581 --> 01:18:50,001
It's an asset account 
but with a credit entry.

859
01:18:50,001 --> 01:18:55,554
So the adjusting entry for this

860
01:18:55,554 --> 01:19:02,478
will be depreciation expense
debit 2880

861
01:19:02,478 --> 01:19:11,431
and we credit accumulated depreciation
office equipment, ok, 2880.

862
01:19:15,624 --> 01:19:17,866
Any question on this?

863
01:19:25,575 --> 01:19:29,551
Ok, the last one.

864
01:19:36,171 --> 01:19:42,865
The last one is number seven,
invoices representing

865
01:19:42,865 --> 01:19:44,614
Ah, Tablynn...

866
01:19:44,682 --> 01:19:50,666
Ah, ok. Before we go to the seven

867
01:19:51,237 --> 01:19:53,616
there is a question about the salaries

868
01:19:53,616 --> 01:19:59,381
who asked me that question 
about the salaries?

869
01:20:00,299 --> 01:20:04,507
Omar who did, in the adjusted trial, ok.

870
01:20:04,650 --> 01:20:09,488
I will try to answer the two questions.

871
01:20:09,488 --> 01:20:17,227
First, Trina has a question, why 
to credit 6400 in the transaction five?

872
01:20:17,227 --> 01:20:22,251
Why to credit? 
Isn't it debit when they pay 6400?

873
01:20:22,251 --> 01:20:29,982
Well, remember Trina that we, in any 
journal entry and also adjusting entry,

874
01:20:29,982 --> 01:20:33,312
we have a debit side and a credit side.

875
01:20:33,312 --> 01:20:37,625
The total debit should be always equal 
to total credit.

876
01:20:37,625 --> 01:20:43,668
So what is the debit and what is 
the credit in the 6400 that you have here

877
01:20:43,668 --> 01:20:46,402
in transaction five?

878
01:20:46,402 --> 01:20:52,402
Salaries of 6400 are owed at that time,
30th June.

879
01:20:52,817 --> 01:20:58,367
So we have an expense, 
and the expense is a debit entry, ok?

880
01:20:58,989 --> 01:21:03,264
The salaries expense it will be debit.

881
01:21:03,264 --> 01:21:07,425
And we have a salaries payable because
they were not paid,

882
01:21:07,425 --> 01:21:09,960
they are owed at 30th June.

883
01:21:09,960 --> 01:21:15,227
So the salaries payable, the liability
will be the credit entry.

884
01:21:15,733 --> 01:21:21,353
So your question is why credit?
Well, we credit the liability account,

885
01:21:21,353 --> 01:21:27,640
that means salaries payable,
but we debit the salaries.

886
01:21:27,640 --> 01:21:32,368
What happens when we pay them in 
the next period?

887
01:21:32,368 --> 01:21:40,002
When we pay the salaries we will
debit the salaries payable,

888
01:21:40,002 --> 01:21:45,655
so we decrease this liability,
and we will credit cash, ok?

889
01:21:45,655 --> 01:21:48,374
That is what happened in 
the following period,

890
01:21:48,374 --> 01:21:54,459
not in this one.
And Tablynn...

891
01:21:55,168 --> 01:21:59,022
Tablynn you asked a question 
about the depreciation?

892
01:21:59,022 --> 01:22:01,581
Yes, depreciation, well,

893
01:22:01,581 --> 01:22:07,835
this is the concept that 
we will have in detail,

894
01:22:08,221 --> 01:22:10,907
there is a whole lecture about 
depreciation

895
01:22:10,907 --> 01:22:14,263
with different methods of depreciation
but for now,

896
01:22:14,263 --> 01:22:20,357
we only need to think in the concept 
of depreciation, the general concept.

897
01:22:20,357 --> 01:22:25,941
When we purchase an equipment
that lasts more than one accounting period

898
01:22:25,941 --> 01:22:31,133
we cannot record as an expense
the cost of the equipment

899
01:22:31,133 --> 01:22:35,021
because we will use the equipment
for a number of periods,

900
01:22:35,021 --> 01:22:38,757
so we need to divide the cost of 
the equipment

901
01:22:38,757 --> 01:22:43,046
into the number of periods.

902
01:22:43,046 --> 01:22:47,767
So we will have just one part of the cost
in each period,

903
01:22:47,767 --> 01:22:53,001
and the easier way is just divide the cost
by the number of periods.

904
01:22:53,001 --> 01:22:59,160
So in this case the total amount
divided by 60 months that we will use

905
01:23:01,380 --> 01:23:06,521
this equipment, office equipment,
means that we will have an expense

906
01:23:06,738 --> 01:23:13,457
of 1440 per month, and we call that,
that expense,

907
01:23:13,457 --> 01:23:18,453
we call that depreciation expense, ok?

908
01:23:18,453 --> 01:23:21,248
That is the name of this account,
depreciation expense.

909
01:23:21,248 --> 01:23:23,124
What does that mean?

910
01:23:23,124 --> 01:23:28,363
It means that that is 
the part of the equipment

911
01:23:28,363 --> 01:23:33,347
that has been used 
or consumed in one period.

912
01:23:34,339 --> 01:23:37,565
And that's why we record that 
as a debit for each month,

913
01:23:37,565 --> 01:23:43,149
but here we have two months, ok?
Because from 1st May until 30th June

914
01:23:43,149 --> 01:23:46,173
which is the time for this exercise,
two months,

915
01:23:46,173 --> 01:23:53,741
it will be two multiplied by 1440,
which is 2880.

916
01:23:53,741 --> 01:24:01,364
So we will record depreciation expense,
debit 2880.

917
01:24:01,745 --> 01:24:03,587
What is the other account?

918
01:24:03,587 --> 01:24:09,656
I mentioned that there is another account
but the name is accumulated depreciation,

919
01:24:09,656 --> 01:24:14,757
so we will record a credit 
in that account.

920
01:24:17,197 --> 01:24:21,528
Ok, I'd asked how much would you deduct
from depreciation expense

921
01:24:21,781 --> 01:24:26,618
in the adjusted...
Excellent Tablynn, thank you.

922
01:24:26,618 --> 01:24:32,075
How much would you deduct in the 
adjusted trial balance?

923
01:24:32,316 --> 01:24:37,863
I will go through that Adash
because we started with

924
01:24:37,863 --> 01:24:40,613
the unadjusted trial balance.

925
01:24:40,613 --> 01:24:47,206
We are doing the adjustments, and then 
I will explain how we will adjust these

926
01:24:47,206 --> 01:24:51,070
to the adjusted trial balance.

927
01:24:51,070 --> 01:24:57,678
How we transform the unadjusted to the 
adjusted trial balance.

928
01:24:57,678 --> 01:25:00,354
Ok, yes Trina.

929
01:25:02,402 --> 01:25:08,058
TRINA: Hello, with the salaries,

930
01:25:08,597 --> 01:25:14,476
we already had 6400, 
it means that expense increased,

931
01:25:14,476 --> 01:25:20,401
that's why expense is debit 6400,
but with the liabilities,

932
01:25:20,401 --> 01:25:25,661
it means that we decrease 
the liabilities, is that right?

933
01:25:25,661 --> 01:25:28,280
HERMAN: Yes when (INAUDIBLE)

934
01:25:28,695 --> 01:25:31,900
TRINA: So if we decrease the... 
(CROSSTALK)

935
01:25:32,410 --> 01:25:37,180
Sorry, if we decrease the liabilities,
it means it debits liabilities,

936
01:25:37,180 --> 01:25:38,972
is that right?

937
01:25:39,439 --> 01:25:42,075
HERMAN: Yes, when we pay that is 
another transaction,

938
01:25:42,075 --> 01:25:44,066
it's not the adjusting entry.

939
01:25:44,066 --> 01:25:47,960
When we pay for the liability,
we will credit the liability

940
01:25:47,960 --> 01:25:51,625
so we decrease the liability,
and we will debit cash.

941
01:25:51,821 --> 01:25:57,411
So we decrease cash because we are paying
for that liability.

942
01:25:57,828 --> 01:25:59,245
But that is another (CROSSTALK)

943
01:25:59,245 --> 01:26:04,636
TRINA: yeah, I'm a bit confused because 
we decrease the liabilities,

944
01:26:04,636 --> 01:26:10,715
but well you put it credit 6400.

945
01:26:10,715 --> 01:26:14,479
HERMAN: Yeah, well, that is the point.
Trina it's good that you asked

946
01:26:14,479 --> 01:26:21,408
because we should not confuse two
different journal entries, ok?

947
01:26:21,408 --> 01:26:25,769
The journal entry that we're talking 
in number five here,

948
01:26:25,769 --> 01:26:28,130
is an adjusting entry.

949
01:26:28,130 --> 01:26:32,068
We have not paid anything 
in this journal entry.

950
01:26:32,068 --> 01:26:38,456
In this transaction, we only recognize
that the employees worked

951
01:26:38,456 --> 01:26:44,585
during the months,
how much we owe them for this work, 6400.

952
01:26:44,585 --> 01:26:47,340
We didn't pay anything.

953
01:26:47,340 --> 01:26:51,480
In the transaction here it doesn't say 
that we paid for that.

954
01:26:51,480 --> 01:26:58,037
We owe this amount at 30th June.
So what do we record?

955
01:26:58,037 --> 01:27:03,906
We record the expense, 
that means debit salaries expense, 6400,

956
01:27:03,906 --> 01:27:08,633
and we record the liability because 
we owe them this amount,

957
01:27:08,633 --> 01:27:15,065
so we credit salaries payable, 6400
and that's all.

958
01:27:15,065 --> 01:27:17,444
That's all the adjusting entries.

959
01:27:18,436 --> 01:27:24,513
Now in another day, next month,
we will pay for that.

960
01:27:24,808 --> 01:27:28,797
In the payment that is another 
journal entry, not this one,

961
01:27:28,797 --> 01:27:32,792
when we pay for that what will we do?

962
01:27:32,792 --> 01:27:36,785
We will debit the liability,
so we decrease the liability.

963
01:27:36,785 --> 01:27:43,516
We will debit 6400, and we will pay,
that means we will credit cash.

964
01:27:43,516 --> 01:27:46,164
When we credit cash we decrease 
the cash account

965
01:27:46,164 --> 01:27:51,339
because we are paying that amount
and that is another journal entry

966
01:27:51,339 --> 01:27:52,965
for the next period.

967
01:27:54,600 --> 01:28:01,572
Does this clarify the point Trina?
Good, excellent.

968
01:28:03,589 --> 01:28:10,686
Ok, we are in the number seven,
the last one.

969
01:28:11,282 --> 01:28:16,599
Invoices representing $8000 of services
performed during the month

970
01:28:16,599 --> 01:28:22,853
have not been recorded as of 30th June,
so what does this mean?

971
01:28:24,803 --> 01:28:30,162
We have provided services because 
it says invoices representing

972
01:28:30,834 --> 01:28:35,776
$8000 of services performed during that,
so we performed this service,

973
01:28:35,776 --> 01:28:39,105
and we provided the services 
for $8000

974
01:28:39,105 --> 01:28:42,502
but they have not been recorded
so we need to record them.

975
01:28:42,502 --> 01:28:47,110
So we need to record 
an accounts receivable

976
01:28:47,110 --> 01:28:51,596
because it doesn't say anything there
that we received the money,

977
01:28:51,596 --> 01:28:55,527
therefore it is an account receivable,
we will debit...

978
01:28:55,696 --> 01:28:57,176
(CLEARS THROAT)
Sorry.

979
01:28:57,686 --> 01:29:00,468
We will debit the account receivable
for $8000,

980
01:29:00,468 --> 01:29:05,745
and we will credit the service revenue

981
01:29:05,826 --> 01:29:07,610
because we earned from that service,

982
01:29:07,610 --> 01:29:11,592
we already provided the service,
so we will credit service revenue.

983
01:29:11,942 --> 01:29:13,651
So what we will have...

984
01:29:19,479 --> 01:29:21,431
I will do that.

985
01:29:23,472 --> 01:29:28,730
What we will have is the 
last adjusting entry.

986
01:29:29,245 --> 01:29:36,092
$8000 account receivable debit,
and credit $8000 service revenue.

987
01:29:36,701 --> 01:29:41,347
So we've completed 
all the adjusting entries.

988
01:29:41,700 --> 01:29:45,801
Before we go to how we prepare the 
adjusted trial balance,

989
01:29:46,611 --> 01:29:50,884
any questions about the adjusting entries?

990
01:29:57,565 --> 01:30:00,077
All good? Ok.

991
01:30:02,876 --> 01:30:06,791
Excellent Jade, very good.
That's my purpose.

992
01:30:06,791 --> 01:30:10,961
How we prepare the adjusted trial balance?

993
01:30:11,145 --> 01:30:16,598
Before we prepare that, 
remember these are journal entries,

994
01:30:16,598 --> 01:30:20,402
so the name is adjusted journal entries,
they are journal entries,

995
01:30:20,402 --> 01:30:26,617
so after you prepare the adjusting entries
what is the next step?

996
01:30:26,617 --> 01:30:30,470
You need to post these entries
to the ledger.

997
01:30:30,470 --> 01:30:33,575
The same as we did last week,
exactly Joshua,

998
01:30:33,575 --> 01:30:38,576
we need to post them to the ledger, 
all of them to adjust the balance

999
01:30:38,576 --> 01:30:40,690
of each of these accounts.

1000
01:30:40,690 --> 01:30:44,594
We will not do that, ok?
You already learnt last week

1001
01:30:44,594 --> 01:30:48,456
how to post transactions from the journal 
to the ledger,

1002
01:30:48,456 --> 01:30:52,439
and it's a very repetitive process 
and it's the same in this case

1003
01:30:52,439 --> 01:30:57,791
so we will not go again through that part
we will assume that we already did that,

1004
01:30:57,791 --> 01:31:02,886
Ok, we post all of these 
to the ledger accounts,

1005
01:31:02,886 --> 01:31:06,229
so the ledger accounts are updated.

1006
01:31:06,229 --> 01:31:12,175
But I will show you how to prepare 
the adjusted trial balance,

1007
01:31:12,175 --> 01:31:14,867
using the worksheet, ok?

1008
01:31:14,867 --> 01:31:18,020
Using a worksheet, it has the advantage
that you can see

1009
01:31:18,020 --> 01:31:22,926
what is the unadjusted trial balance, 
you can see the adjustments

1010
01:31:22,926 --> 01:31:25,695
and how to prepare the 
adjusted trial balance,

1011
01:31:25,695 --> 01:31:28,879
how you can explain the difference 
between the adjusted

1012
01:31:28,879 --> 01:31:32,642
and the unadjusted trial balance.

1013
01:31:34,036 --> 01:31:37,421
So here you have this worksheet.

1014
01:31:37,421 --> 01:31:44,688
In the worksheet what we do 
is you copy here in this part, ok?

1015
01:31:45,228 --> 01:31:49,960
You copy the unadjusted trial balance.

1016
01:31:50,634 --> 01:31:54,730
Of course, total debit should 
be equal to total credit.

1017
01:31:55,512 --> 01:32:02,884
You just copy that and then you go 
through all the adjusting entries

1018
01:32:02,884 --> 01:32:11,664
and you put in the adjustment column,
this, I will do just the first two, ok?

1019
01:32:12,202 --> 01:32:14,104
Only the first two.

1020
01:32:14,413 --> 01:32:17,483
So in the first one, 
what do we have here?

1021
01:32:17,483 --> 01:32:22,231
We debit 6400 in the supplies 
expense account

1022
01:32:22,231 --> 01:32:27,387
and we credit 6400 
in the supplies account,

1023
01:32:27,387 --> 01:32:31,731
so we look at this supplies 
expense account.

1024
01:32:31,731 --> 01:32:38,266
This is the supplies expense account,
we debit 6400, so we just copy there

1025
01:32:38,266 --> 01:32:43,068
And the we go to the supplies account
this is the supplies account,

1026
01:32:43,068 --> 01:32:48,005
you debit this account, ok?

1027
01:32:48,005 --> 01:32:50,600
You just copy here in these two columns

1028
01:32:50,600 --> 01:32:54,667
what you have done 
in the adjusting entries.

1029
01:32:54,667 --> 01:33:01,313
The second, we will do just the first two.
The second, what do we have?

1030
01:33:01,313 --> 01:33:05,477
1200 debit in electricity expense account

1031
01:33:05,477 --> 01:33:09,898
1200 credit electricity payable account.

1032
01:33:09,898 --> 01:33:15,515
So you copy that electricity 
expense account,

1033
01:33:15,515 --> 01:33:22,005
1200 debit, you copy there
and then you look for electricity payable.

1034
01:33:22,005 --> 01:33:29,567
Electricity payable credit 1200,
and you continue with all of this.

1035
01:33:29,567 --> 01:33:33,304
The only thing that you need to be careful
is that sometimes,

1036
01:33:33,304 --> 01:33:37,632
one account appears more than one time 
in the adjusting entries.

1037
01:33:38,032 --> 01:33:43,163
So if you look at the adjusting entries,
there is one account

1038
01:33:43,163 --> 01:33:47,016
that appears two times, 
so service revenue.

1039
01:33:47,016 --> 01:33:52,676
You have here service revenue, 
credit 3000,

1040
01:33:52,676 --> 01:33:58,260
and then you have here service revenue,
8000.

1041
01:33:58,260 --> 01:34:03,964
So the total amount that we will add 
to service revenue is 11000.

1042
01:34:03,964 --> 01:34:10,520
That's why here service revenue 
in the credit is 11000,

1043
01:34:10,520 --> 01:34:14,145
so its the sum of 3000+8000.

1044
01:34:14,145 --> 01:34:18,500
That you need to be careful because 
we need to add the total amounts,

1045
01:34:18,500 --> 01:34:23,508
that increase the credit 
of this account.

1046
01:34:23,508 --> 01:34:26,989
Ok, so we complete these, 
the adjustments.

1047
01:34:26,989 --> 01:34:30,589
We just copy all the adjusting entries, 
debit or credit

1048
01:34:30,589 --> 01:34:34,354
in the corresponding accounts.

1049
01:34:36,323 --> 01:34:39,877
Well, it's a really (INAUDIBLE)

1050
01:34:40,164 --> 01:34:44,483
because very few accounts
you will have more than one entry.

1051
01:34:44,483 --> 01:34:50,260
In this case we have only service revenue
but you know the to not make a mistake

1052
01:34:50,260 --> 01:34:56,507
and I did that in the next exercise,
is this things.

1053
01:34:56,507 --> 01:35:00,889
Do not make a mistake, I will give you 
a clue to not make a mistake.

1054
01:35:00,889 --> 01:35:03,432
Instead I've put here the total.

1055
01:35:03,432 --> 01:35:07,327
Every time you have an amount there
just put how much,

1056
01:35:07,327 --> 01:35:11,818
so you put here the 3000,
I will put in thousands

1057
01:35:11,818 --> 01:35:19,133
and then you simply add 8,
so every time you put the number there.

1058
01:35:19,133 --> 01:35:21,787
Then you know that it's 11000.

1059
01:35:21,787 --> 01:35:25,832
In this way you will not skip anything.

1060
01:35:26,057 --> 01:35:32,730
Ok, that is just a way to do
to not make that mistake.

1061
01:35:35,941 --> 01:35:39,380
How we prepare now the 
adjusted trial balance.

1062
01:35:40,877 --> 01:35:45,647
The adjusted trial balance is the same 
as the unadjusted trial balance

1063
01:35:45,647 --> 01:35:47,595
with all the adjustments.

1064
01:35:47,595 --> 01:35:52,621
So you can see for the cash accounts, 
there are no adjustments.

1065
01:35:52,621 --> 01:35:58,124
Ok, no adjustments, so the adjusted
trial balance is the same

1066
01:35:58,124 --> 01:36:00,828
as the unadjusted trial balance.

1067
01:36:01,852 --> 01:36:06,517
Accounts receivable, the unadjusted 
is 23 and 40.

1068
01:36:06,517 --> 01:36:12,754
The ajustment is debit 8000
so it directly increases the debit

1069
01:36:12,754 --> 01:36:19,028
so the adjusted will be the sum
of all of them.

1070
01:36:20,252 --> 01:36:25,045
Prepaid insurance we have a debit,
9600.

1071
01:36:25,045 --> 01:36:31,442
The adjustment is a credit of 1600,
a credit decreases a debit,

1072
01:36:31,442 --> 01:36:34,481
it's the opposite, ok?
So it will be the difference

1073
01:36:34,481 --> 01:36:37,812
and there we adjusted this 8000.

1074
01:36:38,668 --> 01:36:42,394
The same for supplies, 
we have 13600,

1075
01:36:42,394 --> 01:36:47,560
the adjustment is a credit,
therefore the credit decreases debit,

1076
01:36:47,560 --> 01:36:54,198
that will be 7200, ok?

1077
01:36:54,916 --> 01:36:56,130
And so on.

1078
01:36:56,130 --> 01:36:59,742
Office equipment there is no adjustment
accumulated depreciation

1079
01:36:59,742 --> 01:37:01,877
of office equipment, 
there is nothing here,

1080
01:37:01,877 --> 01:37:06,690
because this is an account that was 
in zero but we have an adjustment

1081
01:37:06,690 --> 01:37:13,230
2880, so the adjusted trial balance 
will be a credit 2880.

1082
01:37:16,019 --> 01:37:19,681
So you can see to prepare the adjusted 
trial balance is simple.

1083
01:37:19,681 --> 01:37:26,463
If we're working with the worksheet,
we just add or subtract the adjustment

1084
01:37:26,463 --> 01:37:30,460
depending on whether they are 
on the same side or the opposite side.

1085
01:37:30,460 --> 01:37:33,446
If they are on the same side, 
a debit increases a debit,

1086
01:37:33,446 --> 01:37:38,108
a credit increases a credit, 
but in the opposite side

1087
01:37:38,108 --> 01:37:44,471
a credit will decrease a debit
or a debit will decrease a credit.

1088
01:37:47,080 --> 01:37:50,111
Any question?

1089
01:37:53,205 --> 01:37:58,829
So once you have this worksheet...
Excellent Joshua,

1090
01:37:59,623 --> 01:38:03,052
Once you have the worksheet, 
the adjusted trial balance

1091
01:38:03,052 --> 01:38:06,670
you can just copy.
You have the list of...

1092
01:38:08,516 --> 01:38:13,121
You have the list of all this, ok?
The list of the accounts,

1093
01:38:13,121 --> 01:38:18,198
you have the balance, 
the debit balance or the credit balance

1094
01:38:18,198 --> 01:38:22,568
of all of these accounts,
and you can just copy them

1095
01:38:22,568 --> 01:38:29,462
to have the adjusted trial balance
so if this is the adjusted trial balance

1096
01:38:29,462 --> 01:38:33,356
the list of the accounts, 
what accounts have a debit balance

1097
01:38:33,821 --> 01:38:39,629
after the adjustments, 
or credit balance, all of these accounts.

1098
01:38:45,474 --> 01:38:51,490
That's the complete exercise and 
the adjusted trial balance.

1099
01:38:53,044 --> 01:38:55,198
Any question?

1100
01:38:58,065 --> 01:39:01,856
I think maybe we will use again 
the four hours

1101
01:39:01,856 --> 01:39:04,697
because we still do not finish 
the lecture,

1102
01:39:04,697 --> 01:39:06,715
we have the second exercise 
of the lecture

1103
01:39:06,715 --> 01:39:09,502
and then we have the exercise 
of the workshop

1104
01:39:09,502 --> 01:39:13,699
so definitely we are using 
the consultation time of the

1105
01:39:13,699 --> 01:39:18,586
four hours to complete,
but at this point,

1106
01:39:18,586 --> 01:39:22,982
we are already one hour 40 minutes.

1107
01:39:22,982 --> 01:39:28,288
It's good for you to have a break
so you can just prepare your coffee.

1108
01:39:32,165 --> 01:39:35,332
No Natalia, I will answer that.
You prepare your coffee,

1109
01:39:35,384 --> 01:39:41,798
you're soft drink, take a rest,
and we will meet in 10 minutes.

1110
01:39:43,365 --> 01:39:48,467
Before I go I will just answer 
the question to Natalia.

1111
01:39:48,467 --> 01:39:52,585
Still accountants do this step manually?
No, Natalia, no.

1112
01:39:52,906 --> 01:39:57,033
I will talk about this when we come back 
after 10 minutes

1113
01:39:57,033 --> 01:40:01,737
because I will talk about the assignment.
That will answer your question.

1114
01:40:02,322 --> 01:40:05,433
And Tablynn, can you explain profit thing?

1115
01:40:05,433 --> 01:40:10,130
Yes I will do that in the next exercise,
need more exercise,

1116
01:40:10,130 --> 01:40:13,233
we will do four Abdul, today.

1117
01:40:13,233 --> 01:40:17,926
If we aren't late, pm, 
no problem for me,

1118
01:40:17,926 --> 01:40:23,761
but if you have the strength 
to still be there,

1119
01:40:23,761 --> 01:40:25,528
we'll be good...

1120
01:40:25,863 --> 01:40:29,816
We will...
We will do many exercises today,

1121
01:40:29,816 --> 01:40:36,635
but for now take a rest, relax.
I need to grab my coffee as well,

1122
01:40:36,920 --> 01:40:44,426
and 10 minutes, so it's 2.40. 
At 2.50 we continue.

1123
01:40:44,630 --> 01:40:51,704
I will disconnect the microphone,
2.50 we continue, ok?

1124
01:51:17,211 --> 01:51:21,526
Ok, here we are again, more relaxed

1125
01:51:21,526 --> 01:51:26,363
and ready for another one
and a half hours.

1126
01:51:35,263 --> 01:51:39,431
Before starting with the next exercise

1127
01:51:39,431 --> 01:51:46,355
I will just give you some information

1128
01:51:46,743 --> 01:51:48,852
about your first assignment.

1129
01:51:50,618 --> 01:51:56,534
The assignment that you will have
is a very practical assignment

1130
01:51:57,358 --> 01:52:05,553
and this will address one of the questions
about Natalia,

1131
01:52:06,444 --> 01:52:10,946
Natalia asked, still accountant do 
these steps manually?

1132
01:52:11,116 --> 01:52:17,015
Well, accountants do not do this manually
but of course the need to understand

1133
01:52:17,015 --> 01:52:20,967
what the system does because if not,
the possibility of errors

1134
01:52:20,967 --> 01:52:22,203
could be very big.

1135
01:52:22,203 --> 01:52:26,157
When you enter a journal entry 
you need to understand

1136
01:52:26,157 --> 01:52:31,348
what continues after that, 
even the system is doing that

1137
01:52:31,348 --> 01:52:35,360
but you need to know how your ledger
is updated,

1138
01:52:35,360 --> 01:52:38,779
how the trial balance is prepared,
it's very important to do that.

1139
01:52:38,779 --> 01:52:44,093
That's why you learn to do this manually
even though then

1140
01:52:44,093 --> 01:52:46,593
the system will do this for you.

1141
01:52:46,593 --> 01:52:52,169
OK, but you need to be able to check
whether the system is doing well or not.

1142
01:52:52,673 --> 01:52:55,976
In this course you will have 
the opportunity to deal with

1143
01:52:55,976 --> 01:53:01,928
one of the most commonly used 
Accounting software,

1144
01:53:01,928 --> 01:53:08,796
it's a cloud accounting because 
everything is in the cloud

1145
01:53:08,796 --> 01:53:12,258
and not in the computer of 
the organization,

1146
01:53:12,258 --> 01:53:14,440
and that is Xero.

1147
01:53:14,440 --> 01:53:21,238
Xero is used by many small 
and medium companies.

1148
01:53:21,238 --> 01:53:25,150
Not the very big ones because they 
have their own systems,

1149
01:53:25,150 --> 01:53:30,661
but many small and medium companies
use Xero.

1150
01:53:30,661 --> 01:53:37,614
Accounting Pod is an organization
that facilitates

1151
01:53:37,614 --> 01:53:42,901
the learning of this software.

1152
01:53:42,901 --> 01:53:49,477
Griffith University has an arrangement
with Accounting Pod

1153
01:53:49,477 --> 01:53:55,364
to provide this facilitation, 
for learning Xero,

1154
01:53:55,364 --> 01:54:00,616
and we have set up the assignment 
that you will have in this,

1155
01:54:00,616 --> 01:54:03,745
using this software.

1156
01:54:03,745 --> 01:54:11,669
So next Monday, 3rd August,
the module,

1157
01:54:11,669 --> 01:54:18,807
the practice module of Accounting Pod
will be open for you.

1158
01:54:18,807 --> 01:54:24,101
And it will be open practically 
the whole month of August,

1159
01:54:24,101 --> 01:54:28,718
until the 27th of August,
that will be closed at 5.00 pm.

1160
01:54:28,718 --> 01:54:36,664
So what is the idea is that you do this.
You follow step by step

1161
01:54:36,664 --> 01:54:41,742
all the processes and you will learn
how to use this software,

1162
01:54:41,964 --> 01:54:46,215
so you will do what accountants do
in the practice, ok?

1163
01:54:46,416 --> 01:54:52,739
And this assessment, the assignment
we have two parts,

1164
01:54:52,739 --> 01:54:57,549
we have the practice module 
that it's called,

1165
01:54:57,549 --> 01:55:01,746
that will be open next Monday,

1166
01:55:01,746 --> 01:55:07,801
and then after it is closed,
that means the 27th of August.

1167
01:55:07,801 --> 01:55:13,792
On the 1st of September we will open 
the second part of this assessment

1168
01:55:13,792 --> 01:55:17,078
which is the Xero assessment.

1169
01:55:17,078 --> 01:55:19,548
That will be opened on the 
1st of September,

1170
01:55:19,548 --> 01:55:24,320
and it will be closed on the 23rd 
of September, 5.00 pm,

1171
01:55:24,320 --> 01:55:28,147
so at that point you need to finish 
the second part.

1172
01:55:28,412 --> 01:55:34,490
Your marks will be based on what you do 
in this task.

1173
01:55:34,775 --> 01:55:37,295
The marks are allocated...

1174
01:55:40,631 --> 01:55:45,098
The marks are allocated to the task
that you are doing.

1175
01:55:45,272 --> 01:55:50,559
Now, in the question by Jade,
what learning modules

1176
01:55:50,559 --> 01:55:53,163
will the practice on Xero cover?

1177
01:55:53,163 --> 01:56:00,615
What you need to know is just the basics
of the accounting cycle,

1178
01:56:00,615 --> 01:56:07,036
so to understand what is a journal entry,
what are the ledger accounts.

1179
01:56:07,223 --> 01:56:12,528
But the training that you will do,
you will see it's very...

1180
01:56:12,528 --> 01:56:18,868
Totally different to what we are doing
in the accounting period,

1181
01:56:18,982 --> 01:56:25,792
because you will do tasks related 
to a software.

1182
01:56:25,792 --> 01:56:30,393
I will explain in a bit of detail 
but next week, on Tuesday of next week,

1183
01:56:30,497 --> 01:56:34,458
I will dedicate more time to explain 
to you in more detail

1184
01:56:34,458 --> 01:56:39,786
what you have to do because at that point
you will have this already open, ok?

1185
01:56:40,082 --> 01:56:46,827
Now it's not there, 
you cannot see this software yet.

1186
01:56:48,979 --> 01:56:54,001
There are three modules in each 
assessment task,

1187
01:56:54,216 --> 01:56:57,006
the practice and the assessment.

1188
01:56:57,006 --> 01:57:01,170
Your marks for the assignment
will be the average of all these,

1189
01:57:01,661 --> 01:57:04,593
ok, the practice and the assessment.

1190
01:57:04,593 --> 01:57:08,830
You will have a rubric for this
so you will know exactly how

1191
01:57:08,830 --> 01:57:11,447
your marks will be allocated.

1192
01:57:11,447 --> 01:57:15,463
The system marks you, so it's not that
I will mark this.

1193
01:57:15,463 --> 01:57:22,247
For each task completed, 
the system will mark you,

1194
01:57:22,247 --> 01:57:25,412
and you will have the marks 
according to the task.

1195
01:57:25,412 --> 01:57:28,723
I will give you some guidelines 
next week on that.

1196
01:57:28,723 --> 01:57:38,443
But in the first part, the practice set, 
there are three modules, actually four,

1197
01:57:39,068 --> 01:57:44,408
but the important models 
are modules two and three.

1198
01:57:44,408 --> 01:57:50,756
The module one is just a welcome for you
to have a welcome to the system,

1199
01:57:50,756 --> 01:57:53,839
there are no marks allocated there.

1200
01:57:53,839 --> 01:57:59,020
Module two is the basics, 
and there are 20 marks allocated there.

1201
01:57:59,020 --> 01:58:07,087
There are very simple tasks that will 
tell you how to work in Xero.

1202
01:58:07,087 --> 01:58:13,664
One of the tasks is for example to set up
an authentication in door,

1203
01:58:14,214 --> 01:58:22,560
so it's not related to accounting at all,
but is related to working with this...

1204
01:58:23,009 --> 01:58:25,677
with the system.

1205
01:58:25,677 --> 01:58:31,350
My suggestion would be to always 
look at the question that you have

1206
01:58:31,350 --> 01:58:36,770
for each task and the possible answer,
and then look at the content.

1207
01:58:37,861 --> 01:58:44,552
Try to not answer the question immediately
but go through the content.

1208
01:58:44,552 --> 01:58:49,498
You will learn through the content, 
not just answering the questions.

1209
01:58:49,498 --> 01:58:54,519
Try not to do what is...
You look at the question, possible answer,

1210
01:58:54,519 --> 01:58:57,512
and then you try to find the answer
in the content,

1211
01:58:57,512 --> 01:58:59,935
because you will not learn a lot.

1212
01:58:59,935 --> 01:59:05,729
The idea is that you learn how 
to use Xero, this system, ok?

1213
01:59:05,921 --> 01:59:09,203
And to learn that it's good that you 
go through the content

1214
01:59:09,203 --> 01:59:12,797
trying to learn what is this about?

1215
01:59:12,797 --> 01:59:16,734
And the next module, 
the module three that is Xero,

1216
01:59:16,734 --> 01:59:19,676
in that module you will work in Xero.

1217
01:59:19,676 --> 01:59:26,410
So module two is just to prepare,
you will be prepared to work with Xero

1218
01:59:26,791 --> 01:59:31,718
but it's not yet the working withing Xero.

1219
01:59:31,718 --> 01:59:35,515
Module three yes, 
you will have a number of tasks

1220
01:59:35,515 --> 01:59:40,980
following the instructions that 
Accounting Pod will give you

1221
01:59:40,980 --> 01:59:45,006
to complete this task 
and provide the answers.

1222
01:59:46,697 --> 01:59:51,042
So then the module four is just to wrap up
a couple of questions,

1223
01:59:51,042 --> 01:59:53,414
but not really important.

1224
01:59:53,414 --> 01:59:56,513
Module two and three are 
the most important.

1225
01:59:56,513 --> 02:00:00,627
Now when you finish one module, 
then you will have access to the next one

1226
02:00:00,627 --> 02:00:04,145
and so on, 
so you need to go step by step.

1227
02:00:04,145 --> 02:00:11,998
In this sense, this is,
even though you need some knowledge

1228
02:00:11,998 --> 02:00:15,874
in accounting that you already have,
you don't need more than that

1229
02:00:15,874 --> 02:00:21,708
because it's different to learn how to 
work with a software in accounting

1230
02:00:21,708 --> 02:00:27,105
than how to do accounting, 
that is what you are doing now.

1231
02:00:27,510 --> 02:00:32,050
Then the assessment part is just the 
application of all what you have learned

1232
02:00:32,050 --> 02:00:36,957
in the practice part, 
and in a different case scenario.

1233
02:00:37,606 --> 02:00:42,497
So that is in general what you will 
from next week,

1234
02:00:42,497 --> 02:00:46,241
there is time, 
don't wait till the last two days.

1235
02:00:46,241 --> 02:00:51,670
For example, it opens 2nd August, 
it will be closed 27th of August,

1236
02:00:51,670 --> 02:00:56,283
do not wait until the 25th of August
for all the task,

1237
02:00:56,283 --> 02:01:00,044
because you need time for that.

1238
02:01:00,362 --> 02:01:02,739
You need time to reflect on what 
you're learning,

1239
02:01:02,739 --> 02:01:08,523
you need time to properly do the task
and go just a little bit

1240
02:01:09,070 --> 02:01:13,057
during the time this will be open.

1241
02:01:13,721 --> 02:01:18,571
It will not take a long time, ok?
it will not take a very long time,

1242
02:01:18,571 --> 02:01:22,895
probably you can do this in three
or four days, if you dedicate full time,

1243
02:01:22,895 --> 02:01:27,210
but that is not the best way to learn.

1244
02:01:28,286 --> 02:01:32,503
Yes, you will have marks Cecilia
in the practice part

1245
02:01:32,503 --> 02:01:38,555
and actually the total marks 
that you will have is the average

1246
02:01:40,011 --> 02:01:44,712
weighted average of the practice part 
and the assessment part.

1247
02:01:44,996 --> 02:01:48,164
I also considered to give marks
for the practice part

1248
02:01:48,164 --> 02:01:51,907
because in the practice part,
it will be easier for you,

1249
02:01:51,907 --> 02:01:56,250
but the intention is that you learn
how to use the software

1250
02:01:56,250 --> 02:01:59,908
and how to use this software 
is in the practice part.

1251
02:02:00,171 --> 02:02:03,429
In the assessment part 
you will apply all of this,

1252
02:02:03,429 --> 02:02:07,200
so there are marks allocated 
in the practice part as well, yeah.

1253
02:02:09,286 --> 02:02:13,039
So this is just some information that 
I want to give you in advance

1254
02:02:13,189 --> 02:02:21,231
and next week with this open,
I will show you the screens

1255
02:02:21,541 --> 02:02:25,946
and I can share screens 
for you to do this.

1256
02:02:27,289 --> 02:02:32,369
Cecilia, is there any way we can practice 
using the system without getting marks?

1257
02:02:32,369 --> 02:02:36,443
Yes, because you don't need to submit

1258
02:02:36,443 --> 02:02:40,232
but now you will see 
it's very straightforward,

1259
02:02:40,232 --> 02:02:43,378
the system will tell you 
exactly what to do,

1260
02:02:43,378 --> 02:02:46,746
so if you do well, you don't need
to do it again,

1261
02:02:46,746 --> 02:02:48,351
but try to do well.

1262
02:02:48,351 --> 02:02:54,207
Now there is some not in the practice part
but in the assessment part

1263
02:02:54,207 --> 02:03:02,708
there is feedback that you can receive
and also you can ask questions.

1264
02:03:02,708 --> 02:03:09,575
Now the specific question of the software
please do not ask me that way

1265
02:03:09,575 --> 02:03:13,279
but to the system, there is a box
that you will see next week,

1266
02:03:13,279 --> 02:03:16,276
that says 'leave us a message'.

1267
02:03:16,276 --> 02:03:21,554
You leave all the questions there 
and they will answer you immediately.

1268
02:03:21,554 --> 02:03:24,224
If you have a problem with this,
of course you contact me

1269
02:03:24,224 --> 02:03:32,544
and I will deal with them, but they 
answer quite quick all your questions.

1270
02:03:33,729 --> 02:03:39,201
Ok, now I have another message,

1271
02:03:39,201 --> 02:03:42,912
and this is another caption.

1272
02:03:43,802 --> 02:03:48,725
Who sent me a message about captioning?
They'll need the captioning.

1273
02:03:51,548 --> 02:03:59,770
Cassandra is that you?
Ok, I've added you.

1274
02:04:05,927 --> 02:04:11,299
Ok, so now we can continue
with the next exercise.

1275
02:04:15,665 --> 02:04:21,160
And we are still in the lecture
so definitely will end a bit late

1276
02:04:23,605 --> 02:04:29,787
but I prefer to clarify anything you need
it's important for you.

1277
02:04:36,168 --> 02:04:37,695
Ok, so...

1278
02:04:42,501 --> 02:04:50,439
I guess we don't need to put this...
Ok.

1279
02:04:52,114 --> 02:04:58,631
Here you have the next question.
This is...

1280
02:04:59,307 --> 02:05:01,813
I do not know if you can see well 
in your screen

1281
02:05:01,813 --> 02:05:05,149
because this uses the whole one
in my screen.

1282
02:05:05,149 --> 02:05:07,801
Can you see we're on this table?

1283
02:05:10,998 --> 02:05:14,582
Yes, ok, excellent.
Excellent, thank you.

1284
02:05:17,008 --> 02:05:26,095
So this exercise starts as well
from the unadjusted trial balance,

1285
02:05:26,367 --> 02:05:28,425
the same as this one.

1286
02:05:28,425 --> 02:05:34,427
And they open for business 
on 1st of April 2019

1287
02:05:34,427 --> 02:05:40,630
and the trial balance is on 30th of June,
so how many months do we have?

1288
02:05:40,630 --> 02:05:46,611
This is important because we will need 
this to calculate the adjusting entries,

1289
02:05:46,611 --> 02:05:50,478
how many months since we started? 
Three months.

1290
02:05:50,478 --> 02:05:55,017
So remember that from 1st of April
until the date,

1291
02:05:55,047 --> 02:05:57,193
very good Natalia, three months,

1292
02:05:57,193 --> 02:06:02,715
until the date of these financial 
statements, three months,

1293
02:06:02,715 --> 02:06:04,616
that is what we will consider.

1294
02:06:04,616 --> 02:06:08,028
So what we have here in this,
this is the worksheet.

1295
02:06:08,028 --> 02:06:11,487
You can see we add more columns.

1296
02:06:11,487 --> 02:06:18,813
What we have at the beginning is the
unadjusted trial balance,

1297
02:06:18,813 --> 02:06:22,795
that I am showing you there,
unadjusted trial balance.

1298
02:06:22,795 --> 02:06:27,424
Then we put in the adjustments,
all the adjusting entries,

1299
02:06:27,424 --> 02:06:32,753
we will do that in this exercise as well,
and from this we prepare what is called

1300
02:06:32,753 --> 02:06:36,016
the adjusted trial balance.

1301
02:06:36,709 --> 02:06:43,597
But now we will add the last part 
for today which is the closing entries

1302
02:06:43,597 --> 02:06:48,113
so you can see we have now 
three types of entries.

1303
02:06:48,113 --> 02:06:54,675
Just the general entries, or journal 
entries that come from transactions

1304
02:06:54,675 --> 02:06:56,746
that we did last week.

1305
02:06:56,746 --> 02:07:02,215
We have the adjusting entries 
that we prepared in the first part,

1306
02:07:02,215 --> 02:07:07,174
and we have the closing entries and we
will see what are the closing entries.

1307
02:07:07,174 --> 02:07:11,363
After the closing entries we prepare 
another trial balance

1308
02:07:11,363 --> 02:07:14,813
which is the post-closing trial balance.

1309
02:07:14,813 --> 02:07:20,127
And with this we complete, 
almost complete the accounting cycle.

1310
02:07:20,127 --> 02:07:24,964
After this we only need to prepare 
the financial statements.

1311
02:07:25,824 --> 02:07:32,085
So we have the list of accounts,
here you have all the list of accounts

1312
02:07:32,085 --> 02:07:38,407
that we will use in this and we have the
ending balance of each of these accounts

1313
02:07:39,723 --> 02:07:43,750
in the unadjusted trial balance,
that means before adjustment,

1314
02:07:43,750 --> 02:07:50,062
these are the balances 
of all of these accounts, ok?

1315
02:07:53,970 --> 02:07:59,356
Here we continue with different 
types of accounts,

1316
02:07:59,356 --> 02:08:01,895
we will go in detail with all of them.

1317
02:08:01,895 --> 02:08:04,925
And of course, 
the unadjusted trial balance

1318
02:08:04,925 --> 02:08:09,212
the total debits should be equal 
to total credit.

1319
02:08:09,212 --> 02:08:15,373
That's in all the trial balances, 
total debit equals total credit.

1320
02:08:17,243 --> 02:08:20,388
So here we have the additional data.

1321
02:08:20,388 --> 02:08:24,007
The additional data as you already know
is the data that we need

1322
02:08:24,007 --> 02:08:30,804
to prepare the adjusting entries,
so we will go through these six entries,

1323
02:08:30,804 --> 02:08:38,448
six additional data to prepare 
the adjusting entries.

1324
02:08:38,734 --> 02:08:43,433
We will journalize the adjusting entries
so we will record them,

1325
02:08:43,433 --> 02:08:48,044
what is the debit, what is the credit
of each of this adjusting entries.

1326
02:08:48,044 --> 02:08:50,845
And then with this adjusting entries,

1327
02:08:50,845 --> 02:08:55,755
we will complete the adjusted trial 
balance in the worksheet.

1328
02:08:58,104 --> 02:09:01,417
Then from the adjusted trial balance
in the worksheet,

1329
02:09:01,417 --> 02:09:05,102
we will prepare the closing entries.

1330
02:09:05,812 --> 02:09:08,404
And using the information 
of the closing entries,

1331
02:09:08,404 --> 02:09:12,752
we will prepare the post-closing entries
trial balance.

1332
02:09:12,752 --> 02:09:15,168
So this is a very complete exercise,

1333
02:09:15,168 --> 02:09:17,773
the starting with the unadjusted 
trial balance

1334
02:09:17,773 --> 02:09:23,282
until the post-closing entries
trial balance.

1335
02:09:23,282 --> 02:09:28,156
So we will start with 
the adjusting entries.

1336
02:09:28,156 --> 02:09:34,507
The first one, insurance expires 
at a rate of $900 per month

1337
02:09:34,507 --> 02:09:41,240
and is an annual premium commencing
1st April 2019.

1338
02:09:41,240 --> 02:09:49,780
So what might this description
be telling us?

1339
02:09:49,780 --> 02:09:55,299
It says that three months, so it's already
calculated the total policy divided by 12,

1340
02:09:55,299 --> 02:10:00,026
it should be 900 per month,
that is the insurance expense per month

1341
02:10:00,026 --> 02:10:05,252
when this started on 1st of April,
at the beginning of this period

1342
02:10:05,252 --> 02:10:08,626
and we have already three months
if you remember.

1343
02:10:08,626 --> 02:10:15,307
So in three months by $900
is 2700.

1344
02:10:15,307 --> 02:10:21,297
We need to record the debit,
the insurance expense clearly,

1345
02:10:21,297 --> 02:10:24,631
then prepaid insurance.

1346
02:10:24,631 --> 02:10:33,450
So we look at our journal entries,
insurance expense, and prepaid insurance.

1347
02:10:33,450 --> 02:10:37,704
Here you have debit 2700 
insurance expense,

1348
02:10:37,704 --> 02:10:43,950
credit 2700 prepaid insurance,
and that is the first one, ok?

1349
02:10:47,268 --> 02:10:52,238
I will go a bit quicker in this 
but please stop me at any time

1350
02:10:52,238 --> 02:10:55,612
and ask me if there is something that
you would like to clarify.

1351
02:10:55,612 --> 02:10:59,840
Of course I will explain well but because
we've gone through this already

1352
02:10:59,840 --> 02:11:01,690
they are similar.

1353
02:11:01,690 --> 02:11:09,354
If it is clear just..
Just (INAUDIBLE).

1354
02:11:10,527 --> 02:11:16,104
Ok, sorry.
What was the question?

1355
02:11:17,691 --> 02:11:22,555
Here is it prepaid insurance?
Yes it is prepaid insurance.

1356
02:11:22,985 --> 02:11:29,857
Ok, ok. So to answer that question we
need to look at from where comes this.

1357
02:11:30,189 --> 02:11:35,770
Insurance expires at the rate of $900
per month.

1358
02:11:35,770 --> 02:11:42,404
From where does this come?
This comes from a prepaid insurance

1359
02:11:42,404 --> 02:11:47,235
so that means the company paid in advance
it's a prepayment,

1360
02:11:47,235 --> 02:11:53,209
the insurance for the next 12 months
on 1st April.

1361
02:11:53,209 --> 02:12:00,448
1st April the company paid the whole year,
that means 12 months insurance.

1362
02:12:00,448 --> 02:12:01,739
What amount?

1363
02:12:01,739 --> 02:12:08,380
To know that you need to look 
at the account prepaid insurance,

1364
02:12:08,380 --> 02:12:14,580
here you have, ok, 
prepaid insurance debit 10800.

1365
02:12:14,580 --> 02:12:18,502
If you divide this by 12 it's 900.

1366
02:12:18,502 --> 02:12:22,732
That means every month you need 
to record an insurance expense

1367
02:12:22,732 --> 02:12:27,740
because you will consume this policy
in 12 months.

1368
02:12:27,740 --> 02:12:33,903
So every month you need to record 
an insurance expense of 900 every month

1369
02:12:33,903 --> 02:12:46,620
and we have three months so it will be
the total of 2700 as insurance expense

1370
02:12:46,620 --> 02:12:55,341
and we decrease the prepaid insurance,
very good, excellent.

1371
02:12:55,759 --> 02:13:02,813
Ok, the second one, 
an inventory of supplies shows 7200

1372
02:13:02,813 --> 02:13:08,215
of unused supplies on 30th June.

1373
02:13:08,215 --> 02:13:14,715
So we still have 7200 supplies 
in the inventory.

1374
02:13:14,715 --> 02:13:18,916
How much do we have in the 
unadjusted trial balance?

1375
02:13:20,983 --> 02:13:30,028
Supplies, 11400,
and we have 7200 at the end of June

1376
02:13:30,028 --> 02:13:32,189
so we have use the difference.

1377
02:13:32,189 --> 02:13:39,664
What is the difference between 11400
and 7200? It's 4200.

1378
02:13:39,664 --> 02:13:47,660
So we have a supplies expense debit 4200
and we credit this account supplies

1379
02:13:47,660 --> 02:13:51,868
to reduce 4200 from here.

1380
02:13:51,868 --> 02:14:03,349
So the journal entry, the adjusting entry,
it will be supplies expense 4200 debit

1381
02:14:04,019 --> 02:14:09,728
and we credit supplies 4200.
With this we decrease the supplies account

1382
02:14:09,728 --> 02:14:16,123
and now we will have the balance
that we calculate here.

1383
02:14:16,123 --> 02:14:20,122
That we count, we count the items, 
we value the items

1384
02:14:20,122 --> 02:14:24,128
and what we have 
at the end of June is 7200, ok?

1385
02:14:24,128 --> 02:14:32,878
So that is the second adjustment.
The third one.

1386
02:14:33,513 --> 02:14:40,396
The depreciation for the year 
ended 30 is 5400 on the building

1387
02:14:40,396 --> 02:14:43,231
and 4500 on furniture.

1388
02:14:43,231 --> 02:14:46,099
Here you have two items.

1389
02:14:46,099 --> 02:14:50,582
The two of them are what we call 
the non-current assets,

1390
02:14:50,582 --> 02:14:57,784
so they're assets that last for more than 
one accounting period.

1391
02:14:57,784 --> 02:15:06,104
We have buildings and furniture
and this description is telling us

1392
02:15:06,104 --> 02:15:12,599
that depreciation expense 
for the year 30th June 2019,

1393
02:15:12,599 --> 02:15:15,236
that is the ending...

1394
02:15:16,723 --> 02:15:20,344
That is the date of the unadjusted 
trial balance.

1395
02:15:20,344 --> 02:15:27,204
The deprecieation expense is 5400 
on the building, 4500 on furniture.

1396
02:15:28,593 --> 02:15:32,163
No we need to think in the accounts.

1397
02:15:32,163 --> 02:15:37,437
Depreciation expense is one account
so it doesn't matter how many items

1398
02:15:37,437 --> 02:15:39,285
we are depreciating

1399
02:15:39,285 --> 02:15:44,714
we need to add them and we will have 
the depreciation expense,

1400
02:15:44,714 --> 02:15:46,460
the total depreciation expense.

1401
02:15:46,460 --> 02:15:52,680
If you add these two amounts, 
5400 and 4500 it will be 9900

1402
02:15:52,680 --> 02:15:58,603
so we will have a debit of depreciation 
expense, 9900.

1403
02:15:58,603 --> 02:16:00,714
What is the other account?

1404
02:16:00,714 --> 02:16:03,896
The other account is accumulated
depreciation

1405
02:16:03,896 --> 02:16:11,137
but we have one accumulated depreciation
account for each item

1406
02:16:11,137 --> 02:16:12,764
of the non-current asset.

1407
02:16:12,764 --> 02:16:15,602
How many items do we have here?
Two.

1408
02:16:15,602 --> 02:16:18,710
So we have building,
we have furniture.

1409
02:16:18,710 --> 02:16:23,872
So two different accounts, one account 
will be accumulated depreciation,

1410
02:16:23,872 --> 02:16:29,559
building, the other account will be
accumulated depreciation furniture

1411
02:16:29,559 --> 02:16:33,894
We need to distinguish them 
and to record them separately.

1412
02:16:33,894 --> 02:16:39,262
So we will have a depreciation expense
9900, one account,

1413
02:16:39,262 --> 02:16:45,086
and then we will have accumulated 
depreciation of building, 5400.

1414
02:16:45,086 --> 02:16:48,987
Accumulated depreciation 
of furniture, 4500.

1415
02:16:48,987 --> 02:16:53,463
and the journal entry, the adjusting 
entry will be this one.

1416
02:16:53,463 --> 02:16:59,334
Here you can see 9900 depreciation
expense, one account.

1417
02:16:59,334 --> 02:17:01,699
All the depreciation expense together.

1418
02:17:01,699 --> 02:17:04,083
But then we have two different 
accounts,

1419
02:17:04,083 --> 02:17:09,072
so accumulated depreciation 
of the building, 5400,

1420
02:17:09,072 --> 02:17:12,421
accumulated depreciation
of furniture, 4500.

1421
02:17:12,421 --> 02:17:16,740
The sum of course is 9900 so...

1422
02:17:20,609 --> 02:17:24,831
it would be okay Jade that if you 
separated depreciation expense

1423
02:17:24,962 --> 02:17:29,983
but we need to think that depreciation 
expense is just one account.

1424
02:17:29,983 --> 02:17:34,974
It will not cause any problem
because at the end we will have two.

1425
02:17:34,974 --> 02:17:39,130
It's like we separate these 
in two adjusting entries.

1426
02:17:39,130 --> 02:17:42,009
It is possible, it's ok, 
it's not wrong,

1427
02:17:42,009 --> 02:17:46,457
but because we have one 
depreciation expense,

1428
02:17:46,457 --> 02:17:48,945
we record them together.

1429
02:17:48,945 --> 02:17:54,069
Now this is a journal entry for adjusting 
entries in which you have three entries.

1430
02:17:54,069 --> 02:17:58,162
Ok, I mentioned to you that most of 
the you have two entries,

1431
02:17:58,162 --> 02:18:00,234
one debit, one credit,
there could be more.

1432
02:18:00,234 --> 02:18:01,205
this is the case.

1433
02:18:01,205 --> 02:18:05,623
In this case you have one debit
and you have two credits.

1434
02:18:05,623 --> 02:18:10,226
The important thing is any journal entry
or adjusting entry,

1435
02:18:10,226 --> 02:18:16,038
the total debit should be equal to 
total credits which is the case here.

1436
02:18:16,038 --> 02:18:21,518
Ok, next one.

1437
02:18:22,521 --> 02:18:25,591
The mortgage interest rate is 6%.

1438
02:18:25,591 --> 02:18:28,625
The mortgage was taken out 
on 1st April.

1439
02:18:28,625 --> 02:18:33,548
This is the only data that is given in the
additional data for adjusting entries,

1440
02:18:33,548 --> 02:18:39,310
so we need to look at the data in the
unadjusted trial balance to calculate this

1441
02:18:39,310 --> 02:18:43,192
so here we know 6% is the interest rate.

1442
02:18:43,192 --> 02:18:51,090
Always when it's given like this,
it's annual interest rate, ok?

1443
02:18:51,090 --> 02:18:54,511
Annual interest rate.
Always this is the annual,

1444
02:18:54,511 --> 02:19:00,879
that is the normal period for 
the interest rate of a mortgage.

1445
02:19:00,879 --> 02:19:06,347
So we will need to see what is the total
of the mortgage

1446
02:19:06,347 --> 02:19:08,463
so we go to our...

1447
02:19:13,512 --> 02:19:15,962
And here you have mortgage payable.

1448
02:19:15,962 --> 02:19:21,900
This is the unadjusted trial balance,
mortgage payable 210000.

1449
02:19:21,900 --> 02:19:23,739
210000.

1450
02:19:23,962 --> 02:19:30,657
If you multiply 210000 by 6% 
how much is that?

1451
02:19:32,024 --> 02:19:36,082
12600, very well Jade,
12600.

1452
02:19:36,082 --> 02:19:40,166
That is the interest for the year, ok?

1453
02:19:40,166 --> 02:19:46,137
But we need the interest for three months
so we divide this by 12

1454
02:19:46,137 --> 02:19:48,295
and we will have the interest 
per month.

1455
02:19:48,295 --> 02:19:50,870
We multiply by 3, ok,

1456
02:19:50,870 --> 02:19:56,643
and that is the interest for 
the three months

1457
02:19:56,836 --> 02:20:00,947
and for the three months 
we will multiply that by three, Jade,

1458
02:20:00,947 --> 02:20:06,822
monthly it will be 3150, ok?

1459
02:20:07,828 --> 02:20:15,664
So 3150 is the interest expense 
that we need to record here.

1460
02:20:16,463 --> 02:20:18,763
Good Jade.

1461
02:20:19,951 --> 02:20:24,517
Ok, so interest expense 3150.

1462
02:20:25,995 --> 02:20:30,581
Interest expense for the three months
and we have an interest payable

1463
02:20:30,581 --> 02:20:32,446
because we have not paid that.

1464
02:20:32,446 --> 02:20:38,521
So interest payable, 3150.
This is the adjusting entry.

1465
02:20:42,361 --> 02:20:44,408
Next one.

1466
02:20:44,955 --> 02:20:50,967
9000 of rent revenue paid in advance
pertains to June.

1467
02:20:50,967 --> 02:20:55,934
The remainder pertains to July,
so what does this mean?

1468
02:20:55,934 --> 02:21:01,670
The tenant paid in advance

1469
02:21:03,720 --> 02:21:06,068
for the rent until July,

1470
02:21:06,485 --> 02:21:14,913
but until June the tenant already used 
$9000 of this payment

1471
02:21:14,913 --> 02:21:20,832
because they used the office 
or the rent.

1472
02:21:24,079 --> 02:21:29,569
George, the previous one, 
sorry, you're talking about the mortgage?

1473
02:21:29,569 --> 02:21:32,352
The mortgage interest?

1474
02:21:35,587 --> 02:21:38,017
It's that one?
Ok.

1475
02:21:39,424 --> 02:21:46,560
Ok, yeah, I will go through that George
as soon as I finish this that I started

1476
02:21:46,560 --> 02:21:50,708
so here we have the revenue 
received in advance.

1477
02:21:51,788 --> 02:21:57,852
9000, that pertains to June,
that means the tenant already used this.

1478
02:21:58,040 --> 02:22:03,333
We have provided this credit to the tenant
until June for 9000.

1479
02:22:03,333 --> 02:22:09,793
So we need to record this income
because this is revenue

1480
02:22:09,793 --> 02:22:17,321
and we will credit rent revenue for 9000
and we will debit

1481
02:22:17,321 --> 02:22:22,479
the rent revenue received in advance 
which is a liability

1482
02:22:22,479 --> 02:22:25,349
when the tenant pays in advance 
the amount.

1483
02:22:25,349 --> 02:22:27,368
So this will be...

1484
02:22:31,725 --> 02:22:36,281
Debit rent revenue received in advance
we decrease the liability

1485
02:22:36,281 --> 02:22:40,801
because the tenant already used 
this building until 30th June

1486
02:22:40,801 --> 02:22:45,955
and we record now the 
rent revenue, ok?

1487
02:22:45,955 --> 02:22:51,298
So that is the number five.
I will go with the interest,

1488
02:22:51,298 --> 02:22:57,681
the interest of the number four.
I will go again with this.

1489
02:22:57,681 --> 02:23:00,874
The mortgage interest rate is 6%.

1490
02:23:00,874 --> 02:23:04,184
Please remember, always the interest 
is per year,

1491
02:23:04,184 --> 02:23:08,292
so we need to know how much 
is the interest per month.

1492
02:23:08,292 --> 02:23:10,306
How do we calculate that?

1493
02:23:10,306 --> 02:23:13,572
Well, 6% of what?

1494
02:23:13,572 --> 02:23:15,665
That is the thing that we need 
to calculate.

1495
02:23:15,665 --> 02:23:20,036
6% of the total mortgage interest...
Sorry.

1496
02:23:20,036 --> 02:23:25,441
6% of the total mortgage that we have
for this loan that we have

1497
02:23:25,441 --> 02:23:31,952
so here you have, 
this is our trial balance.

1498
02:23:31,952 --> 02:23:34,698
Remember this is our unadjusted 
trial balance.

1499
02:23:34,698 --> 02:23:39,789
If we go down through the accounts
we will have this mortgage payable.

1500
02:23:40,789 --> 02:23:44,725
Credit because it's a loan,
it's a loan payable, it's a liability.

1501
02:23:45,144 --> 02:23:50,122
This is the total amount we borrow,
210000.

1502
02:23:50,502 --> 02:23:54,641
How much is the interest per year?
6% of this.

1503
02:23:55,173 --> 02:24:02,550
If you calculate your 6% of 210000,
then that is 12600,

1504
02:24:03,140 --> 02:24:05,541
but that is per year.

1505
02:24:06,005 --> 02:24:11,209
How many months is the period of time
here from 1st April to 30th June?

1506
02:24:11,209 --> 02:24:12,616
It's three months.

1507
02:24:13,022 --> 02:24:18,651
So 210000 divided by 12, 
sorry.

1508
02:24:18,707 --> 02:24:23,860
210000 multiplied by 6% is 12600.

1509
02:24:23,860 --> 02:24:28,067
12600 divided by 12, 
that will be per month

1510
02:24:28,067 --> 02:24:32,065
and then we multiply by three,
that will be three months.

1511
02:24:32,065 --> 02:24:37,279
The amount is 3150.

1512
02:24:37,279 --> 02:24:47,094
So we record that interest expense, 3150 
because it's an interest already accrued

1513
02:24:47,699 --> 02:24:52,033
in this specific time, until 30th June, 
three months.

1514
02:24:52,033 --> 02:24:55,841
And the interest payable because 
we had not paid that

1515
02:24:55,841 --> 02:24:59,097
is the same amount, 
3150.

1516
02:24:59,097 --> 02:25:04,988
We have this liability for 
the interest payable

1517
02:25:04,988 --> 02:25:09,650
and we have the interest expense,
that clarified the point George?

1518
02:25:16,272 --> 02:25:18,488
Ok, excellent.

1519
02:25:19,661 --> 02:25:27,342
Now the last adjusting entry 
is salaries.

1520
02:25:27,378 --> 02:25:28,767
This is a simple one.

1521
02:25:28,767 --> 02:25:38,454
Salaries of 1800 are unpaid at 30th June.
So what does this mean?

1522
02:25:39,073 --> 02:25:44,373
That means that the employees 
already work for this amount,

1523
02:25:44,373 --> 02:25:48,613
1800 but the company didn't pay them.

1524
02:25:48,613 --> 02:25:53,594
So we owe that salary, 
so we will record the expense,

1525
02:25:53,594 --> 02:25:58,140
salaries expense 1800,
and we have to record the liability

1526
02:25:58,140 --> 02:26:02,460
because we owe the salaries,
that means salaries payable,

1527
02:26:02,460 --> 02:26:04,422
that is the liability.

1528
02:26:04,422 --> 02:26:12,817
So debit salaries expense, 1800
credit salaries payable, ok?

1529
02:26:16,896 --> 02:26:23,825
1800. So there you have 
the last adjusting entry.

1530
02:26:23,825 --> 02:26:27,285
So we've finished the adjusting
entries,

1531
02:26:27,285 --> 02:26:30,570
and now we can put all of these
adjusting entries

1532
02:26:30,570 --> 02:26:34,602
to the spreadsheet.

1533
02:26:39,515 --> 02:26:47,047
So if we put them
to the spreadsheet,

1534
02:26:47,778 --> 02:26:51,048
you have here all the adjustments.

1535
02:26:53,311 --> 02:26:58,399
There is a number that you can see 
in this column after adjustment,

1536
02:26:58,399 --> 02:27:03,231
this is just a column 
that can help you to know

1537
02:27:03,231 --> 02:27:07,546
which are the transactions that the...

1538
02:27:07,546 --> 02:27:11,268
the adjustment that we are recording
in the adjustment.

1539
02:27:11,268 --> 02:27:13,868
I will look at that,
I will go through the first one

1540
02:27:13,868 --> 02:27:18,330
just for you to have the reference
because we did this already.

1541
02:27:18,330 --> 02:27:22,293
We don't need to go through all of them.

1542
02:27:22,293 --> 02:27:27,303
In the first, this is the number one, 
the first adjusting entry.

1543
02:27:27,303 --> 02:27:38,127
We record debit 2700 insurance expense,
credit 2700 prepaid insurance.

1544
02:27:39,976 --> 02:27:44,913
So prepaid insurance is a credit...
there you have the number one

1545
02:27:44,913 --> 02:27:47,227
for you to have as a reference.

1546
02:27:47,227 --> 02:27:51,939
This is the adjusting one.
Credit 2700

1547
02:27:52,241 --> 02:27:55,953
and we have a debit in insurance expense,

1548
02:28:00,253 --> 02:28:02,554
insurance expense a debit, 2700

1549
02:28:02,303 --> 02:28:08,296
and here you can see the number one 
again as a reference.

1550
02:28:08,296 --> 02:28:12,366
So all of them have a reference 
to what transaction it is.

1551
02:28:12,366 --> 02:28:17,364
So we can complete this table

1552
02:28:21,102 --> 02:28:23,540
just copying all the adjustments,

1553
02:28:23,540 --> 02:28:26,409
the debit and the credit in the 
corresponding account

1554
02:28:26,409 --> 02:28:28,763
and we will complete the adjustment.

1555
02:28:28,763 --> 02:28:31,654
Then we can prepare 
the adjusted trial balance

1556
02:28:31,654 --> 02:28:35,595
the same as I explained 
in the previous exercise.

1557
02:28:35,595 --> 02:28:39,555
Cash for example, 15000 debit,
there are no adjustments,

1558
02:28:39,555 --> 02:28:44,564
so the adjusted trial balance 
is 15000 debit cash.

1559
02:28:44,564 --> 02:28:50,514
Prepaid insurance we have it there 10800
in the unadjusted balance,

1560
02:28:50,514 --> 02:28:53,109
the adjustment is credit,

1561
02:28:53,109 --> 02:28:56,632
so credit decreases the debit
we need to strike this,

1562
02:28:56,632 --> 02:29:01,263
so the adjusted trial balance 
is debit 8100.

1563
02:29:02,060 --> 02:29:06,957
And we continue with all the adjustments
until we have really

1564
02:29:06,957 --> 02:29:11,095
the adjusted trial balance.

1565
02:29:11,706 --> 02:29:17,416
So we can copy all the amounts here, 
in the adjusted trial balance

1566
02:29:17,416 --> 02:29:20,933
and this is our adjusted trial balance.

1567
02:29:20,933 --> 02:29:24,741
So in the first exercise we finished
in this part,

1568
02:29:24,741 --> 02:29:27,398
but now we will continue 
with the second part

1569
02:29:27,398 --> 02:29:31,869
which is the closing entries.

1570
02:29:34,142 --> 02:29:37,978
What are closing entries, 
what are the closing entries?

1571
02:29:38,304 --> 02:29:44,471
So now I will explain a bit conceptually
what are closing entries

1572
02:29:44,471 --> 02:29:49,131
and then we will apply them 
in this exercise.

1573
02:29:50,543 --> 02:29:56,965
I mentioned last week that there 
are permanent accounts

1574
02:29:56,965 --> 02:29:59,087
from all the accounts of the company.

1575
02:29:59,087 --> 02:30:04,647
There are permanent accounts
and there are temporary accounts.

1576
02:30:04,647 --> 02:30:07,772
What is the difference between 
the permanent accounts

1577
02:30:07,772 --> 02:30:10,401
and the temporary accounts?

1578
02:30:10,401 --> 02:30:16,278
The permanent accounts are accounts 
that the ending balance of any period

1579
02:30:16,278 --> 02:30:20,406
is the beginning balance 
of the following period.

1580
02:30:20,406 --> 02:30:26,192
So we carry forward the balance
of the accounts to the following period

1581
02:30:26,192 --> 02:30:31,891
and we continue for all the 
life of the company with this.

1582
02:30:31,891 --> 02:30:36,903
Ending balance becomes the opening balance
of the following period.

1583
02:30:36,903 --> 02:30:40,881
If you remember when we balanced
the accounts last week

1584
02:30:42,361 --> 02:30:47,864
we ended each of the ledger accounts
with what is the opening balance

1585
02:30:48,058 --> 02:30:52,785
for the following period which was 
ending balance for the current period.

1586
02:30:53,216 --> 02:30:59,719
So these are the permanent accounts.
But we have also temporary accounts.

1587
02:31:00,581 --> 02:31:02,983
What are temporary accounts?

1588
02:31:02,983 --> 02:31:08,335
Temporary accounts are accounts 
that must be closed

1589
02:31:08,335 --> 02:31:10,924
at the end of the accounting period.

1590
02:31:12,419 --> 02:31:15,058
Why do we have to close them?

1591
02:31:15,058 --> 02:31:18,936
Because we want to start 
the following period

1592
02:31:18,936 --> 02:31:25,246
with zero balance in each 
of these accounts, zero balance.

1593
02:31:25,246 --> 02:31:28,166
So we need to keep these accounts
with zero balance.

1594
02:31:28,166 --> 02:31:29,757
How can we do this?

1595
02:31:31,019 --> 02:31:35,570
Well, we need to transfer the 
balance of these accounts

1596
02:31:35,570 --> 02:31:37,902
to a permanent account.

1597
02:31:39,350 --> 02:31:42,459
Then we can leave the account 
in zero balance.

1598
02:31:42,459 --> 02:31:49,115
This is very important for, 
very good Joshua, to retain earnings.

1599
02:31:49,115 --> 02:31:53,787
This is very important particularly for 
all the accounts of the income statement

1600
02:31:53,787 --> 02:31:58,082
because we want to start 
each accounting period

1601
02:31:58,082 --> 02:32:02,118
with zero balances in the income 
statement accounts,

1602
02:32:02,118 --> 02:32:05,661
that means all the revenues 
and expenses account

1603
02:32:05,661 --> 02:32:08,400
should be zero, why?

1604
02:32:08,400 --> 02:32:12,810
Because we want to menasure
the profit for the period.

1605
02:32:12,810 --> 02:32:18,784
If we do not start from a zero balance
we will not have the profit of the period

1606
02:32:18,784 --> 02:32:24,554
we will have a mix of profit 
of the periods and the current period, ok?

1607
02:32:24,554 --> 02:32:31,867
So to know the profit of the period
we have to start with zero balance

1608
02:32:31,867 --> 02:32:33,782
in all of these accounts.

1609
02:32:33,782 --> 02:32:39,168
So what are the temporary accounts?
All the income statement accounts.

1610
02:32:39,168 --> 02:32:45,892
That means all the revenues accounts
or any other income

1611
02:32:45,892 --> 02:32:49,631
and all the expenses accounts.

1612
02:32:50,235 --> 02:32:54,164
All of them are temporary accounts.

1613
02:32:54,164 --> 02:32:58,705
In addition there is one account 
that we add retained earnings

1614
02:32:58,705 --> 02:33:02,717
or the equity account 
which is dividends.

1615
02:33:02,717 --> 02:33:08,605
Dividends is also very good Tamara,
dividends is also a temporary account

1616
02:33:08,605 --> 02:33:13,283
and we need to close dividends
at the end of the accounting period.

1617
02:33:13,283 --> 02:33:15,732
So how do we close them?

1618
02:33:15,732 --> 02:33:19,955
Well, to know that, 
we can start from here,

1619
02:33:19,955 --> 02:33:23,175
the adjusted trial balance.

1620
02:33:23,175 --> 02:33:27,739
Now what type of account do we have here?
And we always put these in this order.

1621
02:33:27,739 --> 02:33:34,431
First we have the asset account,
so you have cash here, ok?

1622
02:33:35,015 --> 02:33:39,037
Prepaid insurance, supplies, land, 
building,

1623
02:33:39,037 --> 02:33:43,202
accumulated depreciation is an asset 
account even though it's a credit,

1624
02:33:43,202 --> 02:33:47,644
but I already explained that and we will 
go in more detail with this account

1625
02:33:47,644 --> 02:33:51,331
in another topic.
That is an asset account,

1626
02:33:51,331 --> 02:33:54,240
same to accumulated 
depreciation of credit.

1627
02:33:54,240 --> 02:33:58,673
All of these are asset accounts.

1628
02:33:59,094 --> 02:34:03,713
After the asset account we record 
the liabilities account.

1629
02:34:03,713 --> 02:34:09,212
So here you have accounts payable, 
rent revenue received in advance,

1630
02:34:09,212 --> 02:34:14,627
salaries payable, interest payable,
mortgage payable, ok?

1631
02:34:14,627 --> 02:34:18,942
All of these are liabilities accounts.

1632
02:34:19,709 --> 02:34:23,038
After the liabilities accounts
we have the equity accounts,

1633
02:34:23,038 --> 02:34:26,246
so we have check capital and rent revenue.

1634
02:34:26,246 --> 02:34:31,378
These two are the equity accounts,
sorry, only check capital,

1635
02:34:31,378 --> 02:34:33,131
and retained earnings.

1636
02:34:33,131 --> 02:34:37,821
Check capital and retained earnings,
that's what I mean.

1637
02:34:37,821 --> 02:34:41,114
Check capital and retained earnings
are equity accounts.

1638
02:34:41,114 --> 02:34:44,914
In this case in this company 
we don't have retained earnings.

1639
02:34:44,914 --> 02:34:49,849
Why don't we have retained earnings? 
Because this company just started, ok?

1640
02:34:49,849 --> 02:34:53,896
It started on 1st April,
so this is the first period,

1641
02:34:53,896 --> 02:34:56,157
30th June 2017.

1642
02:34:56,157 --> 02:35:01,085
And because it's the first period we 
don't have yet retained earnings account.

1643
02:35:01,085 --> 02:35:06,731
So check capital and retained earnings 
are equity accounts.

1644
02:35:10,410 --> 02:35:13,221
Then we have the income 
statement accounts.

1645
02:35:13,221 --> 02:35:16,776
The first account that we have 
all the revenues.

1646
02:35:16,776 --> 02:35:21,506
Rent revenue in this case, 
it may be service revenue,

1647
02:35:21,506 --> 02:35:26,031
it may be sales revenue, 
fees revenue, interest revenues,

1648
02:35:26,031 --> 02:35:29,237
all the revenues accounts,
they will be in this part.

1649
02:35:29,754 --> 02:35:32,012
And then all the expenses accounts,

1650
02:35:32,012 --> 02:35:36,229
so we have advertisement expense, 
depreciation expense,

1651
02:35:36,229 --> 02:35:40,024
electricity expense, insurance, interest,
salaries, supplies expenses,

1652
02:35:40,024 --> 02:35:41,956
all the expense accounts.

1653
02:35:43,137 --> 02:35:45,910
So this is the adjusted trial balance.

1654
02:35:45,910 --> 02:35:48,607
What are the accounts that 
we need to close?

1655
02:35:48,607 --> 02:35:54,198
In this case we don not have dividends,
we have revenue, rent revenue,

1656
02:35:54,198 --> 02:35:57,546
and we have all of these expenses.

1657
02:35:57,546 --> 02:36:00,119
These are the accounts that 
we need to bring.

1658
02:36:00,119 --> 02:36:01,517
How will we close this?

1659
02:36:01,517 --> 02:36:06,200
There are two steps to close the accounts.

1660
02:36:06,200 --> 02:36:13,282
The first step we will close 
all the expenses and then the revenues

1661
02:36:13,282 --> 02:36:18,636
to another temporary account 
that we will create

1662
02:36:18,636 --> 02:36:23,632
that the name is the income 
summary account.

1663
02:36:24,044 --> 02:36:29,030
Income summary account is the name of
another temporary account

1664
02:36:29,030 --> 02:36:33,126
and the purpose is to close 
all the expenses

1665
02:36:33,126 --> 02:36:35,677
and the revenues to this account.

1666
02:36:35,677 --> 02:36:42,182
So how do we close the expense?
here you have advertisement expenses,

1667
02:36:42,182 --> 02:36:47,312
(INAUDIBLE) 3000,
depreciation expense the balance

1668
02:36:47,312 --> 02:36:53,371
is debit 9900 so we have 
a number of expenses.

1669
02:36:53,371 --> 02:37:02,768
We add all of them and we will debit the
income summary accounts for the sum

1670
02:37:02,768 --> 02:37:06,562
and we will credit each of them 
one by one

1671
02:37:06,562 --> 02:37:11,262
we cannot credit the total of them,

1672
02:37:11,262 --> 02:37:18,025
we need to close each account one by one
so we need to credit advertisement expense

1673
02:37:18,025 --> 02:37:23,536
credit 3000,
depreciation expense credit 9900.

1674
02:37:23,536 --> 02:37:27,122
Electricity expense we credit 6000
and so on

1675
02:37:27,122 --> 02:37:31,481
because if you credit advertisement 
expense by 3000,

1676
02:37:31,481 --> 02:37:37,118
what is the balance of advertising expense
after that? Zero.

1677
02:37:37,918 --> 02:37:45,262
If you credit depreciation expense by 9900
what is the balance after that? Zero.

1678
02:37:45,981 --> 02:37:51,262
We're leaving each account at zero
that's why we need to do one by one.

1679
02:37:51,262 --> 02:37:56,695
But for the sum of all of this credit
we will have one debit which is

1680
02:37:56,695 --> 02:38:02,490
the income summary account,
or profit and loss summary account.

1681
02:38:02,490 --> 02:38:04,389
It could be any of these.

1682
02:38:06,092 --> 02:38:08,355
With revenue we do the same.

1683
02:38:08,355 --> 02:38:13,165
So to close these revenue accounts, 
what we should do?

1684
02:38:13,585 --> 02:38:17,034
We need to debit by 64200.

1685
02:38:17,034 --> 02:38:23,862
We debit rent revenue by 64200,
what is the balance after this? Zero.

1686
02:38:23,862 --> 02:38:27,514
And what we credit?
Income summary account again.

1687
02:38:27,514 --> 02:38:35,768
So income summary account will be 
the same account that we use for expenses

1688
02:38:35,768 --> 02:38:39,687
but in this case we credit the 
income summary account.

1689
02:38:39,687 --> 02:38:44,331
So you can see what we have done
at this point is to transfer

1690
02:38:44,331 --> 02:38:49,014
the amount of all the expenses 
and revenues to this temporary account

1691
02:38:49,014 --> 02:38:53,018
which is income summary account.

1692
02:38:58,573 --> 02:39:02,331
Here you have the closing entries.

1693
02:39:02,854 --> 02:39:09,051
We credit all of the expense accounts,
remember the normal balance is a debit

1694
02:39:09,051 --> 02:39:13,387
so to close them we credit.
This is a journal entry.

1695
02:39:13,387 --> 02:39:18,500
You can see this is a journal entry
in which we debit income summary,

1696
02:39:18,500 --> 02:39:20,730
the sum of all the expenses.

1697
02:39:20,730 --> 02:39:24,518
We debit income summary and 
we credit each of these accounts.

1698
02:39:24,518 --> 02:39:27,404
How many entries has this journal entry?

1699
02:39:27,404 --> 02:39:33,171
You can see it has eight entries.

1700
02:39:33,171 --> 02:39:37,774
We have one debit, and seven credits.

1701
02:39:38,145 --> 02:39:43,571
So this is one journal entry,
with this journal entry we close

1702
02:39:43,571 --> 02:39:45,988
all the expense accounts.

1703
02:39:45,988 --> 02:39:49,662
That means these are closing entries.

1704
02:39:49,662 --> 02:39:54,658
We transfer the expenses 
to the income summary accounts.

1705
02:39:54,658 --> 02:39:57,924
For debt revenue, the same.

1706
02:39:57,924 --> 02:40:03,176
In this case we need to debit 
the revenue account

1707
02:40:03,176 --> 02:40:05,816
because the balance is credit 
so when we credit,

1708
02:40:05,816 --> 02:40:10,585
we leave this account in zero,
and we debit the rent revenue

1709
02:40:10,585 --> 02:40:14,096
and we credit the income 
summary account.

1710
02:40:15,184 --> 02:40:19,806
This is another journal entry,
a closing entry.

1711
02:40:20,562 --> 02:40:22,599
What is next?

1712
02:40:22,980 --> 02:40:26,360
Then we need to close
the income summary account.

1713
02:40:26,360 --> 02:40:30,020
What is the balance of the 
income summary account?

1714
02:40:30,020 --> 02:40:33,466
The income summary account 
is the difference

1715
02:40:33,603 --> 02:40:35,234
between the credit and the debit .

1716
02:40:35,444 --> 02:40:36,798
what is higher?

1717
02:40:36,829 --> 02:40:43,275
Well, we have 64200 credit
and 48750 debit.

1718
02:40:43,734 --> 02:40:49,338
so that difference is 15450 credit, ok?

1719
02:40:49,515 --> 02:40:52,563
That is the balance of the income 
summary account at this point.

1720
02:40:52,563 --> 02:40:57,821
To close that, we need to debit,
it is the third closing entry.

1721
02:40:57,821 --> 02:41:02,810
We debit 15450 from the
income summary account

1722
02:41:02,810 --> 02:41:06,980
and we credit retained earnings.
This is a permanent account.

1723
02:41:06,980 --> 02:41:11,078
So we transfer this balance to 
the retained earnings account.

1724
02:41:11,382 --> 02:41:14,575
Now the income summary account is closed.

1725
02:41:14,575 --> 02:41:17,966
You can verify this if you were 
at all debit,

1726
02:41:17,966 --> 02:41:24,859
48750 + 15450 
will be equal to 64200.

1727
02:41:25,068 --> 02:41:30,612
Income summary account is closed
the ending balance in this case is zero

1728
02:41:30,612 --> 02:41:33,639
and all the balance is transferred 
to retained profit.

1729
02:41:33,639 --> 02:41:39,819
You can see what we have done
is to transfer the profit

1730
02:41:39,819 --> 02:41:43,652
of the accounting period through 
the journal entries

1731
02:41:43,652 --> 02:41:45,704
that are the closing entries.

1732
02:41:45,704 --> 02:41:49,572
We transfer the profit to
the retained earnings

1733
02:41:49,572 --> 02:41:54,957
an that is what we do every period
at the end of each period we do this.

1734
02:41:54,957 --> 02:41:57,178
So what is retained earnings?

1735
02:41:57,178 --> 02:42:03,122
It's the accumulation of all profits 
and all losses since the company started

1736
02:42:03,122 --> 02:42:06,590
because we do this at the end
of this period.

1737
02:42:07,039 --> 02:42:11,746
So we are accumulating the profits 
in this written profit account.

1738
02:42:11,746 --> 02:42:13,451
What about dividends?

1739
02:42:13,451 --> 02:42:16,707
Dividends is another temporary account
we will see another exercise

1740
02:42:16,707 --> 02:42:21,035
in which dividends is included
in the workshop exercise

1741
02:42:21,035 --> 02:42:24,544
in which dividends is also closed 
to retained earnings,

1742
02:42:24,544 --> 02:42:27,901
so retained earnings are 
decreased by dividends.

1743
02:42:29,632 --> 02:42:34,249
Now, one last word in relation 
to closing entries.

1744
02:42:34,249 --> 02:42:38,047
Closing entries you can see 
is very simple.

1745
02:42:38,047 --> 02:42:43,299
It's just to close each of the expense 
and revenues accounts

1746
02:42:43,299 --> 02:42:44,590
and also dividends,

1747
02:42:44,590 --> 02:42:49,874
and leaving the accounts 
with zero balance.

1748
02:42:50,119 --> 02:42:58,517
The normal mistake that the students do
in this part even is simple

1749
02:42:59,031 --> 02:43:03,835
is the confusion between the debit
or the credit to close the account.

1750
02:43:03,835 --> 02:43:10,941
So because students know that
expenses are debit,

1751
02:43:10,941 --> 02:43:15,260
they close all expense accounts 
with the debit here.

1752
02:43:15,655 --> 02:43:19,834
Put the debit and put the income 
summary account as the credit.

1753
02:43:20,424 --> 02:43:23,236
But that, what is the effect of that?

1754
02:43:23,883 --> 02:43:27,746
With that, the effect that will be 
will be that you double

1755
02:43:27,746 --> 02:43:30,360
the balance of each account.

1756
02:43:30,360 --> 02:43:35,447
If you debit advertisement expenses
by 3000 and you have a balance of 3000

1757
02:43:35,447 --> 02:43:41,093
what is the ending balance of 
the advertisement expenses? 6000.

1758
02:43:41,093 --> 02:43:46,987
Ok, you double the balance on the account
you are not closing the account.

1759
02:43:46,987 --> 02:43:49,883
To close the account should 
be the opposite side,

1760
02:43:49,883 --> 02:43:56,304
it should be you credit 3000 because 
the account has a balance of debit, 3000.

1761
02:43:56,446 --> 02:44:01,204
So be careful with that, I have seen
so many times the same mistake.

1762
02:44:02,594 --> 02:44:10,808
Remember that taking out on these
so do not make this type of mistake.

1763
02:44:12,291 --> 02:44:15,008
Any question about closing entries?

1764
02:44:24,224 --> 02:44:28,331
The whole point Natalia, 
or the last part?

1765
02:44:31,343 --> 02:44:35,297
The last part?
Excellent, yes.

1766
02:44:35,892 --> 02:44:38,764
Ok, excellent.

1767
02:44:40,177 --> 02:44:43,568
For one second I thought 
it was the whole point.

1768
02:44:44,123 --> 02:44:45,962
Excellent.
Thank you Natalia.

1769
02:44:47,572 --> 02:44:51,097
A common mistake, 
what is the common mistake?

1770
02:44:51,280 --> 02:44:55,812
Here we are closing the account
to ...

1771
02:44:56,272 --> 02:45:01,353
Remember two things,
to close has a meaning.

1772
02:45:01,353 --> 02:45:03,608
What is the meaning to close?

1773
02:45:03,608 --> 02:45:10,103
To close means leave with zero balance
that is the meaning, ok.

1774
02:45:10,103 --> 02:45:13,247
Close means leave this account
with zero balance.

1775
02:45:13,247 --> 02:45:19,333
So if we close advertisement expense
it means leave this with zero balance

1776
02:45:19,333 --> 02:45:20,717
at the end of the period.

1777
02:45:20,717 --> 02:45:26,987
After closing entries we want 
advertising expense equals zero balance

1778
02:45:26,987 --> 02:45:30,341
so that means we transfer 
the balance to another account.

1779
02:45:30,341 --> 02:45:35,177
We're transferring here to income summary
in this first step.

1780
02:45:35,532 --> 02:45:41,705
So what about if we have instead of,
I will write over here,

1781
02:45:42,426 --> 02:45:51,942
instead of credit 3000, 
we put 3000 here, we debit.

1782
02:45:53,047 --> 02:45:56,680
And we do the same with 
all the other accounts.

1783
02:45:57,557 --> 02:46:03,951
That means that this, the income 
summary will not be a debit of 48000

1784
02:46:03,951 --> 02:46:10,388
but will be a credit of 48750, ok?

1785
02:46:10,388 --> 02:46:13,653
So what will be the effect of this?

1786
02:46:14,004 --> 02:46:19,920
And we put here the 9900,
the 6000, the 2000...

1787
02:46:19,920 --> 02:46:22,264
All of them in debit.

1788
02:46:22,264 --> 02:46:26,957
What is the balance of all of these 
accounts if you do that?

1789
02:46:27,586 --> 02:46:32,427
What is the balance after closing entries
if you debit this account?

1790
02:46:32,427 --> 02:46:35,770
What will be the balance 
of advertisement expense?

1791
02:46:37,400 --> 02:46:46,661
It will be 6000 because the balance
before closing entries is debit 3000.

1792
02:46:47,559 --> 02:46:53,622
If you debit in the closing entry by 3000
the debit increases the debit

1793
02:46:53,622 --> 02:46:57,878
so a debit of 3000 will be added 
to the debit of 3000,

1794
02:46:57,878 --> 02:47:01,370
that means now the balance is 6000.

1795
02:47:01,370 --> 02:47:07,553
You're not closing the account, 
you double the balance of the account.

1796
02:47:07,999 --> 02:47:14,458
So that's why you need to be very careful
that the closing entry

1797
02:47:14,458 --> 02:47:20,198
should be the opposite side of the 
accounts that we are closing.

1798
02:47:21,828 --> 02:47:27,752
All the expense accounts,
they have a debit balance.

1799
02:47:27,752 --> 02:47:30,361
What is the opposite side?
Credit.

1800
02:47:30,361 --> 02:47:33,918
So we need to credit all the 
expense accounts.

1801
02:47:34,565 --> 02:47:38,980
The revenues accounts, 
what is the normal balance? Credit.

1802
02:47:38,980 --> 02:47:43,899
To close we need to debit, 
the opposite side.

1803
02:47:45,120 --> 02:47:50,799
That is the important thing
so be careful with that,

1804
02:47:50,799 --> 02:47:54,664
so do not make a mistake on this.

1805
02:47:57,858 --> 02:48:09,346
Ok, Yes, Zijing, only need to close 
the temporary account.

1806
02:48:09,534 --> 02:48:13,660
The permanent account we will 
carry forward the balance.

1807
02:48:13,660 --> 02:48:16,382
The ending balance at 
the end of the period

1808
02:48:16,382 --> 02:48:19,049
will be the beginning balance 
of the next period.

1809
02:48:19,049 --> 02:48:20,827
We do not start with a zero balance.

1810
02:48:20,827 --> 02:48:24,602
We start with the ending balance 
of the previous period

1811
02:48:24,842 --> 02:48:29,631
so we only close temporary accounts.
What are the temporary accounts?

1812
02:48:29,977 --> 02:48:34,460
All the income statement accounts
plus dividends, ok?

1813
02:48:38,109 --> 02:48:43,936
So we finish with this and here 
you have all the closing entries

1814
02:48:45,046 --> 02:48:52,563
and that's the last part of this 
exercise I think, yes.

1815
02:48:57,746 --> 02:49:02,439
Yes, that was the last question 
to prepare the closing entries.

1816
02:49:03,493 --> 02:49:06,700
So we finish, 
just we finish the lecture,

1817
02:49:06,700 --> 02:49:12,151
and it is time to (INAUDIBLE)

1818
02:49:13,503 --> 02:49:18,790
We need still to go through 
the workshop.

1819
02:49:19,648 --> 02:49:25,170
Yes I did here profit and loss, 
there are different names for this,

1820
02:49:25,170 --> 02:49:29,772
and over time the name has changed
in the accounting standards,

1821
02:49:29,772 --> 02:49:37,307
but when we talk about income statements
it's the same as profit and loss statement

1822
02:49:37,307 --> 02:49:43,091
it's the same.
And we talk, there is another name,

1823
02:49:43,413 --> 02:49:45,949
it's not very used now,
but you can see in some books

1824
02:49:45,949 --> 02:49:50,280
that there's the statement 
of financial performance.

1825
02:49:50,280 --> 02:49:53,634
That is also called the income statement.

1826
02:49:53,634 --> 02:49:58,676
And the balance sheet has another name,
it's the statement of financial position.

1827
02:49:58,676 --> 02:50:04,138
But for the names that we're using
is normally income statement

1828
02:50:04,138 --> 02:50:07,716
or statement of profit or loss.

1829
02:50:08,024 --> 02:50:10,864
And then we have,

1830
02:50:12,003 --> 02:50:15,263
retained profit will always credit, right?

1831
02:50:15,263 --> 02:50:17,664
Good question Ezekiel.

1832
02:50:18,965 --> 02:50:27,074
Retained profit normally should be
and has to be in the credit side

1833
02:50:27,074 --> 02:50:33,748
except if the company has a lot of loss
and then retained profit

1834
02:50:33,748 --> 02:50:36,861
will go to the other side,
we'll have a debit balance.

1835
02:50:36,861 --> 02:50:40,532
That is a company that has 
accumulated losses,

1836
02:50:40,532 --> 02:50:43,697
and they don't have profit.
it's not the normal situation

1837
02:50:43,697 --> 02:50:50,332
and it will be very bad for the company.
Normally it should be on the credit side.

1838
02:50:51,907 --> 02:50:56,203
It is possible the debit side,
but not usual, and not good.

1839
02:51:01,204 --> 02:51:05,238
Ok, so now we can go 
through the workshop.

1840
02:51:05,238 --> 02:51:10,041
So we need to plan a bit at this point
because 3.50.

1841
02:51:11,702 --> 02:51:19,184
The normal time from 1.00-4.00
is the workshop and the lecture,

1842
02:51:19,801 --> 02:51:22,279
and then 4.00-5.00 
I have the consultation

1843
02:51:22,279 --> 02:51:25,899
but what I am doing is just to answer 
all the questions

1844
02:51:27,229 --> 02:51:33,422
while I am explaining the exercise,
so I go through the questions immediately.

1845
02:51:35,665 --> 02:51:40,192
That I think is better because we 
don't need to go back

1846
02:51:40,426 --> 02:51:45,099
but we solve anything that you have,
any question you have immediately.

1847
02:51:45,099 --> 02:51:48,756
But because we have not gone 
through the workshop,

1848
02:51:49,746 --> 02:51:53,503
I will use the consultation time
for the workshop.

1849
02:51:53,752 --> 02:51:58,503
Now I understand if any of you
cannot stay for the workshop,

1850
02:51:58,503 --> 02:52:02,091
for the consultation which is 4.00-5.00,

1851
02:52:04,282 --> 02:52:07,268
it's ok, so feel free to go,
no problem.

1852
02:52:08,358 --> 02:52:13,229
Remember the lecture and the workshop
will be recorded

1853
02:52:13,229 --> 02:52:17,176
and will be uploaded 
on the ECOS 360 tab,

1854
02:52:17,176 --> 02:52:21,589
so you will have the complete record,
yes and there's no problem.

1855
02:52:21,589 --> 02:52:26,692
You will have the complete record
of the lecture and the workshop.

1856
02:52:27,107 --> 02:52:31,082
So I will explain this as part 
of the consultation,

1857
02:52:31,082 --> 02:52:34,448
the exercise of the workshop, ok?

1858
02:52:35,833 --> 02:52:41,976
And then if you have more questions
yes, please feel free to ask

1859
02:52:41,976 --> 02:52:43,783
any question you may have.

1860
02:52:45,209 --> 02:52:49,051
Ok, so we go through the second one.

1861
02:53:06,737 --> 02:53:12,841
The workshop, the scheme that we have used
is similar to the lecture,

1862
02:53:12,841 --> 02:53:17,823
we start with four multiple choice 
questions to revise some concepts

1863
02:53:18,162 --> 02:53:21,125
and then we go through the exercise.

1864
02:53:21,125 --> 02:53:27,841
And in the exercise we will do the same,
we will practice with adjusting entries,

1865
02:53:27,841 --> 02:53:34,903
we will practice with closing entries
and that is the topic for today,

1866
02:53:35,237 --> 02:53:38,911
so a lot of practice in this.

1867
02:53:40,626 --> 02:53:43,452
So we will start with this.

1868
02:53:43,452 --> 02:53:50,038
I will have a look at the first question
which is similar to the first question

1869
02:53:50,038 --> 02:53:51,552
of the lecture.

1870
02:53:51,825 --> 02:53:55,015
Ok, have a look at this, 
I will update the poll.

1871
02:54:42,545 --> 02:54:47,686
Ok, so furniture factory employees
work overtime to finish an order

1872
02:54:47,686 --> 02:54:50,677
that was sold on 28th February.

1873
02:54:50,677 --> 02:54:54,030
The office sent a statement 
to the customer in early March

1874
02:54:54,030 --> 02:54:58,783
and the payment is received
by mid March.

1875
02:54:59,108 --> 02:55:05,807
The overtime expenses should be 
expressed in which period?

1876
02:55:30,862 --> 02:55:40,776
Ok, good practically most of you
have the right answer,

1877
02:55:42,842 --> 02:55:46,145
in February.
Why in February?

1878
02:55:46,145 --> 02:55:50,620
Because they said that when
it's sold this order?

1879
02:55:50,620 --> 02:55:53,446
On 28th February, so it's February,

1880
02:55:53,446 --> 02:55:59,168
the month is February and 
the employees work during February.

1881
02:55:59,168 --> 02:56:05,306
So the resource, 
that means the work of the employees

1882
02:56:05,306 --> 02:56:10,598
was used on February,
that means the right answer is that one,

1883
02:56:10,598 --> 02:56:12,137
February, A.

1884
02:56:12,589 --> 02:56:15,882
A is the right answer, ok?

1885
02:56:17,875 --> 02:56:24,720
Number two, have a look, 
I will update the poll.

1886
02:56:38,649 --> 02:56:45,060
The company purchased office supplies
costing $4000 and debit office supplies

1887
02:56:45,060 --> 02:56:48,446
for the full amount.
At the end of the accounting period,

1888
02:56:48,446 --> 02:56:54,005
a critical count of supplies reveal 1600
is still on hand.

1889
02:56:54,005 --> 02:56:55,828
What is the appropriate journal entry?

1890
02:56:55,828 --> 02:56:59,356
We have done already two weeks 
aside for this,

1891
02:56:59,356 --> 02:57:06,689
so if you understood well,
please apply the same as we have done

1892
02:57:07,676 --> 02:57:10,308
in the first two exercises.

1893
02:58:29,625 --> 02:58:33,968
Ok, most of you correct,
what is the...

1894
02:58:35,529 --> 02:58:41,378
The right answer is C.
Ok, why?

1895
02:58:42,214 --> 02:58:47,924
if the company purchases office supplies
costing 4000, debit all these supplies,

1896
02:58:47,924 --> 02:58:50,340
so what is the balance of these accounts?

1897
02:58:50,340 --> 02:58:56,931
The unadjusted balance is office supplies
or simply supplies, debit $4000,

1898
02:58:56,931 --> 02:59:01,897
that is the unadjusted balance
but at the end of the accounting period

1899
02:59:01,897 --> 02:59:06,435
the physical count revealed 1600.

1900
02:59:06,435 --> 02:59:10,356
So that is what we have 
in the supplies account.

1901
02:59:10,356 --> 02:59:13,754
The rest were consumed, 
what's due,

1902
02:59:13,754 --> 02:59:17,428
so we need to record a 
debit supplies expense

1903
02:59:17,428 --> 02:59:20,591
by the difference, 2400,

1904
02:59:20,591 --> 02:59:24,378
that is the difference between 
4000 and 1600.

1905
02:59:24,378 --> 02:59:28,593
And we credit office supplies so we 
reduced the balance of office supplies

1906
02:59:28,593 --> 02:59:36,935
by 2400 and now what is the balance
after adjustment? 1600, ok?

1907
02:59:37,328 --> 02:59:41,979
This is the normal way that you will see
always what happened

1908
02:59:41,979 --> 02:59:45,247
with the supplies account, 
but there is another way

1909
02:59:45,247 --> 02:59:48,502
that I will explain, 
I will explain it now.

1910
02:59:50,089 --> 02:59:57,430
What about if this company purchased 
office supplies that cost 4000 dollars,

1911
02:59:57,430 --> 03:00:04,926
but debit the supplies expense,
the office supplies expense.

1912
03:00:04,926 --> 03:00:07,475
So we debit, ok?

1913
03:00:07,475 --> 03:00:10,205
And that is the journal entry 
that they record

1914
03:00:10,205 --> 03:00:13,083
because they thought that they would
consume all of this

1915
03:00:13,083 --> 03:00:15,333
in this accounting period.

1916
03:00:15,333 --> 03:00:20,801
So they debit supplies 4000.

1917
03:00:25,061 --> 03:00:29,750
They debit supplies 4000,
and then credit.

1918
03:00:30,296 --> 03:00:39,334
If they paid cash, 4000.
That is the original entry, ok?

1919
03:00:40,527 --> 03:00:43,580
Supplies expense.

1920
03:00:46,568 --> 03:00:52,172
So they debit an expense account.
Why do they do this?

1921
03:00:52,172 --> 03:00:58,204
Because they think that they will consume
all of these supplies in the month.

1922
03:00:59,223 --> 03:01:07,845
But at the end of the month they realize
that they still have 1600 on hand.

1923
03:01:07,845 --> 03:01:13,954
What will be the adjusting entry
in this case?

1924
03:01:16,882 --> 03:01:19,152
Think a bit.

1925
03:01:20,580 --> 03:01:23,855
And think what would be the 
adjusting entry in this case

1926
03:01:23,855 --> 03:01:28,839
because we need to adjust this,
the expense was not 4000.

1927
03:01:29,075 --> 03:01:32,902
It was less than 4000 because we 
still have 1600.

1928
03:01:32,902 --> 03:01:35,145
We need to adjust that.

1929
03:01:35,145 --> 03:01:41,211
What will be the adjusting entry
in this case if we record everything?

1930
03:01:41,211 --> 03:01:46,588
Debit office supplies,
and credit supplies expenses, very good.

1931
03:01:47,297 --> 03:01:51,684
For what amount? 
For 1600.

1932
03:01:51,684 --> 03:01:59,512
So we will debit office supplies 1600

1933
03:02:01,945 --> 03:02:06,517
so now we have this, ok?

1934
03:02:09,357 --> 03:02:14,735
1600 debit, now we have the balance,
and we need to credit the expense

1935
03:02:14,735 --> 03:02:17,247
because the expense was not 4000.

1936
03:02:17,247 --> 03:02:25,513
The expense was the difference,
so we will credit the expense by 1600.

1937
03:02:25,513 --> 03:02:30,719
This is a different way to look at
the supplies expenses account.

1938
03:02:30,719 --> 03:02:37,142
It is possible, it's not frequent but it 
is possible that this is what may happen.

1939
03:02:47,185 --> 03:02:51,700
A full reversal if it is...
if it is given.

1940
03:02:51,864 --> 03:02:57,459
It's not a reversal actually,
it depends on how the data is presented.

1941
03:02:57,459 --> 03:03:01,348
For example if the data is presented
as I did in this exercise

1942
03:03:01,348 --> 03:03:06,873
or all the previous ones,
you only need to adjust as we have done

1943
03:03:06,873 --> 03:03:12,315
but if the data is presented in this way
that all the expenses,

1944
03:03:12,315 --> 03:03:17,064
all the supplies purchased are recorded
as an expense,

1945
03:03:17,064 --> 03:03:22,855
then the other adjustment
should be reversed.

1946
03:03:22,855 --> 03:03:27,853
What will give you the clue is 
how we record the purchase of this.

1947
03:03:27,853 --> 03:03:33,274
We record as supplies, 
or we record as supplies expense.

1948
03:03:33,274 --> 03:03:35,317
That will make the difference.

1949
03:03:38,507 --> 03:03:44,830
Ok, it's good to clarify this,
because I have seen an exercise

1950
03:03:44,830 --> 03:03:48,820
in which they use the other way.

1951
03:03:49,651 --> 03:03:59,030
We have two possibilities and 
I will put this in here.

1952
03:04:03,135 --> 03:04:14,175
First, all purchases are
recorded as supplies.

1953
03:04:16,784 --> 03:04:22,345
Ok, all purchases are 
recorded as supplies.

1954
03:04:23,563 --> 03:04:25,697
Now this you want....

1955
03:04:30,948 --> 03:04:33,662
All purchases are recorded as supplies.

1956
03:04:33,689 --> 03:04:38,353
What we should do when all purchases
are recorded as supplies,

1957
03:04:38,353 --> 03:04:42,972
we do what you have learnt in 
the two previous exercises

1958
03:04:42,972 --> 03:04:45,152
in the lecture and in this...

1959
03:04:45,152 --> 03:04:50,932
in this multiple choice question.

1960
03:04:50,932 --> 03:04:56,773
We adjust the ending balance 
of supplies, ok?

1961
03:04:58,016 --> 03:05:06,427
But what about all purchases are 
recorded as expenses?

1962
03:05:11,670 --> 03:05:15,104
That is the other situation,
all purchases are recorded as supplies

1963
03:05:15,104 --> 03:05:19,068
first situation we have worked with that, 
the second situation,

1964
03:05:19,068 --> 03:05:25,998
all purchases are recorded as expenses
and we purchased $4000 of supplies

1965
03:05:25,998 --> 03:05:32,293
and because we think that we will use 
all of them in this accounting period

1966
03:05:32,293 --> 03:05:38,570
we record the 4000 as supplies expense
when we purchase them.

1967
03:05:38,858 --> 03:05:46,057
At the end of the month we have 
1600 on hand,

1968
03:05:46,057 --> 03:05:51,228
so we didn't spend all of them.
We still have supplies

1969
03:05:51,228 --> 03:05:54,913
and we need to prepare an adjusting 
entry to reflect this.

1970
03:05:55,768 --> 03:06:03,930
So how we will reflect in this case, we 
will record in this case a debit supplies

1971
03:06:06,972 --> 03:06:12,926
1600, ok?
We record 1600 supplies

1972
03:06:14,315 --> 03:06:23,479
and we credit supplies expense,
1600.

1973
03:06:27,845 --> 03:06:32,837
That will be the adjusting entry.
What do we do with this adjusting entry?

1974
03:06:32,837 --> 03:06:36,384
We put in supplies which is 
an asset account,

1975
03:06:36,384 --> 03:06:42,071
we put the amount that we have on hand
at the end of the period, 1600.

1976
03:06:42,071 --> 03:06:48,732
And we reduce the supplies 
expense by 1600

1977
03:06:48,732 --> 03:06:52,102
because we didn't consume
all of them, ok?

1978
03:06:52,102 --> 03:06:57,001
This is the situation when purchases 
are recorded as expenses.

1979
03:06:57,424 --> 03:07:00,479
It's another situation, 
it's not the most common situation

1980
03:07:00,479 --> 03:07:05,748
but it's good that you know that 
adjustment is to reflect

1981
03:07:05,748 --> 03:07:10,191
what we have at the 
end of the period, ok?

1982
03:07:11,180 --> 03:07:13,653
It's clear now?

1983
03:07:18,783 --> 03:07:20,855
What are the questions?

1984
03:07:23,677 --> 03:07:29,099
Ok, Tablynn,
Tablynn please clarify the point.

1985
03:07:31,953 --> 03:07:38,133
We go to the next one, number 3.

1986
03:07:41,308 --> 03:07:45,218
I will update the poll, 
thank you Tablynn.

1987
03:07:49,468 --> 03:07:56,250
Ok, this company purchased a computer
for 3000 on 1st December.

1988
03:07:56,250 --> 03:08:00,881
It is estimated the annual depreciation
of the computer is $600,

1989
03:08:00,881 --> 03:08:02,911
the annual depreciation.

1990
03:08:02,911 --> 03:08:07,207
A financial statement had to be prepared
on 31st December.

1991
03:08:07,207 --> 03:08:09,905
The company should make
the following adjustment.

1992
03:08:09,905 --> 03:08:14,742
So it's not very difficult,
what is the adjusting entry in this case?

1993
03:08:15,010 --> 03:08:19,080
Have a look at the alternatives
and choose one of them.

1994
03:09:37,830 --> 03:09:42,252
Ok, are you ready?

1995
03:09:43,630 --> 03:09:49,342
We have most of you answered correctly
but we have a distribution

1996
03:09:49,342 --> 03:09:52,191
in the answer as well.

1997
03:09:52,517 --> 03:09:58,892
The correct answer is B.

1998
03:10:02,060 --> 03:10:05,641
What is the, I would not say tricky,

1999
03:10:05,641 --> 03:10:09,121
but what is the thing that you
need to be careful of

2000
03:10:09,121 --> 03:10:10,839
with the data provided?

2001
03:10:10,839 --> 03:10:18,957
It is important and this is a good 
practice for you for the final exam

2002
03:10:18,957 --> 03:10:22,804
because in the final exam you will have
multiple choice questions

2003
03:10:22,804 --> 03:10:24,676
and you will have exercises.

2004
03:10:24,676 --> 03:10:27,674
And the multiple choice questions
what is essential?

2005
03:10:27,674 --> 03:10:35,197
In the multiple question it is to read
carefully everything in the question

2006
03:10:35,197 --> 03:10:40,249
before you choose one of the answers
because here I can see

2007
03:10:40,249 --> 03:10:44,968
why there are some errors.

2008
03:10:44,968 --> 03:10:50,108
It says this is the amount 
of the computer, $3000.

2009
03:10:50,108 --> 03:10:58,612
It is estimated annual depreciation
is $600, annual depreciation.

2010
03:10:58,949 --> 03:11:02,513
Financial statements are to be prepared
on 31st December.

2011
03:11:02,513 --> 03:11:06,776
What is the period of time for
this accounting period?

2012
03:11:06,776 --> 03:11:12,100
It's from the 1st of December 
to the 31st of December,

2013
03:11:12,100 --> 03:11:14,798
that's one month.

2014
03:11:14,798 --> 03:11:21,657
So were talking about an accounting
period of one month, exactly Joshua.

2015
03:11:21,657 --> 03:11:27,468
One month, and here we have the 
depreciation of a whole year,

2016
03:11:27,468 --> 03:11:30,536
so to calculate the depreciation 
for one month

2017
03:11:30,536 --> 03:11:32,917
you need to divide this by 12.

2018
03:11:32,917 --> 03:11:36,036
If you divide by 12 it's 50

2019
03:11:36,036 --> 03:11:45,626
so that immediately leaves out A and E
and also the answer,

2020
03:11:45,984 --> 03:11:49,429
so we're not only between B and C, ok?

2021
03:11:49,429 --> 03:11:53,927
Now to record the depreciation expense
debit always,

2022
03:11:53,927 --> 03:11:57,399
always debit depreciation expense
always it's a debit,

2023
03:11:57,399 --> 03:11:59,901
and credit the accumulated depreciation.

2024
03:11:59,901 --> 03:12:03,634
That's why this is the right answer, ok?

2025
03:12:04,033 --> 03:12:08,870
So this is a good opportunity I can use
to explain to you how to avoid

2026
03:12:08,870 --> 03:12:13,751
some common errors when you do this
in an exam,

2027
03:12:13,751 --> 03:12:16,664
and only, maybe you know the answer,

2028
03:12:16,664 --> 03:12:21,233
but because you didn't read 
very carefully the data

2029
03:12:21,233 --> 03:12:22,926
then you can make a mistake.

2030
03:12:22,926 --> 03:12:29,180
So be careful with these types of things
when you answer these questions.

2031
03:12:29,739 --> 03:12:34,591
Ok, now the last multiple choice question,

2032
03:12:38,785 --> 03:12:41,587
is this one, 
I will update the poll.

2033
03:12:55,523 --> 03:13:00,475
An entity failed to adjust the revenue
received in advance account

2034
03:13:00,475 --> 03:13:02,927
for rent that has been earned.

2035
03:13:02,927 --> 03:13:07,592
What effect will this have 
on the financial statements?

2036
03:13:14,239 --> 03:13:15,595
(COUGHS)

2037
03:14:33,660 --> 03:14:39,396
Ok, most of you again are correct,

2038
03:14:40,438 --> 03:14:43,173
but there are different answers as well.

2039
03:14:43,252 --> 03:14:50,668
But the right answer is E, 
ok? That is the right answer.

2040
03:14:50,668 --> 03:14:54,914
I will explain how to solve this 
type of questions,

2041
03:14:54,914 --> 03:15:00,066
because there are many similar questions,
but the question is,

2042
03:15:00,396 --> 03:15:02,901
what is the effect on the 
financial statement

2043
03:15:02,901 --> 03:15:07,521
if an adjustment entry is not prepared?

2044
03:15:07,521 --> 03:15:10,012
Ok, so how we answer 
this type of question?

2045
03:15:10,012 --> 03:15:14,359
The best way is to go step by step.

2046
03:15:14,605 --> 03:15:20,361
It says the entity failed to adjust 
revenue received in advance account

2047
03:15:20,361 --> 03:15:22,965
for rent that has bee earned.

2048
03:15:23,358 --> 03:15:26,979
So what happens when we have 
a revenue received in advance?

2049
03:15:26,979 --> 03:15:29,957
Yes, it is a liability.

2050
03:15:30,573 --> 03:15:34,182
Revenue received in advance is 
a liability account,

2051
03:15:34,182 --> 03:15:41,037
and what happens when we earn the rent
and we do not adjust this liability?

2052
03:15:41,037 --> 03:15:45,273
The adjustment means a decrease
of the liability.

2053
03:15:45,273 --> 03:15:49,325
If we do not decrease the liability,
revenue received in advance,

2054
03:15:50,875 --> 03:15:54,320
these liabilities will be overstated.

2055
03:15:54,477 --> 03:15:59,112
How many of the answers,
and that is the way that you can see

2056
03:15:59,112 --> 03:16:02,600
when you are answering this type 
of question in an exam,

2057
03:16:02,600 --> 03:16:08,893
how many of the answers have that,
that the liabilities will be overstated?

2058
03:16:08,893 --> 03:16:12,567
Well, we have D and E only, 
only two,

2059
03:16:12,759 --> 03:16:15,507
so you can discard already three.

2060
03:16:15,691 --> 03:16:19,013
So you are going step by step
answering the question,

2061
03:16:19,013 --> 03:16:26,212
and even you don't know the second part
but now your choice is only between two

2062
03:16:26,538 --> 03:16:29,776
so a better probability 
to have the correct answer.

2063
03:16:29,858 --> 03:16:34,337
These are just some tricks that you 
can apply when you answer

2064
03:16:34,337 --> 03:16:37,505
these types of questions, ok?

2065
03:16:37,505 --> 03:16:41,679
So first, liabilities will be overstated
and what else?

2066
03:16:42,017 --> 03:16:43,995
The difference is in revenue.

2067
03:16:43,995 --> 03:16:47,149
What happens in revenue 
if we do not record this?

2068
03:16:47,707 --> 03:16:53,509
If we do not record this it means 
we do not record revenue already earned,

2069
03:16:54,254 --> 03:17:01,860
so the revenue account will be understated
because we miss to record this revenue.

2070
03:17:02,596 --> 03:17:05,629
So this will be the second part,
understated,

2071
03:17:05,763 --> 03:17:09,804
and that's why the right answer is E.

2072
03:17:12,001 --> 03:17:14,902
Any questions? Any conceptual questions?

2073
03:17:14,902 --> 03:17:20,214
Because with these four questions 
we finished up the conceptual part.

2074
03:17:20,337 --> 03:17:26,221
Excellent Jade, we finished all the 
conceptual part about adjusting entries

2075
03:17:26,476 --> 03:17:31,130
but now we will apply them again
in a couple of exercises.

2076
03:17:33,696 --> 03:17:41,906
So we go through the first exercise
which is this.

2077
03:17:43,739 --> 03:17:50,255
This company began operations 
1st February 2019

2078
03:17:50,255 --> 03:17:52,778
and the trial balance is at 30th June.

2079
03:17:52,778 --> 03:17:57,959
So how many months is 
this accounting period?

2080
03:17:57,959 --> 03:18:03,826
The accounting period is five months, 
very good.

2081
03:18:03,826 --> 03:18:08,692
We need to keep that in mind,
five months is the accounting period

2082
03:18:08,692 --> 03:18:13,846
to calculate the revenues, expenses
or anything that we will need.

2083
03:18:13,846 --> 03:18:16,529
What we have here is the 
trial balance again,

2084
03:18:16,529 --> 03:18:18,991
the unadjusted trial balance.

2085
03:18:18,991 --> 03:18:24,686
We have all the debit accounts,
all the credit accounts.

2086
03:18:24,686 --> 03:18:28,588
They are not all the accounts because
there are other accounts here,

2087
03:18:28,588 --> 03:18:34,281
you can see other accounts that have 
zero balance at this moment

2088
03:18:34,281 --> 03:18:38,349
but they are accounts of the company
that we will use.

2089
03:18:38,349 --> 03:18:44,310
And then we have the transactions,
not transactions, sorry.

2090
03:18:45,059 --> 03:18:49,662
Not transactions, 
the data for the adjustments.

2091
03:18:51,466 --> 03:18:55,641
The first again we have supplies,
so these are similar,

2092
03:18:55,641 --> 03:18:56,970
so I will go a bit quick,

2093
03:18:56,970 --> 03:19:02,454
but please stop me if there's anything
that you don't follow well.

2094
03:19:02,454 --> 03:19:06,106
So supplies on hand, 490,

2095
03:19:06,106 --> 03:19:10,930
how much we have in the 
unadjusted trial balance?

2096
03:19:10,930 --> 03:19:18,795
supplies, 2350, so 2350 less 490

2097
03:19:19,416 --> 03:19:24,266
that will be 1860.

2098
03:19:27,558 --> 03:19:34,234
Less 490 that will be 1860,

2099
03:19:34,234 --> 03:19:37,004
so we record supplies expense 
and supplies.

2100
03:19:37,004 --> 03:19:41,431
We'll record expense for the 
supplies consumed

2101
03:19:41,431 --> 03:19:45,492
and we decrease the balance 
of the supplies accounts.

2102
03:19:47,854 --> 03:19:52,633
Ok, second, electricity bill 110 
has not been recorded,

2103
03:19:52,633 --> 03:19:55,285
and will not be paid until next month.

2104
03:19:55,285 --> 03:19:59,623
Quite similar to what we have done,
we need to record the expense,

2105
03:19:59,623 --> 03:20:03,192
electricity expense debit 110,

2106
03:20:03,192 --> 03:20:08,131
and electricity payable credit 110.

2107
03:20:08,399 --> 03:20:15,357
So here you have electricity expense 110,
electricity payable 110.

2108
03:20:19,394 --> 03:20:24,175
The insurance policy is for the year
commencing 1st February 2019.

2109
03:20:24,175 --> 03:20:27,577
This is the day that the company started
for the year,

2110
03:20:27,577 --> 03:20:30,873
so we need to see here how much is...

2111
03:20:30,873 --> 03:20:36,378
prepaid insurance in total for 
a year is 2520,

2112
03:20:36,378 --> 03:20:43,117
so if we divide this by 12
and we have five months in this period

2113
03:20:43,117 --> 03:20:49,985
we will need to multiply by 5,
so dividing this by 12, multiplied by five

2114
03:20:49,985 --> 03:20:55,885
the insurance expense will be 1050

2115
03:20:56,969 --> 03:21:03,596
so we have insurance expense debit 1050

2116
03:21:03,596 --> 03:21:06,948
credit prepaid insurance will decrease
the amount that we have

2117
03:21:06,948 --> 03:21:11,644
in prepaid insurance, 1050.

2118
03:21:15,421 --> 03:21:19,679
Services were performed during the period
in relation to 800 of revenue

2119
03:21:19,835 --> 03:21:22,206
received in advance.

2120
03:21:22,206 --> 03:21:26,852
So we have a revenue received in advance
and we need to decrease that 800

2121
03:21:26,852 --> 03:21:29,515
to record the service revenue.

2122
03:21:29,515 --> 03:21:33,454
We will debit revenue received 
in advance by 800,

2123
03:21:33,454 --> 03:21:38,026
we will credit service revenue
by the same amount.

2124
03:21:40,740 --> 03:21:45,302
So we debit the service revenue 
received in advance, 800

2125
03:21:45,302 --> 03:21:48,757
and we credit service revenue.

2126
03:21:52,823 --> 03:21:54,413
Next one.

2127
03:21:56,283 --> 03:21:59,875
Ok, yes. 
Yeah, that's good.

2128
03:22:00,230 --> 03:22:03,128
Services were perfomed during the period

2129
03:22:03,128 --> 03:22:06,369
in relation to 800 of revenue 
received in advance

2130
03:22:06,369 --> 03:22:08,045
What does that mean?

2131
03:22:08,591 --> 03:22:13,486
That means that previously 
we have received cash

2132
03:22:13,486 --> 03:22:20,333
for services that we have not provided, 
we received in advance,

2133
03:22:20,333 --> 03:22:23,355
so we record this as a liability.

2134
03:22:23,355 --> 03:22:28,200
The liability, the name of the account
is service revenue received in advance

2135
03:22:28,200 --> 03:22:33,466
and we can confirm this
in the trial balance.

2136
03:22:35,394 --> 03:22:40,511
The liability here you can see
service revenue received in advance.

2137
03:22:40,511 --> 03:22:47,501
We have received cash for 1500
for services we have not provided, ok?

2138
03:22:47,501 --> 03:22:53,632
Now in this data it says services were 
performed during the period

2139
03:22:53,632 --> 03:23:01,222
for 800 of this 1500 that we received cash
we provide service for 800,

2140
03:23:01,222 --> 03:23:05,918
so we will have this revenue credit
and we need to decrease

2141
03:23:05,918 --> 03:23:11,152
the liability that we have
by the same amount, by 800.

2142
03:23:11,282 --> 03:23:19,459
Ok, so the journal entry will be service 
revenue received in advance we credit

2143
03:23:19,459 --> 03:23:22,810
so we decrease that 1500 that we have

2144
03:23:22,810 --> 03:23:27,115
we decrease for the services
already performed.

2145
03:23:27,471 --> 03:23:30,663
And we record the service revenue credit.

2146
03:23:32,173 --> 03:23:34,846
Now it's better George?

2147
03:23:42,605 --> 03:23:45,335
Shouldn't we be deducting?

2148
03:23:45,335 --> 03:23:47,930
(INAUDIBLE)

2149
03:23:49,855 --> 03:23:58,227
Actually we are deducting 800 
from the 1500 we have with this

2150
03:23:58,393 --> 03:24:04,168
in the debit entry because we debit.

2151
03:24:05,096 --> 03:24:09,418
We are reducing the balance of service
revenue received in advance

2152
03:24:09,418 --> 03:24:13,004
that has a credit balance of 1500.

2153
03:24:14,291 --> 03:24:21,815
We debit 800 because we performed
services for 800,

2154
03:24:21,815 --> 03:24:24,284
so we deduct that.

2155
03:24:24,284 --> 03:24:30,762
With the debit entry we are reducing
an account that has a credit balance.

2156
03:24:34,388 --> 03:24:36,921
Excellent, very good.

2157
03:24:38,042 --> 03:24:39,740
You're welcome.

2158
03:24:39,740 --> 03:24:45,805
Ok, so the next one, salaries.

2159
03:24:46,794 --> 03:24:50,433
Salaries of 770 are owed 
at 30th June,

2160
03:24:50,433 --> 03:24:52,180
we have done something similar.

2161
03:24:52,180 --> 03:24:57,898
So what are the accounts to record 
the expense, salaries expense 770

2162
03:24:57,898 --> 03:25:00,457
and because we have not paid 
these salaries,

2163
03:25:00,457 --> 03:25:05,502
they will be liability 
salaries payable, 770.

2164
03:25:07,657 --> 03:25:12,377
Here you have salaries 
expense 770 debit,

2165
03:25:12,377 --> 03:25:16,697
salaries payable liability 770.

2166
03:25:19,889 --> 03:25:25,846
The next one, office equipment has
a five year life with no resale value

2167
03:25:25,846 --> 03:25:31,431
and is being depreciated at $375 
per month for 60 months.

2168
03:25:32,143 --> 03:25:36,419
Ok, this is the amount per month,
depreciation expense per month.

2169
03:25:36,419 --> 03:25:40,041
But how many months do we have?
Five months.

2170
03:25:40,041 --> 03:25:45,949
So we need to multiply 375 by five,
that is 1875

2171
03:25:45,949 --> 03:25:52,151
so we record depreciation expense
here is the adjusting entry,

2172
03:25:52,151 --> 03:25:58,102
depreciation expense 1875 debit

2173
03:25:58,102 --> 03:26:05,121
and we credit the accumulated 
depreciation office equipment 1875.

2174
03:26:08,336 --> 03:26:10,381
And the last.

2175
03:26:10,837 --> 03:26:15,950
Invoices representing 1500
of services performed during the month

2176
03:26:15,950 --> 03:26:18,020
have not been recorded.

2177
03:26:18,020 --> 03:26:25,800
So we provide services, we send 
the invoice but we have not recorded

2178
03:26:25,800 --> 03:26:30,589
so we need to record, simply record
that we have not received cash

2179
03:26:30,589 --> 03:26:36,363
so we record a debit to 
accounts receivable

2180
03:26:36,363 --> 03:26:40,217
and a credit to service revenue.

2181
03:26:43,733 --> 03:26:48,247
And here you have 1500
debit account receivable,

2182
03:26:48,247 --> 03:26:50,689
credit service revenue.

2183
03:26:52,603 --> 03:26:59,516
So we went a bit more faster through
the adjusting entry

2184
03:26:59,516 --> 03:27:02,416
because you have seen they're 
very similar,

2185
03:27:02,416 --> 03:27:09,372
so if you become accustomed with this
you will do well in any adjusting entries

2186
03:27:09,557 --> 03:27:12,282
that you may face in any exercise.

2187
03:27:12,282 --> 03:27:17,460
They're similar once you become accustomed
to how to record adjusting entries,

2188
03:27:17,460 --> 03:27:22,267
it will be easier for you to do this.

2189
03:27:25,599 --> 03:27:32,170
Invoices...
sorry, what was the question reading?

2190
03:27:32,348 --> 03:27:35,731
Invoices we did combine them.

2191
03:27:37,311 --> 03:27:42,187
You mean in the last transaction 
the number seven?

2192
03:27:42,755 --> 03:27:50,201
The number seven when it says
invoices representing 1500 of services,

2193
03:27:50,201 --> 03:27:55,505
yes, it could be one, it could be two,
it could be more than one,

2194
03:27:55,505 --> 03:27:58,006
but here we put all together

2195
03:27:58,006 --> 03:28:01,726
because all of them are 
for the same period

2196
03:28:01,726 --> 03:28:07,714
so we can add them and in total 
it's 1500.

2197
03:28:07,954 --> 03:28:13,060
We do not record invoice by invoice
unless they're from different dates

2198
03:28:13,060 --> 03:28:16,051
and we're preparing

2199
03:28:17,173 --> 03:28:21,080
each day by day as we did last week,
that is day by day,

2200
03:28:21,080 --> 03:28:25,772
in that case we need to record each time
but we're preparing adjusting entries.

2201
03:28:25,772 --> 03:28:29,330
Adjusting entries is for the whole month

2202
03:28:29,330 --> 03:28:33,424
so we need to include all the invoices
of the month, ok?

2203
03:28:33,424 --> 03:28:36,702
Because the one point in time
that we're doing this

2204
03:28:36,702 --> 03:28:39,649
is the last day of the 
accounting period

2205
03:28:39,649 --> 03:28:42,773
so we add all the invoices for the month.

2206
03:28:47,051 --> 03:28:52,769
Just because we have only one
service revenue account,

2207
03:28:53,163 --> 03:28:58,331
we have one service revenue account
and therefore we add them.

2208
03:28:59,333 --> 03:29:06,605
If you remember the ledger last week,
we have one service revenue account

2209
03:29:06,605 --> 03:29:08,245
or sales revenue account.

2210
03:29:08,245 --> 03:29:11,814
Now if we have two different accounts
for example

2211
03:29:11,814 --> 03:29:16,141
we have invoices for services 
that we provided

2212
03:29:16,141 --> 03:29:21,453
and we have invoices for products 
that we delivered

2213
03:29:21,453 --> 03:29:27,698
and we have one service account
and we have one sales revenue account,

2214
03:29:27,698 --> 03:29:30,713
two different accounts,
one for services one for products,

2215
03:29:30,713 --> 03:29:37,464
in that case we need to add 
all the services invoices

2216
03:29:37,464 --> 03:29:40,219
and to put them in the service
revenue account

2217
03:29:40,219 --> 03:29:44,015
and all the sales of products
and we put them in the other account

2218
03:29:44,015 --> 03:29:46,477
in that case we need to 
keep them separated.

2219
03:29:46,477 --> 03:29:49,267
But if it is only one account 
that we are using

2220
03:29:49,267 --> 03:29:52,236
this is the adjusting entry,
we add all of them.

2221
03:29:55,513 --> 03:30:01,851
Ok, accounts receivable debit 
and services performed credit

2222
03:30:01,851 --> 03:30:04,708
for the seventh transaction.

2223
03:30:06,411 --> 03:30:07,762
Ok, well yes.

2224
03:30:07,762 --> 03:30:12,312
The seventh transaction we have 
a number of invoices

2225
03:30:12,312 --> 03:30:14,661
but the total is 1500.

2226
03:30:14,661 --> 03:30:16,151
Services performed.

2227
03:30:18,013 --> 03:30:21,228
Invoices for services performed 
means service revenue,

2228
03:30:21,228 --> 03:30:25,929
we've earned this revenue because
we provided the services

2229
03:30:26,275 --> 03:30:31,747
so we have a credit in the account 
of service revenue, 1500.

2230
03:30:31,747 --> 03:30:35,371
But we have not received the cash
for this.

2231
03:30:35,371 --> 03:30:39,521
It doesn't say here that we 
buy services for cash

2232
03:30:39,521 --> 03:30:42,230
so therefore it is an account receivable.

2233
03:30:42,494 --> 03:30:46,371
We need to debit the 
accounts receivable

2234
03:30:50,522 --> 03:31:00,832
Ok, so once we have this,
all the adjusting entries recorded

2235
03:31:01,915 --> 03:31:05,775
we can go to our worksheet

2236
03:31:06,026 --> 03:31:09,275
and here in the worksheet, 
the same as we have done,

2237
03:31:09,275 --> 03:31:11,651
we have the unadjusted trial balance.

2238
03:31:11,651 --> 03:31:19,615
We copy all the adjtustments here and
we prepare the adjusted trial balance.

2239
03:31:20,393 --> 03:31:23,312
Ok, I will not repeat this part
because it's very simple.

2240
03:31:23,312 --> 03:31:29,302
You know for example if you
have account receivable

2241
03:31:29,302 --> 03:31:35,943
this is the unadjusted trial balance 
3150, ok, in here.

2242
03:31:37,327 --> 03:31:41,108
Debit and in the adjustment 
you have another debit.

2243
03:31:41,108 --> 03:31:45,557
You need to add the two of them
to have the adjusted trial balance.

2244
03:31:45,999 --> 03:31:49,872
If you have the prepaid insurance debit
and the adjustment is a credit,

2245
03:31:49,872 --> 03:31:54,715
you need to subtract this and 
to calculate the adjusted trial balance.

2246
03:31:55,230 --> 03:31:59,604
So it's exactly the same as 
we have done before.

2247
03:31:59,604 --> 03:32:05,205
The important thing, all of them,
the unadjusted trial balance,

2248
03:32:05,205 --> 03:32:07,892
total debit equals total credit.

2249
03:32:07,892 --> 03:32:11,904
The adjustment, this is the sum
of all the adjusting entries,

2250
03:32:11,904 --> 03:32:14,647
total debit again equals total credit.

2251
03:32:15,283 --> 03:32:21,001
The adjusted trial balance again,
total debit again equals total credit.

2252
03:32:22,175 --> 03:32:27,131
So always in the trial balance,
total debit equals total credit.

2253
03:32:27,339 --> 03:32:32,222
The same as any journal entry.
Total debit equals total credit.

2254
03:32:37,105 --> 03:32:41,871
So from that worksheet we can prepare 
what is the adjusted trial balance

2255
03:32:41,871 --> 03:32:44,847
at 30th June after all the adjustments

2256
03:32:44,847 --> 03:32:47,547
and here you have the adjustment
trial balance.

2257
03:32:47,547 --> 03:32:51,585
It's just a copy of what we have 
in the worksheet.

2258
03:32:55,581 --> 03:33:02,565
The last problem for today is this one.

2259
03:33:03,552 --> 03:33:08,001
Here we will start with 
the adjusted trial balance.

2260
03:33:08,611 --> 03:33:11,785
If you remember the previous problem,
we had started the problem

2261
03:33:11,785 --> 03:33:18,173
with the unadjusted trial balance
and we prepared all the adjustments

2262
03:33:18,173 --> 03:33:21,401
and at the end we end with 
the adjusted trial balance.

2263
03:33:21,401 --> 03:33:26,065
In this problem we will start
with the adjusted trial balance.

2264
03:33:26,065 --> 03:33:31,494
So here you have the trial balance
after all adjustments.

2265
03:33:31,494 --> 03:33:36,156
All adjustments we have 
the trial balance.

2266
03:33:37,945 --> 03:33:42,507
In this exercise which is a different 
exercise of course from the previous one

2267
03:33:43,688 --> 03:33:47,316
you can see trial balance have 
the same structure.

2268
03:33:47,716 --> 03:33:53,219
We have first all the asset accounts,
cash, accounts receivable,

2269
03:33:53,219 --> 03:33:58,058
office supplies, equipment,
accumulated depreciation equipment

2270
03:33:58,058 --> 03:34:01,855
which is an asset account 
but is credit balance, ok?

2271
03:34:01,855 --> 03:34:06,794
Then we have the liabilities, 
accounts payable, salaries payable,

2272
03:34:06,794 --> 03:34:09,966
interest payable, 
rent revenue received in advance

2273
03:34:09,966 --> 03:34:14,568
bank loans, all of these are 
liabilities accounts.

2274
03:34:15,749 --> 03:34:19,569
Then we have check capital 
and retained earnings.

2275
03:34:19,569 --> 03:34:22,262
These are equity accounts.

2276
03:34:23,103 --> 03:34:27,411
Here we have one temporary account, 
part of equity dividends.

2277
03:34:29,060 --> 03:34:30,847
Why is dividends on the debit side?

2278
03:34:30,847 --> 03:34:33,493
Because dividends decrease
retained earning, ok?

2279
03:34:33,667 --> 03:34:36,770
But this is a temporary account
that we need to close

2280
03:34:36,770 --> 03:34:39,617
to retained earnings account,

2281
03:34:39,855 --> 03:34:42,677
and then we have the income 
statements account.

2282
03:34:42,677 --> 03:34:48,263
Revenues, we have two revenues accounts,
sales revenue and rent revenue,

2283
03:34:48,263 --> 03:34:51,707
and we have all of these 
expenses accounts.

2284
03:34:53,339 --> 03:34:57,464
And the total of course should be equal.
Total debit equals total credit.

2285
03:34:57,464 --> 03:35:04,713
So the question or the exercise,
start with the adjusted trial balance.

2286
03:35:10,197 --> 03:35:13,058
What is required in this question?

2287
03:35:13,058 --> 03:35:19,940
Prepare the closing entries and prepare
a post closing entries trial balance,

2288
03:35:20,604 --> 03:35:21,773
just that.

2289
03:35:21,967 --> 03:35:26,361
Prepare closing entries and prepare
post closing entries trial balance

2290
03:35:26,361 --> 03:35:30,215
starting with the adjusted trial balance.

2291
03:35:31,177 --> 03:35:34,036
So we will return to the 
adjusted trial balance.

2292
03:35:35,246 --> 03:35:38,002
How will we prepare the closing entries?

2293
03:35:38,497 --> 03:35:40,498
We will start with the expenses.

2294
03:35:40,864 --> 03:35:43,589
Here you have all the expense accounts.

2295
03:35:43,838 --> 03:35:49,949
How do we close these expenses?
All the expenses accounts?

2296
03:35:50,775 --> 03:35:54,794
Well, the balance of these accounts 
is debit,

2297
03:35:54,794 --> 03:35:58,160
so to close them, 
to leave them with zero balance

2298
03:35:58,160 --> 03:36:03,006
we need to credit for the same amount.

2299
03:36:03,006 --> 03:36:06,265
That is the part that I mentioned before,
don't make a mistake.

2300
03:36:06,347 --> 03:36:10,180
To close these we need to credit,
not to debit.

2301
03:36:10,180 --> 03:36:15,579
If you debit you will double the balance
of these accounts.

2302
03:36:16,147 --> 03:36:19,619
So we need to credit by the same amounts.

2303
03:36:19,619 --> 03:36:24,448
It's very simple, the journal entry.

2304
03:36:24,448 --> 03:36:28,828
The income summary debit 
and expenses credit, exactly George.

2305
03:36:28,828 --> 03:36:30,888
That is the point.

2306
03:36:31,075 --> 03:36:38,788
So the journal entry will be 
credit salaries expense 11340,

2307
03:36:38,788 --> 03:36:44,268
credit rent expense 6000,
credit depreciation expense,

2308
03:36:44,268 --> 03:36:47,191
equipment 1750.

2309
03:36:47,191 --> 03:36:52,506
Credit supplies expense 900,
credit electricity expense 750.

2310
03:36:52,506 --> 03:36:54,723
Credit interest expense 500.

2311
03:36:54,723 --> 03:37:00,057
So you can see, you have to go one by one
closing each of these accounts

2312
03:37:00,057 --> 03:37:05,102
with a credit entry of the same amount
that we have in the balance.

2313
03:37:05,982 --> 03:37:10,993
Then you add all of these and you will 
record a debit entry

2314
03:37:10,993 --> 03:37:14,006
in the income summary account
for the sum of all of that.

2315
03:37:14,006 --> 03:37:18,275
In this case if you add this it's 20990

2316
03:37:18,275 --> 03:37:26,303
so you record your first closing entry
which is this one.

2317
03:37:26,303 --> 03:37:31,231
Profit and loss summary or 
income summary accounts, 20990,

2318
03:37:31,231 --> 03:37:35,593
and the credit in all the
expense accounts, ok?

2319
03:37:35,750 --> 03:37:39,062
Salaries expense, rent expense, 
depreciation expense.

2320
03:37:39,062 --> 03:37:44,660
After this, the balance of all of this 
expense accounts will be zero, ok?

2321
03:37:45,002 --> 03:37:50,456
Because we have the same amount
debits and credits so the balance is zero.

2322
03:37:51,934 --> 03:37:57,562
Then we close the revenues accounts
and we have two.

2323
03:37:57,938 --> 03:38:03,393
So we have sales revenue, 
and we have rent revenue.

2324
03:38:03,393 --> 03:38:08,917
Credit balance, so to close this,
we need to debit for the same amount.

2325
03:38:08,917 --> 03:38:12,681
We need to debit sales revenue,
18600.

2326
03:38:12,681 --> 03:38:17,608
We need to debit rent revenue 12000,
one by one again.

2327
03:38:17,608 --> 03:38:20,582
And then we will credit the income
summary account

2328
03:38:20,582 --> 03:38:21,790
for the total.

2329
03:38:21,790 --> 03:38:26,851
How much is the total?
30600, the sum of these two,

2330
03:38:26,851 --> 03:38:32,556
and we have the second closing entry
which is this.

2331
03:38:34,249 --> 03:38:39,567
Here we have debit, the sales revenue,
the rent revenue, now the balance is zero

2332
03:38:39,567 --> 03:38:45,164
and we credit the profit and loss summary
or income summary account,

2333
03:38:45,164 --> 03:38:48,167
you can put the name profit
and loss summary

2334
03:38:48,167 --> 03:38:50,881
or income summary accounts, 
correct.

2335
03:38:50,881 --> 03:38:53,996
You credit by that amount.

2336
03:38:55,703 --> 03:38:59,876
So we closed all the expenses
and revenue accounts.

2337
03:38:59,876 --> 03:39:02,619
But we have opened this 
temporary account

2338
03:39:02,619 --> 03:39:05,663
that is the profit and loss 
summary account.

2339
03:39:05,663 --> 03:39:11,218
We need to close that because 
it's also a temporary account.

2340
03:39:11,218 --> 03:39:16,027
What is the balance of this account
after all of these closing entries?

2341
03:39:16,537 --> 03:39:21,932
The balance is the difference between 
30600 credit

2342
03:39:22,307 --> 03:39:25,760
and 20990 debit,

2343
03:39:25,760 --> 03:39:28,999
so the difference will be a credit
because this is higher,

2344
03:39:28,999 --> 03:39:39,057
will be a credit of 9610.
That is the next closing entry.

2345
03:39:40,039 --> 03:39:43,687
Because it will be a credit balance
we need to debit this account

2346
03:39:43,861 --> 03:39:46,571
by 9610.

2347
03:39:47,163 --> 03:39:50,236
Now this account is zero, ok?

2348
03:39:50,369 --> 03:39:53,088
The profit and loss summary account,
the balance is zero,

2349
03:39:53,088 --> 03:39:56,420
we've closed that with this debit entry?

2350
03:39:56,420 --> 03:39:57,820
What is the credit entry?

2351
03:39:57,820 --> 03:40:01,473
Retained earnings account 
which is a permanent account.

2352
03:40:05,830 --> 03:40:08,548
So we close all the 
income statement accounts

2353
03:40:08,548 --> 03:40:12,031
and the profit and loss summary accounts
and we only need to close now

2354
03:40:12,531 --> 03:40:20,358
one additional account that we have
in the adjusted trial balance.

2355
03:40:20,688 --> 03:40:22,130
Yes Josh?

2356
03:40:22,394 --> 03:40:27,962
JOSHUA: Could you explain the second last,
the (INAUDIBLE)

2357
03:40:29,567 --> 03:40:33,853
HERMAN: Sorry, I couldn't hear very well,
can you repeat please?

2358
03:40:33,853 --> 03:40:37,020
JOSHUA: Yeah, could you explain
the second last transaction

2359
03:40:37,020 --> 03:40:39,531
which was about the retained earnings?

2360
03:40:39,531 --> 03:40:42,623
The income summary to retained earnings.

2361
03:40:42,623 --> 03:40:44,219
HERMAN: Yes, sure, sure.

2362
03:40:46,749 --> 03:40:54,794
Here you have the...
How many closing entries do we have?

2363
03:40:55,943 --> 03:41:01,295
The first closing entry we close 
all the expenses as I said here.

2364
03:41:01,711 --> 03:41:06,083
All the expenses are closed
to profit and loss summary account.

2365
03:41:06,083 --> 03:41:09,302
The second entry we close the revenues.

2366
03:41:09,302 --> 03:41:14,086
So all the revenues are closed 
to profit and loss summary account.

2367
03:41:14,300 --> 03:41:20,157
Now we need to close the profit 
and loss summary account.

2368
03:41:20,157 --> 03:41:24,911
How much is the balance of 
profit and loss summary accounts

2369
03:41:24,911 --> 03:41:28,416
after the first two closing entries?

2370
03:41:29,880 --> 03:41:36,155
In the first closing entry we have 
a debit of 20990.

2371
03:41:37,185 --> 03:41:42,206
In the second closing entry 
we have a credit of 30600.

2372
03:41:42,594 --> 03:41:44,575
It's the same account, ok?

2373
03:41:44,575 --> 03:41:50,250
So we have a credit of 30600,
we have a debit of 20900,

2374
03:41:50,250 --> 03:41:52,316
what is the balance?

2375
03:41:52,316 --> 03:41:56,873
The balance will be a credit
because this is higher, ok?

2376
03:41:56,873 --> 03:41:59,794
We have more credit than debit.

2377
03:42:00,160 --> 03:42:04,408
We subtract this from the credit
that we have,

2378
03:42:04,408 --> 03:42:09,731
and the difference will be a credit
of 9610.

2379
03:42:10,889 --> 03:42:14,573
That is after the second closing entry.

2380
03:42:14,870 --> 03:42:20,382
We have a debit balance 
in this temporary account 9610.

2381
03:42:20,382 --> 03:42:23,627
Now we want to close that.
How do we close it?

2382
03:42:23,627 --> 03:42:27,323
Because we have a debit balance,
we need to credit,

2383
03:42:27,323 --> 03:42:32,657
so we credit by that amount 9610

2384
03:42:32,657 --> 03:42:38,011
and with that the balance of the profit 
and loss summary account is zero now.

2385
03:42:38,233 --> 03:42:43,432
But in this third closing entry, 
the other entry is retained earnings.

2386
03:42:44,067 --> 03:42:49,894
So in retained earnings, we credit 
retained earnings by this amount.

2387
03:42:50,707 --> 03:42:54,551
You can see that this is the way
that you transfer the profits

2388
03:42:54,551 --> 03:43:00,510
to retained earnings because the profit
is revenues less expenses.

2389
03:43:00,510 --> 03:43:04,191
That difference is included 
in the profit and loss summary account.

2390
03:43:04,191 --> 03:43:06,692
We've closed the revenue, 
we've closed expenses

2391
03:43:06,692 --> 03:43:11,893
to profit and loss summary account
so we have a profit of 9610

2392
03:43:11,893 --> 03:43:15,254
and we close that to retained earnings.

2393
03:43:19,627 --> 03:43:23,835
And we have one more account.

2394
03:43:24,705 --> 03:43:28,114
That is dividends.
Here you can see dividends.

2395
03:43:28,114 --> 03:43:31,754
They will balance 600.

2396
03:43:31,754 --> 03:43:35,716
Dividends we know is a temporary account
that decrease retained earnings,

2397
03:43:35,716 --> 03:43:39,610
dividends are paid from retained earnings.

2398
03:43:39,610 --> 03:43:42,617
We need to close this.
How do we close this?

2399
03:43:42,617 --> 03:43:45,660
We close to retained earnings account.

2400
03:43:45,820 --> 03:43:50,767
So to close this which has a debit balance
we need to credit this account

2401
03:43:50,767 --> 03:43:54,147
and we will debit retained earnings.

2402
03:43:54,147 --> 03:43:56,883
You can see we've done a
debit to retained earnings,

2403
03:43:56,883 --> 03:43:59,608
decreased retained earnings.

2404
03:43:59,608 --> 03:44:04,389
So that last closing entry

2405
03:44:06,507 --> 03:44:10,678
in which we debit the 
retained earnings account.

2406
03:44:10,678 --> 03:44:14,835
600 and we credit dividends by 600.

2407
03:44:15,117 --> 03:44:19,192
What is the balance of dividends after
this closing entry? Zero

2408
03:44:20,114 --> 03:44:24,994
And retained earnings are decreased 
by this amount.

2409
03:44:25,546 --> 03:44:33,359
If you think about what we've learnt
in the first or the second module,

2410
03:44:34,982 --> 03:44:37,592
how the retained earnings account changed

2411
03:44:37,592 --> 03:44:41,488
from the beginning of the period
until the end of the period,

2412
03:44:41,841 --> 03:44:45,515
well we start with the beginning balance
of the retained earnings.

2413
03:44:46,595 --> 03:44:50,777
We add the profits, we subtract 
the dividends

2414
03:44:51,374 --> 03:44:54,512
and then we have the ending balance 
of retained earnings.

2415
03:44:54,512 --> 03:44:59,216
Now you can see how we do this
through journal entries,

2416
03:44:59,216 --> 03:45:02,149
actually closing entries.

2417
03:45:02,149 --> 03:45:05,483
It is exactly the same thing.

2418
03:45:06,445 --> 03:45:10,465
So now we have the closing entries.

2419
03:45:12,214 --> 03:45:17,370
We can prepare the post
closing entries trial balance.

2420
03:45:19,271 --> 03:45:23,597
To prepare the post closing entries
trial balance is very simple

2421
03:45:23,597 --> 03:45:27,169
and I will show you exactly 
how to do this

2422
03:45:27,169 --> 03:45:29,572
from the adjusted trial balance.

2423
03:45:29,572 --> 03:45:33,040
This is the adjusted trial balance,
we start with this.

2424
03:45:33,040 --> 03:45:36,124
What do we have in the 
adjusted trial balance?

2425
03:45:36,124 --> 03:45:40,405
Asset accounts, liabilities accounts,
equity accounts

2426
03:45:40,405 --> 03:45:44,962
and then we have the revenues, 
expenses and dividends accounts

2427
03:45:44,962 --> 03:45:47,018
that are all temporary.

2428
03:45:47,018 --> 03:45:50,930
The post closing entry trial balance,
the main difference

2429
03:45:50,930 --> 03:45:56,946
with the adjusted trial balance is that
in the post closing entry trial balance

2430
03:45:56,946 --> 03:46:00,488
you only have permanent accounts.

2431
03:46:01,105 --> 03:46:04,580
Is there any change between
the adjusted trial balance

2432
03:46:04,580 --> 03:46:09,345
and the post closing entry trial balance
in the asset accounts? No.

2433
03:46:09,721 --> 03:46:12,334
Because we didn't close any of them.

2434
03:46:12,334 --> 03:46:17,793
In the liabilities accounts? No.
Because we didn't close any of them.

2435
03:46:18,795 --> 03:46:22,678
What about equity?
Well, in share capital no,

2436
03:46:22,678 --> 03:46:25,050
but retained earnings yes.

2437
03:46:25,050 --> 03:46:29,269
That is the only account
that will be different

2438
03:46:29,269 --> 03:46:33,895
in the post closing entry trial balance,
compared with the adjusted trial balance.

2439
03:46:33,895 --> 03:46:36,250
Of course the post closing 
entry trial balance,

2440
03:46:36,250 --> 03:46:41,949
they do not have any income 
statement accounts or dividend accounts.

2441
03:46:42,544 --> 03:46:48,231
We can see easily how we calculate that
going from the retained earnings

2442
03:46:48,231 --> 03:46:51,494
that you have here, ok?

2443
03:46:51,787 --> 03:46:54,515
Look at here, 1500.

2444
03:46:54,515 --> 03:46:58,777
What is that 1500 that we have...

2445
03:47:00,467 --> 03:47:03,959
That we have in the adjusted 
trial balance? Retained earnings.

2446
03:47:04,159 --> 03:47:11,675
This retained earnings balance is the
beginning balance of retained earnings

2447
03:47:11,675 --> 03:47:13,163
not the ending balance.

2448
03:47:13,163 --> 03:47:17,367
This is not the balance at 30th June.

2449
03:47:18,661 --> 03:47:21,904
This is the beginning balance 
of retained earnings.

2450
03:47:21,904 --> 03:47:24,288
Why is it the beginning balance?

2451
03:47:24,288 --> 03:47:29,468
Because in this statement which is 
the adjusted trial balance

2452
03:47:29,468 --> 03:47:33,182
you have all revenues, 
you have all the expenses,

2453
03:47:33,182 --> 03:47:38,608
you have the dividends,
so all the accounts that affect

2454
03:47:38,934 --> 03:47:42,107
the ending balance of retained earnings
are here,

2455
03:47:42,107 --> 03:47:46,389
and because they are here,
this is the beginning balance.

2456
03:47:46,389 --> 03:47:52,326
How we transform this to the ending
balance of retained earnings?

2457
03:47:52,326 --> 03:47:56,833
First we need to add the profit.
What is the profit?

2458
03:47:56,833 --> 03:48:02,487
We calculate the profit through
the profit and loss summary account.

2459
03:48:02,487 --> 03:48:06,634
This is the profit 9610

2460
03:48:06,634 --> 03:48:13,889
so we will need to add 1500 plus 9610

2461
03:48:13,889 --> 03:48:19,573
and we need to deduct the dividends 600.

2462
03:48:19,935 --> 03:48:24,428
That's why in the post closing 
entries trial balance,

2463
03:48:24,428 --> 03:48:28,825
all the accounts are the same 
as the adjusting trial balance

2464
03:48:28,825 --> 03:48:34,932
after adjustment but retained earnings
is 10510.

2465
03:48:35,230 --> 03:48:37,009
How do we calculate this?

2466
03:48:37,009 --> 03:48:39,683
This is the ending balance 
of retained earnings.

2467
03:48:39,683 --> 03:48:41,727
Here you have the explanation.

2468
03:48:41,727 --> 03:48:47,445
Beginning balance 1500 that we have
in the adjusted trial balance

2469
03:48:47,445 --> 03:48:51,768
plus the profit 9610

2470
03:48:51,768 --> 03:48:56,237
which is the result of the profit 
and loss summary account

2471
03:48:56,237 --> 03:48:59,109
less the dividends, 600.

2472
03:48:59,362 --> 03:49:02,298
If you calculate this you get,

2473
03:49:02,298 --> 03:49:07,199
you will get the ending balance 
of retained earnings

2474
03:49:09,456 --> 03:49:12,195
And this will be the total.

2475
03:49:12,195 --> 03:49:15,391
Total debit, total credit,
that should be the same

2476
03:49:17,670 --> 03:49:20,236
Any question?

2477
03:49:24,822 --> 03:49:27,957
All good? 
Excellent.

2478
03:49:28,876 --> 03:49:30,985
Excellent, we've finished.

2479
03:49:30,985 --> 03:49:35,246
At least we finished earlier 
than last week.

2480
03:49:35,246 --> 03:49:41,836
Last week was a marathon that we did

2481
03:49:41,836 --> 03:49:45,742
but today we finished earlier 
than last week.

2482
03:49:45,742 --> 03:49:50,127
But if you have any last questions
of course I will be happy to answer you.

2483
03:49:50,918 --> 03:49:54,954
Anything that you would like 
to ask or discuss?

2484
03:49:56,174 --> 03:50:00,052
Yeah last week was a lot,
yes.

2485
03:50:01,964 --> 03:50:04,621
Okay, thank you very much.

2486
03:50:04,815 --> 03:50:08,700
Have a great evening and a great week.

2487
03:50:09,079 --> 03:50:11,266
Ok, see you next week.

2488
03:50:11,266 --> 03:50:16,740
Bye, thank you all of you.
Thank you.