LECTURER: Ok, hello everyone.

Welcome again to the Accounting
and Governance class.

Could anyone please tell me
if the volume is ok?

Perfect. Ok, thank you.
Thank you.

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

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

that is in the process of marking

by another lecturer, 
that is the person who will mark

all our assessment.

So just be a bit patient,
during this week

we will release the results of the 
first assessable homework.

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

Last week what you learnt was
how to record transactions

using debits and credits 
and preparing the journal entries

and you know that for
each journal entry

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

it could be more than two,

but normally we have one debit
and one credit

and of course the total debit 
and total credit should be the same,

the same amount in each journal entry.

So what we will go through
today is

another type of entries
which is adjusting entries.

I hope you have studied the 
material that is posted

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

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

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

how to deal with these
different types of entries

that are the adjusting entries.

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

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

which is another type of entry.

The journal entries that you
learnt last week

are entries that you prepare 
from transactions

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

the accountant receives information
that is mainly through the cash received

and cash paid so they are 
very based on the cash.

Cash received and cash paid.

I will answer that Jade

They are mainly related to 
cash received and cash paid

but sometimes the accountant also receives
information of invoices

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

so they record the purchase as well.

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

The first difference with adjusting entries
is in adjusting entries,

we do not involve cash.

Cash is never involved 
in an adjusting entry.

So what are these adjusting entries?

And in this I will answer what Jade asked.

Why adjustments are not done each month
as a normal activity

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

and you are totally correct Jade

But that depends...

it depends on what is 
our accounting period.

It depends on the company.

The normal accounting period 
is one year.

If a company does not prepare 
financial statements every month

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

The adjusting entries are 
at the end of the year.

But what's happening there 
in the real world

companies prepare the financial 
statement

every quarter or even every month

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

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

The concept of adjusting entries is that
we prepare adjusting entries

at the end of the accounting period,
ok?

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

If the accounting period is one month
we prepare adjusting entries

at the end of the month.

If the accounting period is the whole year
we prepare the adjusting entries

at the end of the year, ok?

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

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

What we are adjusting with these entries.

We adjust revenues or income 
and expenses.

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

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

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

That is what we show with 
the adjustment entries.

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

or at the beginning of the month,

it's always at the end of the period 
because at the end of the period

we want to have in our 
financial statement

all the income earned in that period

and all the expenses incurred 
in that period.

So this is the most 
important concept

to start with adjusting entries.

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

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

we need to adjust to have 
all the expenses incurred recorded

and the same for income or revenue.

To align with the business 
activity statement,

the business activity statement 
is a tax concept.

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

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

with the tax concept when we
are talking with accounting

because there may be some differences.

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

in which I will pose
four multiple choice questions.

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

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

of this topic.

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

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

why this answer is correct 
or why it's not correct

for your own learning.

We will discuss that and I will use 
these questions to explain

probably some of the concepts
if they are not clear.

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

and then during the workshop.

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

in the whole thing because 
of the number of questions

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

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

my main purpose is for you
to understand these topics.

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

The second assessable homework 
will be next week

after the topic four, 
module four.

So that assessable homework two 
includes this module,

module three, 
adjusting and closing entries

and also the module four.

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

please ask, ok?

I hope no Jade (INAUDIBLE)

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

Ok, for me it's ok.

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

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

but we will do the best we can.

Ok, so we will start 
with the questions...

Here we have the first question, ok?

Have a look.

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

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

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

and you can vote for your answer

When they are earned?
Take your time.

Pima can't see properly, ok.

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

Maybe that can be...

Ok, good.

Ok, what is the answer?

We have a distribution of answers 
in the poll

so it's good to explain a bit.

That is the feedback I need,
so if there are

a whole distribution
of your answers means, yeah.

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

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

there are many other different answers.

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

That is the question, 
we are using accrual accounting.

In accrual accounting revenue is recorded
when it is earned

not when cash is received,

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

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

The dress manufacturer received
a purchase order for 10 dresses

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

On 15th November the manufacturer
received the order, nothing happened,

so the revenue is not earned, ok?

The 10 dresses were delivered 
on 30th November.

Delivered means that revenue is earned.

When is revenue earned?

When the products are delivered 
to the customer.

They are passed from the company 
to the customer.

At that point, revenue is earned.

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

When the service is provided,
service revenue is earned.

So that is the correct answer, ok?

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

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

the customer is sent an invoice 
on 5th December.

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

after the delivery of the products.

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

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

or when we bank the payment.

So, the correct answer is that.
any questions?

What is the answer Adash?

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

I wrote in the screen, 
the blue circle.

It doesn't save.

30th November, that is the correct answer.

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

Can you see that?

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

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

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

Probably just zoom each, 
probably.

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

Ok, we go to the next one.

If a resource has been consumed 
but an invoice has not been received

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

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

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

Yes, I will reset the board.

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

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

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

The correct answer is B.

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

Why is this? 
Because the resource has been consumed.

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

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

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

to recognize the expense.

Any question on this?

Is it clear?

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

Number three,

if an entity fails to adjust
the prepaid rent account

for rent that has expired,

what effect will this have on the 
monthly financial statement?

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

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

I will update the poll.

The previous answer was B.

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

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

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

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

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

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

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

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

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

to change that number
so I just update the answers

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

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

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

If an entity fails to adjust 
a prepaid rent account

that means we have a 
prepaid rent account

we pay in advance the rent 
of the office,

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

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

How do we record that?

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

and we credit cash.

So we debit prepayment,
we credit cash.

That was the original entry.

Now at the end of this period,
it says that the rent has expired

so we used the office for this period
so that is what we need to adjust.

We need to credit the prepaid rent
for the amount of the rent that expired

we need to credit prepaid rent
and we need to debit the expense.

What happens if we do not do this?

I will write in the same paper 
what this means,

so we will...

when we do the adjustment 
we will increase, ok, the expenses,

we increase expenses, 
that is one of the entries,

we debit rent expense
and we will decrease the prepaid rent,

the prepayment, ok?

I will just put prepayment, 
pre.

This is the prepaid rent 
which is an asset.

What effect will this have 
on the monthly financial statement

if we do not record this?

If we do not do this, 
what is the effect?

What happened with the expenses?

Expenses will be understated 
because we didn't record this.

What happens we will have in assets,
assets will be overstated.

So to find the right answer here
you need to look at all the answers.

What answers we had that assets 
are overstated? Only D and E.

In C, well...
Sorry, C, D and E.

In A it doesn't say anything 
about assets

B, nothing about assets,

so only C, D and E assets 
will be overstated.

That is one thing because of this,
because we didn't decrease the prepayment

which is an asset.

Assets will be all overstated.

How will we know which one is correct?
C, D or E?

We need to look at those expenses
will be understated,

but we don't have this,
C, D and E talk about profits.

Then you need to relate profit 
with expenses.

If expenses are understated,
what happens with profits?

Profit will be overstated, ok?
Profit will be overstated.

That's why E will be incorrect answer.

Is that clear that, very well?
Profit increases?

So we need to relate this, 
you can see now we are using

all the elements that you had
planned before, ok?

Profit equals revenues plus expenses.

These expenses are understated, 
profit is overstated.

Any question?
Ok.

Yes, (INAUDIBLE)
I need to add one more thing.

Profit will be overstated and that is 
the answer for question D and E.

What is the difference between D and E?

Equity in D will be understated,
in E equity will be overstated.

So now we need to relate 
the profit with equity.

So when profit is overstated,
equity is overstated.

If profit is understated, 
Equity is understated.

So what is correct?

Asset overstated, profit and equity 
would be overstated.

Ok, that answer your question Jade?
Good.

Ok, so we will go through the last one.

Here you have the last one

On 1st September Carlson Limited borrowed 
$10,000 from the bank for three months

at the annual interest rate of 9%.
Annual interest rate 9%.

Principal and interest are payable 
to the bank on 1st December,

so this is for three months long.

If the company prepares monthly 
financial statements

the adjusting entry that the company 
should make for interest on 30th September

that means after one month would be
which of these ones?

I will reupdate the poll.

Ok. So how we determine this,

we need to look at what is the interest
for one month

because the expense incurred in this case
the interest expense,

is the interest that...

that is the interest for only one month.

We are preparing the adjusting entry 
at 30th of September.

The loan started on 1st September
so it's the interest for one month.

This will clarify the answer for if you
calculate the interest for the year.

The annual interest rate is 9%,
for one month it will be 9% divided by 12

that is the interest per month,
and then you multiply by $10000

to calculate what is the interest 
per month which is $75.

So at the end of September 
we need to record,

debit interest expense $75,
and credit interest payable

because it will not be paid until
1st December.

So we debit interest expense $75
we credit interest payable, $75,

the correct answer is D, ok?

Ok at that?

When we have a loan 
we need to pay interest.

What is that interest?
It's an expense.

It's the expense incurred because 
we borrowed money.

And we can calculate based on 
the interest rate.

The interest rate is always given 
and always is given per annum

so what is the annual interest rate?

In this case it is 9%, 
you can see here.

9% is the interest rate,
but this is the interest rate

for 12 months, ok?

So to calculate, very well Joshua,
to calculate per month

we need to multiply the 9% by 112,
or simply divide it by 12, ok?

And then you will have what is 
the interest per month

because between the 1st of September
and 30th September

we need to prepare the adjusting entries,
it's one month.

so the interest expense will be 
the interest for only one month, ok?

So very good.
Good Adash and that is $75.

Ok, so we've finished 
the multiple choice questions,

do you have any questions about concept
because now we will apply the concept

in exercises about adjusting entries,

so any question about concepts that 
you would like to ask at this point?

All good?
Ok.

So, we will go...
Excellent Ruby, thank you.

Yes, yeah, we will go through 
the practice questions now.

And I will start briefly with a very...

a very brief review of what
you have learnt

about adjusting entries.

It is only three months,
just another.

It's only three months long because 
it starts on 1st September

and is payable on 1st December.

The interest and the principal both.

So you pay back the $10000 on 1st December
with all the interest of the three months.

Ok, now we will talk a bit about
adjusting entries.

I will explain using this diagram 
that you have in your PowerPoint

and you have seen in your videos,
I will not go into whole detail of course

but just with this...
this is the big summary.

The big summary of adjusting entries.

We have two types 
of adjusting entries

or I would say four types
if we combine revenues and expenses.

But we have the accruals 
and we have the prepayments, ok?

They are two different adjusting entries.
What means accrual?

Accrual if we're talking about revenue 
means receivable, ok?

Accrued revenue it will be the same as 
to say revenue receivable.

Accrued expenses when you see this term,
accrued expenses,

that means expenses payable, ok?

So accruals means receivable or payable

depending on whether it's revenues 
or expenses.

And then we have the prepayments.

Prepayments means payments in advance, 
ok?

We can receive a payment in advance
and that is what we call

unearned revenue or revenue received 
in advance, ok?

That is the payment received 
in advance,

Or we can pay in advance and that is 
what we call prepayments.

So these adjustments, 
and these are all the adjustments,

there are no other adjustments for 
timing differences.

There are adjustments to correct errors,
we will not go there,

we are talking about the timing difference

that means to record revenues 
when they are earned,

expenses when they are incurred.

All the purpose of adjusting entries 
is that,

to record the revenues 
in the accounting period

that are earned in that accounting period
and to record expenses that are incurred

in that accounting period.

From the normal transactions that
you learnt last week,

we may have many cases in which revenue 
was not recorded,

expenses was not recognized as well, 
and we need to adjust them

because the main purpose 
of the financial statements

in particular the income statement
is to show the revenues

earned in that period,
in the period of the income statement

and to show the expenses incurred 
in the same period.

So that is the purpose 
of adjusting entries,

to reflect revenues earned and expenses 
incurred in the accounting period.

So this is the big summary.
Now how do we deal with this?

Well, in the case of prepayments

in the case of prepayments

we have different accounts that can
be considered as a prepayment.

One is the prepaid expenses like

prepaid insurance, prepaid rent,

but there are others that we can give 
the same treatment of this prepayment

which is supplies or depreciations.

That means the payments that 
the company makes in advance

and therefore they are considered 
as prepayments.

So what are the terms involved 
in this prepaid expenses?

Well, we have an asset that has an 
unadjusted balance.

For example, we have prepaid insurance.
That is an account of asset.

And we do not adjust this because we pay 
for that at the beginning of the t,

ok, 1st of January for example,
and then on the 30th June we are halfway

of the total period provided 
by the policy.

The policy normally, 
the insurance policy covers 12 months.

So we are using the policy 
during 12 months.

But what's happening in June?

Well, we do not have the same amount 
in assets because we already consumed

half of the policy, six months,
so half of the policy has been consumed.

Then we need to adjust the amount
in assets.

Here you had the unadJusted balance 
of the asset,

that is the total amount of the policy,
we need to adjust that.

How do we adjust that?
We need to record an expense.

An expense for the six months use 
of the policy.

So we will record debit expense,
that is the adjusting entry,

we debit the expense, 
and we decrease the asset

that means we credit 
the prepaid insurance.

So you can see here,
this is your adjusting entry.

We have a debit entry, 
we have a credit entry.

We debit insurance expense, 
we credit prepaid insurance.

So this is one case.

And the same we will use for prepaid rent,

for supplies, for depreciation, ok?

Jade did the question.

Oh good, excellent Jade.
That's my purpose,

just to explain in detail what it means, 
this thing.

Is there anybody that might have 
a question on this?

We will go through the four
that are adjusting entries.

This is related to the prepaid expenses.

Ok, we go through the second one.

The second one is what we call
the un-earned revenues.

So revenues received in advance,
what is the concept?

Imagine that the company 
has a building,

and they are renting offices

from this building so they have a 
number of clients that rent offices.

And they ask the tenants
to pay in advance

before they start using the building,

they have to pay for example 
three months in advance.

So the company received the cash 
for this,

but the tenant still is not using 
the office,

so how will we record this first entry?

This is the entry that you learnt 
last week,

this is a normal transaction.

The company receives cash 
so we will debit cash, ok?

And we will have this 
unearned revenue

or rent revenue received in advance

which is a liability for that amount.

Why is this a liability?

Because at this point the company 
has not provided yet

the office for the tenant to use, ok?

The tenant has not used the office yet,
they pay in advance.

So we have a liability because we have 
an obligation to provide the office,

the tenant already paid.

Now, what happens after one month

if we are doing financial statements 
every month.

We need to prepare an adjusting entry
because we already provided this service

to the tenant,
we already provided the office,

the tenant used this resource 
already one month,

so we need to adjust 
our liability accounts.

So the liability account has 
an adjusted balance, ok?

When the tenant pays in advance,
and now after one month

we need to reduce this for the month
the office was already used.

So we will debit this liability
that is part of the adjusting entry,

and we will credit revenue because now
we earn this revenue,

that is the rent revenue.

We earn that because 
we already provided one month

the renting of the office to the tenant.

So here you have again, 
the adjusting entry.

We have one debit entry,

the rent revenue received in advance,

a debit entry, 
and we will have a credit entry

which is simply rent revenue.

Any question on this second one?

We will practice with many
exercises today

for you to have a very, very clear 
understanding of the adjusting entries.

Ok, the last two.

The last two I would say they are simple
adjusting entries.

We have accrued revenues.
As I mentioned before,

accrued revenues means 
revenues receivable.

This is the case when the company
sells products or provides services

but we still do not record that sale

and we have not received the cash yet,

but the service is provided
or the products are delivered

so we need to record revenue.

If we have not recorded this 
in the normal journal entry

that you learnt last week,
we will need to record the revenue.

Sales revenue or service revenue,
so we credit this.

What will be the other accounting ball?
It will be the receivable.

An accounts receivable which is an asset

so here you have debit 
the accounts receivable

credit service revenue 
or sales revenue,

depending on whether we are 
selling produce or providing services.

So that is the third adjusting entry

and the last adjusting entry 
is accrued expenses.

That means expenses payable.

So this is the case when we have 
an expense incurred

but we have not recorded that,
the most typical case is employees

that work during the month.
We have not paid their salaries yet

because we pay the first days 
of the following month,

so we didn't record the expense
but they already worked,

so there is a resource that has 
been consumed

and therefore we need 
to record an expense.

We need to record an expense 
and so we debit salaries expense,

for example, but because we have 
not paid yet in this period,

we need to record a credit in this 
liability which is salaries payable.

So here we have our adjusting entry.

This is in a very brief summary what 
you have learnt about adjusting entries.

Any question at this point?

All good?

So we can now apply these two 
practical exercises

and we will work with many 
adjusting entries,

so you will have the opportunity,
to practice now with this

so I will put that...

Can you see the exercise?
I am not sure about the zoom,

if it is ok or not,
but I hope it's ok.

Ok, excellent, excellent.
Thank you Jade, thank you all of you.

Ok, so we will apply to this exercise
and we will start the exercise

at the point that we left last week.

Do you remember what we did last week?

We prepared the normal journal entries 
that come from transactions

and then we post the journal entries 
into ledger accounts,

and then we prepare a trial balance.

And we call that the unadjusted 
trial balance

because it's a trial balance that 
is prepared before the adjusting entries.

Ok, so we will start with this,
the unadjusted trial balance, ok?

at 30th June.

And as you remember the trial balance
is simply the list of all the accounts,

here you can see cash, account receivable,
prepaid insurance, supplies,

all the accounts of the company, ok?

With the ending balance at 
the end of the period

so you can see the trial balance,
the unadjusted trial balance

is prepared at the end of the period
is the first thing that we do

at the end of the period before preparing
the adjusting entries, ok?

So we prepare the unadjusted trial balance

and we have the ending balance 
for each of these accounts.

The ending balance of cash,
the ending balance of accounts receivable

and service revenue is sitting 
on the fence, yes.

It moves to the fence, 
it should be here.

It should be on the column of credit 
of course,

that is a typing thing.

Service revenue should be 
in the credit side of course,

76,600.

Salaries expense, rent expense,
so you have all of these.

The characteristic of the trial balance is
that total debit should equal total credit

and you can see total debit, 201200
and the same as total credit.

So this is our starting point 
for this exercise.

What means this?

All the normal journal entries
are already recorded,

all of them are posted to 
the general ledger

and we prepare this unadjusted 
trial balance.

What is next?
Well, here you have the exercise.

One thing before we go to the next page
these are not the total,

all the accounts of the company.

There are accounts that they have
zero balance,

and of course they are not in the 
unadjusted trial balance

but here you have them listed.

The accumulated depreciation 
is one account,

office equipment another,
electricity payable, salaries payable,

and so on.

So there are a number of accounts 
that have zero balance,

and therefore they are not in this
unadjusted trial balance,

but they are accounts.

So we will go through the exercise.

Here we have added data.

This added data refers to 
the adjusting entries

that we need to prepare.

They are related to revenues earned

or income earned and expenses incurred

so we need to prepare one adjusting entry
for each of this additional data

and that is what is required,
if you look at the question requirements,

prepare the adjusting entries 
for the month of June

so this is just for one month.

Prepare the adjusted trial balance

that is prepared after
the adjusting entries

and we will calculate the profit 
for the month.

So we will go one by one
to see how to prepare this.

And I will detail all of them 
in this first exercise

and then I will go a bit more quick
in the second exercise,

or in the exercise of the workshop.

So the first, supplies on hand 
at 30th June total 7200.

What this tells you,
supplies on hand total 7200.

Well, if this is the data we have
that means somebody went to the...

To the place that we have the supplies,
they count them,

they value them and at the end 
the conclusion is

we have 7200 supplies on hand.
That means not used.

How much do we have in our 
unadjusted trial balance?

So we need to look at here, 
supplies. 13,300.

But it says that we have only 7200 so 
that means we need to make an adjustment.

We need to reduce this 13,600

and to record an expense,
a supplies expense for the difference.

So 13600 less 7200 that we have,

that means we have consumed

or used 6400 of supplies,

and that is the adjusting entry.

We need to record the expense for this

so we will have a supplies expense of 6400

and we will credit supplies to reduce
the supplies account.

So here you have the first journal entry,
adjusting entry.

Supplies expense debit 6400,
and supplies credit 6400.

When you do this and you credit supplies
by 6400,

if you remember the ledger accounts
when we credit one of the ledger accounts

that is supplies, that will decrease 
the balance of supplies account

which is 13600,
so now the new balance of supplies

is 7200 which is the amount that we 
really have in supplies.

Any question on this?

So this is the first adjusting entry.

Yes Natalia, yes please tell me.

NATALIA: Hello Herman,
yeah I see...

I print out this, I guess many
of us do print out

this worksheet information

of the sample of the questions,
and we have ended one,

and last lecture I was asking you 
to let us print full ones

because it's hard to follow up because 
our worksheet is empty at the moment,

it means we follow up on the computer
but can't do notes straight on our papers.

Yeah, this will be great because...

HERMAN: Yeah, actually I remember that
and at 10 am today,

I uploaded the solution for the lecture 
exercise and the workshop exercise.

I opened that for you and for everybody,

so you can print them and you can be 
with the solutions

and you can follow the solutions
NATALIA: Ok, now yeah...

You do this adjusting notes 
much in advance

but is it, you can give us indication
when you do apply the solution

on a regular basis because our paper 
is usually a couple days before

I print out,
and have this, yeah.

HERMAN: I will do that because I agree
with what you asked me last week.

I agree that it's good that 
you have the solution

to follow the lecture and the workshop
with the solution so you can take notes

in the solution which will be easier.

That' s why I opened today at 10 am and 
I put an announcement on the blackboard

for all of you to know that they are ready
for you to print,

and I think that is what we talked
because the idea

is that you try to do this by yourself
without the solutions,

and that is the main purpose,

that's why I put in the same day 
of the lecture and workshop.

I will release these only for you 
to print out and to take that today,

later in workshop.

NATALIA: Ok, and how many it means
they're empty for purpose,

we have a chance to try,
and field solution is gonna be

in the very last day before lecture,
for future use.

HERMAN: Yes, I will do that in that way
all the time.

So I actually did the two purposes.

One purpose is for you to try 
without solutions,

just with your learning from the videos 
and PowerPoints,

and second, to have the solutions 
before the lecture and workshop

so you can go through them as well.

Ok, good. 
Excellent Natalia, thank you.

Now we can go to the second one.

The second says an electricity bill 
for 1200 has not been recorded

and will not be paid until next month,
so what does this description mean?

If the company receives an electricity 
bill for 1200,

it means that they used, 
they consumed electricity for this amount.

It is already consumed therefore 
it is an expense,

but has not been recorded.

So the only thing, 
this is a simple adjusting entry,

the only thing that we need to do 
is to record the expense,

so we will have electricity expense, 1200,
but because it was not paid this month,

next month will be paid,
so we will credit a liability

which is electricity payable,
and that is what you have here.

So in this adjusting entry 
we will record

debit electricity expense 1200,

credit electricity payable 1200.
Yes Natalia?

Stella, Stella. I need to put you 
as a caption here...

Stella.

Give me a second because I need 
to put the caption here of Stella

but I don't find you in the list,
we have a big list of students.

Near the top, ok?

Ah, there it is. T
Ok, thank you Stella

Ok, yes Jade.
You have a question?

JADE: I do, yes.

I put there instead of electricity payable
I put accounts payable.

would that be okay or is that a problem?

HERMAN: It is ok.

If we are very strict in that

which is not the case because accounts 
payable is reasonable to use this.

When we talk about accounts payable,
It's the accounts payable to suppliers,

so we always link accounts payable
for the amount that we owe to suppliers.

That's why it's better, 
I would not consider it wrong

but it's better to put this explicitly
electricity payable because this is...

These are utilities that the company 
received,

so electricity or water 
or that type of thing.

So I would prefer to put separated 
from accounts payable

just because the concept of accounts 
payable is linked to suppliers of produce.

Ok? But it's not wrong.

Ok, any other question for the second...

for the second adjusting entry?

So we'll go through the third 
adjusting entry.

Insurance policy, here you can see 
one statement that didn't say anything,

and you cannot do anything unless 
you go to the data

that is in the unadjusted trial balance.

The statement says the insurance policy 
is for a year commencing 1st May 2019.

Well, this is all what you need to
prepare the adjusting entries,

because you have the unadjusted 
trial balance.

The only information here is that the 
insurance policy is for one year,

12 months, and starts on 1st May 2019,

so we will see what is the information 
we have in the unadjusted trial balance.

First, this company started 
on 1st May 2019

which is the same day 
of the insurance policy, ok?

Insurance policy is added 1st May 2019.

And the trial balance is at June 30.

What is the prepaid insurance?
9600.

9600, this is for 12 months, 
so how much is per month?

It is 800, so this is equal, ok,

800. 
800 per month.

800 per month.
Sorry for my numbers, I'm not very good.

So 800 is the insurance expense
that how much we use

or consume of this policy per month.
800 per month.

Now how many months between 
1st May until 30th June?

Two months, exactly.
Two months.

So what will be the expense 
that we have to recognize

or to record on the 30th of June?

The expense for two months, 
that means 1600.

That should be a debit 
in insurance expense,

and a credit to prepaid insurance
to reduce this 9600

because we already consumed 1600
of insurance.

So the journal entry, 
the adjusting entry for this will be

debit insurance expense 1600,
credit prepaid insurance 1600.

Ok, any question on this?

Ok, so we can have a look at the...
Thank you Jade.

We can have a look at the next one.
Salaries, sorry, not salaries.

That is the next one.

Number four, services were 
performed during the period

in relation to $3000 
of revenue in advance.

What does this description tell us?

First the description is telling us that 
we received revenue in advance,

that mean we received a payment 
in advance

and now in this period we provide services
for 3000 of that payment.

We need to link this with how much 
we have in revenue received in advance

in the unadjusted trial balance
so we will have a look.

The unadjusted trial balance, state this 
revenue received in advance, 4800.

Debit because we received this amount
and we didn't provide the services

so we have an obligation to provide them
and therefore it is a liability, ok?

Now we provide services for 3000 
of this 4800,

so we need to record a decrease in service
revenue received in advance,

that means we debit 3000 in this account
and we will have the current balance

of all these accounts,

so we debit 3000 in service revenue 
received in advance

and we will have a credit in service

because we earned already this revenue.

We provided the service.
Yes Jade?

JADE: Is this classified as an adjustment
or is it just as a mistransaction?

HERMAN: It's an adjustment because 
the original transaction

that we already recorded, it is here
in the unadjusted trial balance.

What was the original transaction?

When this happens, the service revenue
received in advance I will write here, ok?

We have debit cash because 
we received the payment, ok?

That was in the previous period.

We record cash for 4800.
Sorry for the numbers.

So 4800. We debit cash,
and we credit, ok?

This revenue received in advance,
I will put it just like that.

Revenue received in advance 
we credit 4800.

This is the normal journal entry. 
This is the normal transaction

that we recorded in the last period,
and that's why when you look at this entry

and we post the accounts in the ledger,
this is what we have there, ok?

That is the original transaction.

What happens now is that 
we just provide services.

Of course we didn't receive more money
because already we were paid in advance

but we provide the service 
so we need to decrease this

obligation or liability
for the 3000 already provided.

Well, George, it says because the concept
of revenue received in advance,

the concept of that account 
is that we received cash in advance.

That is what we received in advance,
cash, the payment,

so if you look at the description,

services were performed 
during the period

in relation to.
In relation to what?

To revenue received in advance.

If you look at this description,
revenue received in advance,

what it means is that the company 
received cash in advance

to provide the services.

The customer paid before we provide 
the service to the customer.

Ok, so cash was involved
in the original transaction

and that is the transaction that 
I showed you that I prepared,

so how was it recorded the cash received?

We debit cash and we credit revenue 
received in advance from 4800,

that was the original transaction,
it's not for this period,

that was before the 30th of June
and that's why we have in the balance,

on 30th June we have that amount.

Now in this period the adjusting entry
at the end of the period,

we need to include how much 
we provide of services.

And we provide 3000 of this 4800.

So because we provide services, 
now we can record the service revenue,

it's a credit service revenue,
and we decrease the obligation.

To put the things in context,
here we are in the month of June.

So in June the unadjusted trial balance
is for June.

I will go through the depreciation
but do not change them...

I will go through them,
but here... Ok.

This is the unadjusted...

I am clear now, excellent Ann.

This is the unadjusted trial balance
at 30th June.

Here means that before 30th June
we received the cash.

Now in the adjusting entry it means that
also during this period before 30th June

we provide 3000 of this 4800,
services provided, ok?

Does this answer your question George?

Ok, excellent, good.
So we can go through the next one.

I am here...

The next one is quite simple because 
salaries, 6400 are owed on 30th June.

What does this mean?
Salaries owed means that

the employees worked,
so we already consumed these results.

The work of our employees and therefore
we should record a salaries expense.

But they are owed, 
that means we have not paid them,

and that's why we did not record this as a
transaction like you learned last week.

We need to prepare the adjusting entry,
so we need to record the pays,

salaries expense 6400 debit, 
and a salaries payable

because it's owed at the end of the month
so it will be salaries expense

and salaries payable.

Here you have debit salaries 
expense 6400

credits salaries payable 6400, ok?

That I think is simple.

Then we have the number six.

Office equipment has a five year life
with no resale value,

and is being depreciated at 
$1440 per month for 60 months.

In this description they are telling you
how much is the expense, ok?

But if it is not, if it is only they said
the office equipment has a five year life

with no resale value depreciated using
the straight line method,

you will learn this in another lecture
the depreciation for 60 months.

If we do not have the amounts, you can
just go to the unadjusted trial balance

look at the office equipment account,
86400.

If you divide this by 60,

you will have exactly 1440 per month, ok?

So that is the depreciation expense.

Yes, a couple of work, I will not go in
deep in this topic

because there is a whole topic 
about depreciation.

Yeah, I will go why credit and...

Ok, you let me finish this part 
and I will answer the question

of the previous one.

So we had this depreciation,

what does depreciation mean?

When we purchase an equipment like this, 
office equipment,

and we pay a big amount of money,
in this case how much we paid

for this office equipment,
it was 86400, ok?

Do you think we can put as an expense
86400 in the first month?

Well, of course not because we will use
this equipment during 60 months,

and remember an expense 
is when we use

or consume resources.

This resource that is 86400,

it will be consumed or used 
during 60 months

so we need to calculate how much of this
we use in one month,

or in two months in this case.

In two months because it's from 
1st of May till 30th June.

How much we use of this in two months,
ok? Two months.

So we divide this by 60, 
we multiply by two,

and that will be 2880

because per month is 1440 
when you divide by 60,

you multiply by two because 
it's two months

and now we can record the expense.

The name of this expense
is depreciation expense,

so we record debit depreciation expense.
What is the other account?

Well the other account will be to decrease
this account,

office equipment,

so you can say well, 
we credit office equipment.

That would be the case that we are doing 
in all of these accounts,

but in the case of non-current assets

we use what we call a contra asset account

that means we keep separated 
the decrease of this account

and the name of that account
is accumulated depreciation.

The effect is the same as you reduce
directly office equipment,

you credit office equipment
but in non-current assets like this,

this is a topic that we will explore
in detail,

we use another account and the name is
the accumulated depreciation.

It's an asset account 
but with a credit entry.

So the adjusting entry for this

will be depreciation expense
debit 2880

and we credit accumulated depreciation
office equipment, ok, 2880.

Any question on this?

Ok, the last one.

The last one is number seven,
invoices representing

Ah, Tablynn...

Ah, ok. Before we go to the seven

there is a question about the salaries

who asked me that question 
about the salaries?

Omar who did, in the adjusted trial, ok.

I will try to answer the two questions.

First, Trina has a question, why 
to credit 6400 in the transaction five?

Why to credit? 
Isn't it debit when they pay 6400?

Well, remember Trina that we, in any 
journal entry and also adjusting entry,

we have a debit side and a credit side.

The total debit should be always equal 
to total credit.

So what is the debit and what is 
the credit in the 6400 that you have here

in transaction five?

Salaries of 6400 are owed at that time,
30th June.

So we have an expense, 
and the expense is a debit entry, ok?

The salaries expense it will be debit.

And we have a salaries payable because
they were not paid,

they are owed at 30th June.

So the salaries payable, the liability
will be the credit entry.

So your question is why credit?
Well, we credit the liability account,

that means salaries payable,
but we debit the salaries.

What happens when we pay them in 
the next period?

When we pay the salaries we will
debit the salaries payable,

so we decrease this liability,
and we will credit cash, ok?

That is what happened in 
the following period,

not in this one.
And Tablynn...

Tablynn you asked a question 
about the depreciation?

Yes, depreciation, well,

this is the concept that 
we will have in detail,

there is a whole lecture about 
depreciation

with different methods of depreciation
but for now,

we only need to think in the concept 
of depreciation, the general concept.

When we purchase an equipment
that lasts more than one accounting period

we cannot record as an expense
the cost of the equipment

because we will use the equipment
for a number of periods,

so we need to divide the cost of 
the equipment

into the number of periods.

So we will have just one part of the cost
in each period,

and the easier way is just divide the cost
by the number of periods.

So in this case the total amount
divided by 60 months that we will use

this equipment, office equipment,
means that we will have an expense

of 1440 per month, and we call that,
that expense,

we call that depreciation expense, ok?

That is the name of this account,
depreciation expense.

What does that mean?

It means that that is 
the part of the equipment

that has been used 
or consumed in one period.

And that's why we record that 
as a debit for each month,

but here we have two months, ok?
Because from 1st May until 30th June

which is the time for this exercise,
two months,

it will be two multiplied by 1440,
which is 2880.

So we will record depreciation expense,
debit 2880.

What is the other account?

I mentioned that there is another account
but the name is accumulated depreciation,

so we will record a credit 
in that account.

Ok, I'd asked how much would you deduct
from depreciation expense

in the adjusted...
Excellent Tablynn, thank you.

How much would you deduct in the 
adjusted trial balance?

I will go through that Adash
because we started with

the unadjusted trial balance.

We are doing the adjustments, and then 
I will explain how we will adjust these

to the adjusted trial balance.

How we transform the unadjusted to the 
adjusted trial balance.

Ok, yes Trina.

TRINA: Hello, with the salaries,

we already had 6400, 
it means that expense increased,

that's why expense is debit 6400,
but with the liabilities,

it means that we decrease 
the liabilities, is that right?

HERMAN: Yes when (INAUDIBLE)

TRINA: So if we decrease the... 
(CROSSTALK)

Sorry, if we decrease the liabilities,
it means it debits liabilities,

is that right?

HERMAN: Yes, when we pay that is 
another transaction,

it's not the adjusting entry.

When we pay for the liability,
we will credit the liability

so we decrease the liability,
and we will debit cash.

So we decrease cash because we are paying
for that liability.

But that is another (CROSSTALK)

TRINA: yeah, I'm a bit confused because 
we decrease the liabilities,

but well you put it credit 6400.

HERMAN: Yeah, well, that is the point.
Trina it's good that you asked

because we should not confuse two
different journal entries, ok?

The journal entry that we're talking 
in number five here,

is an adjusting entry.

We have not paid anything 
in this journal entry.

In this transaction, we only recognize
that the employees worked

during the months,
how much we owe them for this work, 6400.

We didn't pay anything.

In the transaction here it doesn't say 
that we paid for that.

We owe this amount at 30th June.
So what do we record?

We record the expense, 
that means debit salaries expense, 6400,

and we record the liability because 
we owe them this amount,

so we credit salaries payable, 6400
and that's all.

That's all the adjusting entries.

Now in another day, next month,
we will pay for that.

In the payment that is another 
journal entry, not this one,

when we pay for that what will we do?

We will debit the liability,
so we decrease the liability.

We will debit 6400, and we will pay,
that means we will credit cash.

When we credit cash we decrease 
the cash account

because we are paying that amount
and that is another journal entry

for the next period.

Does this clarify the point Trina?
Good, excellent.

Ok, we are in the number seven,
the last one.

Invoices representing $8000 of services
performed during the month

have not been recorded as of 30th June,
so what does this mean?

We have provided services because 
it says invoices representing

$8000 of services performed during that,
so we performed this service,

and we provided the services 
for $8000

but they have not been recorded
so we need to record them.

So we need to record 
an accounts receivable

because it doesn't say anything there
that we received the money,

therefore it is an account receivable,
we will debit...

(CLEARS THROAT)
Sorry.

We will debit the account receivable
for $8000,

and we will credit the service revenue

because we earned from that service,

we already provided the service,
so we will credit service revenue.

So what we will have...

I will do that.

What we will have is the 
last adjusting entry.

$8000 account receivable debit,
and credit $8000 service revenue.

So we've completed 
all the adjusting entries.

Before we go to how we prepare the 
adjusted trial balance,

any questions about the adjusting entries?

All good? Ok.

Excellent Jade, very good.
That's my purpose.

How we prepare the adjusted trial balance?

Before we prepare that, 
remember these are journal entries,

so the name is adjusted journal entries,
they are journal entries,

so after you prepare the adjusting entries
what is the next step?

You need to post these entries
to the ledger.

The same as we did last week,
exactly Joshua,

we need to post them to the ledger, 
all of them to adjust the balance

of each of these accounts.

We will not do that, ok?
You already learnt last week

how to post transactions from the journal 
to the ledger,

and it's a very repetitive process 
and it's the same in this case

so we will not go again through that part
we will assume that we already did that,

Ok, we post all of these 
to the ledger accounts,

so the ledger accounts are updated.

But I will show you how to prepare 
the adjusted trial balance,

using the worksheet, ok?

Using a worksheet, it has the advantage
that you can see

what is the unadjusted trial balance, 
you can see the adjustments

and how to prepare the 
adjusted trial balance,

how you can explain the difference 
between the adjusted

and the unadjusted trial balance.

So here you have this worksheet.

In the worksheet what we do 
is you copy here in this part, ok?

You copy the unadjusted trial balance.

Of course, total debit should 
be equal to total credit.

You just copy that and then you go 
through all the adjusting entries

and you put in the adjustment column,
this, I will do just the first two, ok?

Only the first two.

So in the first one, 
what do we have here?

We debit 6400 in the supplies 
expense account

and we credit 6400 
in the supplies account,

so we look at this supplies 
expense account.

This is the supplies expense account,
we debit 6400, so we just copy there

And the we go to the supplies account
this is the supplies account,

you debit this account, ok?

You just copy here in these two columns

what you have done 
in the adjusting entries.

The second, we will do just the first two.
The second, what do we have?

1200 debit in electricity expense account

1200 credit electricity payable account.

So you copy that electricity 
expense account,

1200 debit, you copy there
and then you look for electricity payable.

Electricity payable credit 1200,
and you continue with all of this.

The only thing that you need to be careful
is that sometimes,

one account appears more than one time 
in the adjusting entries.

So if you look at the adjusting entries,
there is one account

that appears two times, 
so service revenue.

You have here service revenue, 
credit 3000,

and then you have here service revenue,
8000.

So the total amount that we will add 
to service revenue is 11000.

That's why here service revenue 
in the credit is 11000,

so its the sum of 3000+8000.

That you need to be careful because 
we need to add the total amounts,

that increase the credit 
of this account.

Ok, so we complete these, 
the adjustments.

We just copy all the adjusting entries, 
debit or credit

in the corresponding accounts.

Well, it's a really (INAUDIBLE)

because very few accounts
you will have more than one entry.

In this case we have only service revenue
but you know the to not make a mistake

and I did that in the next exercise,
is this things.

Do not make a mistake, I will give you 
a clue to not make a mistake.

Instead I've put here the total.

Every time you have an amount there
just put how much,

so you put here the 3000,
I will put in thousands

and then you simply add 8,
so every time you put the number there.

Then you know that it's 11000.

In this way you will not skip anything.

Ok, that is just a way to do
to not make that mistake.

How we prepare now the 
adjusted trial balance.

The adjusted trial balance is the same 
as the unadjusted trial balance

with all the adjustments.

So you can see for the cash accounts, 
there are no adjustments.

Ok, no adjustments, so the adjusted
trial balance is the same

as the unadjusted trial balance.

Accounts receivable, the unadjusted 
is 23 and 40.

The ajustment is debit 8000
so it directly increases the debit

so the adjusted will be the sum
of all of them.

Prepaid insurance we have a debit,
9600.

The adjustment is a credit of 1600,
a credit decreases a debit,

it's the opposite, ok?
So it will be the difference

and there we adjusted this 8000.

The same for supplies, 
we have 13600,

the adjustment is a credit,
therefore the credit decreases debit,

that will be 7200, ok?

And so on.

Office equipment there is no adjustment
accumulated depreciation

of office equipment, 
there is nothing here,

because this is an account that was 
in zero but we have an adjustment

2880, so the adjusted trial balance 
will be a credit 2880.

So you can see to prepare the adjusted 
trial balance is simple.

If we're working with the worksheet,
we just add or subtract the adjustment

depending on whether they are 
on the same side or the opposite side.

If they are on the same side, 
a debit increases a debit,

a credit increases a credit, 
but in the opposite side

a credit will decrease a debit
or a debit will decrease a credit.

Any question?

So once you have this worksheet...
Excellent Joshua,

Once you have the worksheet, 
the adjusted trial balance

you can just copy.
You have the list of...

You have the list of all this, ok?
The list of the accounts,

you have the balance, 
the debit balance or the credit balance

of all of these accounts,
and you can just copy them

to have the adjusted trial balance
so if this is the adjusted trial balance

the list of the accounts, 
what accounts have a debit balance

after the adjustments, 
or credit balance, all of these accounts.

That's the complete exercise and 
the adjusted trial balance.

Any question?

I think maybe we will use again 
the four hours

because we still do not finish 
the lecture,

we have the second exercise 
of the lecture

and then we have the exercise 
of the workshop

so definitely we are using 
the consultation time of the

four hours to complete,
but at this point,

we are already one hour 40 minutes.

It's good for you to have a break
so you can just prepare your coffee.

No Natalia, I will answer that.
You prepare your coffee,

you're soft drink, take a rest,
and we will meet in 10 minutes.

Before I go I will just answer 
the question to Natalia.

Still accountants do this step manually?
No, Natalia, no.

I will talk about this when we come back 
after 10 minutes

because I will talk about the assignment.
That will answer your question.

And Tablynn, can you explain profit thing?

Yes I will do that in the next exercise,
need more exercise,

we will do four Abdul, today.

If we aren't late, pm, 
no problem for me,

but if you have the strength 
to still be there,

we'll be good...

We will...
We will do many exercises today,

but for now take a rest, relax.
I need to grab my coffee as well,

and 10 minutes, so it's 2.40. 
At 2.50 we continue.

I will disconnect the microphone,
2.50 we continue, ok?

Ok, here we are again, more relaxed

and ready for another one
and a half hours.

Before starting with the next exercise

I will just give you some information

about your first assignment.

The assignment that you will have
is a very practical assignment

and this will address one of the questions
about Natalia,

Natalia asked, still accountant do 
these steps manually?

Well, accountants do not do this manually
but of course the need to understand

what the system does because if not,
the possibility of errors

could be very big.

When you enter a journal entry 
you need to understand

what continues after that, 
even the system is doing that

but you need to know how your ledger
is updated,

how the trial balance is prepared,
it's very important to do that.

That's why you learn to do this manually
even though then

the system will do this for you.

OK, but you need to be able to check
whether the system is doing well or not.

In this course you will have 
the opportunity to deal with

one of the most commonly used 
Accounting software,

it's a cloud accounting because 
everything is in the cloud

and not in the computer of 
the organization,

and that is Xero.

Xero is used by many small 
and medium companies.

Not the very big ones because they 
have their own systems,

but many small and medium companies
use Xero.

Accounting Pod is an organization
that facilitates

the learning of this software.

Griffith University has an arrangement
with Accounting Pod

to provide this facilitation, 
for learning Xero,

and we have set up the assignment 
that you will have in this,

using this software.

So next Monday, 3rd August,
the module,

the practice module of Accounting Pod
will be open for you.

And it will be open practically 
the whole month of August,

until the 27th of August,
that will be closed at 5.00 pm.

So what is the idea is that you do this.
You follow step by step

all the processes and you will learn
how to use this software,

so you will do what accountants do
in the practice, ok?

And this assessment, the assignment
we have two parts,

we have the practice module 
that it's called,

that will be open next Monday,

and then after it is closed,
that means the 27th of August.

On the 1st of September we will open 
the second part of this assessment

which is the Xero assessment.

That will be opened on the 
1st of September,

and it will be closed on the 23rd 
of September, 5.00 pm,

so at that point you need to finish 
the second part.

Your marks will be based on what you do 
in this task.

The marks are allocated...

The marks are allocated to the task
that you are doing.

Now, in the question by Jade,
what learning modules

will the practice on Xero cover?

What you need to know is just the basics
of the accounting cycle,

so to understand what is a journal entry,
what are the ledger accounts.

But the training that you will do,
you will see it's very...

Totally different to what we are doing
in the accounting period,

because you will do tasks related 
to a software.

I will explain in a bit of detail 
but next week, on Tuesday of next week,

I will dedicate more time to explain 
to you in more detail

what you have to do because at that point
you will have this already open, ok?

Now it's not there, 
you cannot see this software yet.

There are three modules in each 
assessment task,

the practice and the assessment.

Your marks for the assignment
will be the average of all these,

ok, the practice and the assessment.

You will have a rubric for this
so you will know exactly how

your marks will be allocated.

The system marks you, so it's not that
I will mark this.

For each task completed, 
the system will mark you,

and you will have the marks 
according to the task.

I will give you some guidelines 
next week on that.

But in the first part, the practice set, 
there are three modules, actually four,

but the important models 
are modules two and three.

The module one is just a welcome for you
to have a welcome to the system,

there are no marks allocated there.

Module two is the basics, 
and there are 20 marks allocated there.

There are very simple tasks that will 
tell you how to work in Xero.

One of the tasks is for example to set up
an authentication in door,

so it's not related to accounting at all,
but is related to working with this...

with the system.

My suggestion would be to always 
look at the question that you have

for each task and the possible answer,
and then look at the content.

Try to not answer the question immediately
but go through the content.

You will learn through the content, 
not just answering the questions.

Try not to do what is...
You look at the question, possible answer,

and then you try to find the answer
in the content,

because you will not learn a lot.

The idea is that you learn how 
to use Xero, this system, ok?

And to learn that it's good that you 
go through the content

trying to learn what is this about?

And the next module, 
the module three that is Xero,

in that module you will work in Xero.

So module two is just to prepare,
you will be prepared to work with Xero

but it's not yet the working withing Xero.

Module three yes, 
you will have a number of tasks

following the instructions that 
Accounting Pod will give you

to complete this task 
and provide the answers.

So then the module four is just to wrap up
a couple of questions,

but not really important.

Module two and three are 
the most important.

Now when you finish one module, 
then you will have access to the next one

and so on, 
so you need to go step by step.

In this sense, this is,
even though you need some knowledge

in accounting that you already have,
you don't need more than that

because it's different to learn how to 
work with a software in accounting

than how to do accounting, 
that is what you are doing now.

Then the assessment part is just the 
application of all what you have learned

in the practice part, 
and in a different case scenario.

So that is in general what you will 
from next week,

there is time, 
don't wait till the last two days.

For example, it opens 2nd August, 
it will be closed 27th of August,

do not wait until the 25th of August
for all the task,

because you need time for that.

You need time to reflect on what 
you're learning,

you need time to properly do the task
and go just a little bit

during the time this will be open.

It will not take a long time, ok?
it will not take a very long time,

probably you can do this in three
or four days, if you dedicate full time,

but that is not the best way to learn.

Yes, you will have marks Cecilia
in the practice part

and actually the total marks 
that you will have is the average

weighted average of the practice part 
and the assessment part.

I also considered to give marks
for the practice part

because in the practice part,
it will be easier for you,

but the intention is that you learn
how to use the software

and how to use this software 
is in the practice part.

In the assessment part 
you will apply all of this,

so there are marks allocated 
in the practice part as well, yeah.

So this is just some information that 
I want to give you in advance

and next week with this open,
I will show you the screens

and I can share screens 
for you to do this.

Cecilia, is there any way we can practice 
using the system without getting marks?

Yes, because you don't need to submit

but now you will see 
it's very straightforward,

the system will tell you 
exactly what to do,

so if you do well, you don't need
to do it again,

but try to do well.

Now there is some not in the practice part
but in the assessment part

there is feedback that you can receive
and also you can ask questions.

Now the specific question of the software
please do not ask me that way

but to the system, there is a box
that you will see next week,

that says 'leave us a message'.

You leave all the questions there 
and they will answer you immediately.

If you have a problem with this,
of course you contact me

and I will deal with them, but they 
answer quite quick all your questions.

Ok, now I have another message,

and this is another caption.

Who sent me a message about captioning?
They'll need the captioning.

Cassandra is that you?
Ok, I've added you.

Ok, so now we can continue
with the next exercise.

And we are still in the lecture
so definitely will end a bit late

but I prefer to clarify anything you need
it's important for you.

Ok, so...

I guess we don't need to put this...
Ok.

Here you have the next question.
This is...

I do not know if you can see well 
in your screen

because this uses the whole one
in my screen.

Can you see we're on this table?

Yes, ok, excellent.
Excellent, thank you.

So this exercise starts as well
from the unadjusted trial balance,

the same as this one.

And they open for business 
on 1st of April 2019

and the trial balance is on 30th of June,
so how many months do we have?

This is important because we will need 
this to calculate the adjusting entries,

how many months since we started? 
Three months.

So remember that from 1st of April
until the date,

very good Natalia, three months,

until the date of these financial 
statements, three months,

that is what we will consider.

So what we have here in this,
this is the worksheet.

You can see we add more columns.

What we have at the beginning is the
unadjusted trial balance,

that I am showing you there,
unadjusted trial balance.

Then we put in the adjustments,
all the adjusting entries,

we will do that in this exercise as well,
and from this we prepare what is called

the adjusted trial balance.

But now we will add the last part 
for today which is the closing entries

so you can see we have now 
three types of entries.

Just the general entries, or journal 
entries that come from transactions

that we did last week.

We have the adjusting entries 
that we prepared in the first part,

and we have the closing entries and we
will see what are the closing entries.

After the closing entries we prepare 
another trial balance

which is the post-closing trial balance.

And with this we complete, 
almost complete the accounting cycle.

After this we only need to prepare 
the financial statements.

So we have the list of accounts,
here you have all the list of accounts

that we will use in this and we have the
ending balance of each of these accounts

in the unadjusted trial balance,
that means before adjustment,

these are the balances 
of all of these accounts, ok?

Here we continue with different 
types of accounts,

we will go in detail with all of them.

And of course, 
the unadjusted trial balance

the total debits should be equal 
to total credit.

That's in all the trial balances, 
total debit equals total credit.

So here we have the additional data.

The additional data as you already know
is the data that we need

to prepare the adjusting entries,
so we will go through these six entries,

six additional data to prepare 
the adjusting entries.

We will journalize the adjusting entries
so we will record them,

what is the debit, what is the credit
of each of this adjusting entries.

And then with this adjusting entries,

we will complete the adjusted trial 
balance in the worksheet.

Then from the adjusted trial balance
in the worksheet,

we will prepare the closing entries.

And using the information 
of the closing entries,

we will prepare the post-closing entries
trial balance.

So this is a very complete exercise,

the starting with the unadjusted 
trial balance

until the post-closing entries
trial balance.

So we will start with 
the adjusting entries.

The first one, insurance expires 
at a rate of $900 per month

and is an annual premium commencing
1st April 2019.

So what might this description
be telling us?

It says that three months, so it's already
calculated the total policy divided by 12,

it should be 900 per month,
that is the insurance expense per month

when this started on 1st of April,
at the beginning of this period

and we have already three months
if you remember.

So in three months by $900
is 2700.

We need to record the debit,
the insurance expense clearly,

then prepaid insurance.

So we look at our journal entries,
insurance expense, and prepaid insurance.

Here you have debit 2700 
insurance expense,

credit 2700 prepaid insurance,
and that is the first one, ok?

I will go a bit quicker in this 
but please stop me at any time

and ask me if there is something that
you would like to clarify.

Of course I will explain well but because
we've gone through this already

they are similar.

If it is clear just..
Just (INAUDIBLE).

Ok, sorry.
What was the question?

Here is it prepaid insurance?
Yes it is prepaid insurance.

Ok, ok. So to answer that question we
need to look at from where comes this.

Insurance expires at the rate of $900
per month.

From where does this come?
This comes from a prepaid insurance

so that means the company paid in advance
it's a prepayment,

the insurance for the next 12 months
on 1st April.

1st April the company paid the whole year,
that means 12 months insurance.

What amount?

To know that you need to look 
at the account prepaid insurance,

here you have, ok, 
prepaid insurance debit 10800.

If you divide this by 12 it's 900.

That means every month you need 
to record an insurance expense

because you will consume this policy
in 12 months.

So every month you need to record 
an insurance expense of 900 every month

and we have three months so it will be
the total of 2700 as insurance expense

and we decrease the prepaid insurance,
very good, excellent.

Ok, the second one, 
an inventory of supplies shows 7200

of unused supplies on 30th June.

So we still have 7200 supplies 
in the inventory.

How much do we have in the 
unadjusted trial balance?

Supplies, 11400,
and we have 7200 at the end of June

so we have use the difference.

What is the difference between 11400
and 7200? It's 4200.

So we have a supplies expense debit 4200
and we credit this account supplies

to reduce 4200 from here.

So the journal entry, the adjusting entry,
it will be supplies expense 4200 debit

and we credit supplies 4200.
With this we decrease the supplies account

and now we will have the balance
that we calculate here.

That we count, we count the items, 
we value the items

and what we have 
at the end of June is 7200, ok?

So that is the second adjustment.
The third one.

The depreciation for the year 
ended 30 is 5400 on the building

and 4500 on furniture.

Here you have two items.

The two of them are what we call 
the non-current assets,

so they're assets that last for more than 
one accounting period.

We have buildings and furniture
and this description is telling us

that depreciation expense 
for the year 30th June 2019,

that is the ending...

That is the date of the unadjusted 
trial balance.

The deprecieation expense is 5400 
on the building, 4500 on furniture.

No we need to think in the accounts.

Depreciation expense is one account
so it doesn't matter how many items

we are depreciating

we need to add them and we will have 
the depreciation expense,

the total depreciation expense.

If you add these two amounts, 
5400 and 4500 it will be 9900

so we will have a debit of depreciation 
expense, 9900.

What is the other account?

The other account is accumulated
depreciation

but we have one accumulated depreciation
account for each item

of the non-current asset.

How many items do we have here?
Two.

So we have building,
we have furniture.

So two different accounts, one account 
will be accumulated depreciation,

building, the other account will be
accumulated depreciation furniture

We need to distinguish them 
and to record them separately.

So we will have a depreciation expense
9900, one account,

and then we will have accumulated 
depreciation of building, 5400.

Accumulated depreciation 
of furniture, 4500.

and the journal entry, the adjusting 
entry will be this one.

Here you can see 9900 depreciation
expense, one account.

All the depreciation expense together.

But then we have two different 
accounts,

so accumulated depreciation 
of the building, 5400,

accumulated depreciation
of furniture, 4500.

The sum of course is 9900 so...

it would be okay Jade that if you 
separated depreciation expense

but we need to think that depreciation 
expense is just one account.

It will not cause any problem
because at the end we will have two.

It's like we separate these 
in two adjusting entries.

It is possible, it's ok, 
it's not wrong,

but because we have one 
depreciation expense,

we record them together.

Now this is a journal entry for adjusting 
entries in which you have three entries.

Ok, I mentioned to you that most of 
the you have two entries,

one debit, one credit,
there could be more.

this is the case.

In this case you have one debit
and you have two credits.

The important thing is any journal entry
or adjusting entry,

the total debit should be equal to 
total credits which is the case here.

Ok, next one.

The mortgage interest rate is 6%.

The mortgage was taken out 
on 1st April.

This is the only data that is given in the
additional data for adjusting entries,

so we need to look at the data in the
unadjusted trial balance to calculate this

so here we know 6% is the interest rate.

Always when it's given like this,
it's annual interest rate, ok?

Annual interest rate.
Always this is the annual,

that is the normal period for 
the interest rate of a mortgage.

So we will need to see what is the total
of the mortgage

so we go to our...

And here you have mortgage payable.

This is the unadjusted trial balance,
mortgage payable 210000.

210000.

If you multiply 210000 by 6% 
how much is that?

12600, very well Jade,
12600.

That is the interest for the year, ok?

But we need the interest for three months
so we divide this by 12

and we will have the interest 
per month.

We multiply by 3, ok,

and that is the interest for 
the three months

and for the three months 
we will multiply that by three, Jade,

monthly it will be 3150, ok?

So 3150 is the interest expense 
that we need to record here.

Good Jade.

Ok, so interest expense 3150.

Interest expense for the three months
and we have an interest payable

because we have not paid that.

So interest payable, 3150.
This is the adjusting entry.

Next one.

9000 of rent revenue paid in advance
pertains to June.

The remainder pertains to July,
so what does this mean?

The tenant paid in advance

for the rent until July,

but until June the tenant already used 
$9000 of this payment

because they used the office 
or the rent.

George, the previous one, 
sorry, you're talking about the mortgage?

The mortgage interest?

It's that one?
Ok.

Ok, yeah, I will go through that George
as soon as I finish this that I started

so here we have the revenue 
received in advance.

9000, that pertains to June,
that means the tenant already used this.

We have provided this credit to the tenant
until June for 9000.

So we need to record this income
because this is revenue

and we will credit rent revenue for 9000
and we will debit

the rent revenue received in advance 
which is a liability

when the tenant pays in advance 
the amount.

So this will be...

Debit rent revenue received in advance
we decrease the liability

because the tenant already used 
this building until 30th June

and we record now the 
rent revenue, ok?

So that is the number five.
I will go with the interest,

the interest of the number four.
I will go again with this.

The mortgage interest rate is 6%.

Please remember, always the interest 
is per year,

so we need to know how much 
is the interest per month.

How do we calculate that?

Well, 6% of what?

That is the thing that we need 
to calculate.

6% of the total mortgage interest...
Sorry.

6% of the total mortgage that we have
for this loan that we have

so here you have, 
this is our trial balance.

Remember this is our unadjusted 
trial balance.

If we go down through the accounts
we will have this mortgage payable.

Credit because it's a loan,
it's a loan payable, it's a liability.

This is the total amount we borrow,
210000.

How much is the interest per year?
6% of this.

If you calculate your 6% of 210000,
then that is 12600,

but that is per year.

How many months is the period of time
here from 1st April to 30th June?

It's three months.

So 210000 divided by 12, 
sorry.

210000 multiplied by 6% is 12600.

12600 divided by 12, 
that will be per month

and then we multiply by three,
that will be three months.

The amount is 3150.

So we record that interest expense, 3150 
because it's an interest already accrued

in this specific time, until 30th June, 
three months.

And the interest payable because 
we had not paid that

is the same amount, 
3150.

We have this liability for 
the interest payable

and we have the interest expense,
that clarified the point George?

Ok, excellent.

Now the last adjusting entry 
is salaries.

This is a simple one.

Salaries of 1800 are unpaid at 30th June.
So what does this mean?

That means that the employees 
already work for this amount,

1800 but the company didn't pay them.

So we owe that salary, 
so we will record the expense,

salaries expense 1800,
and we have to record the liability

because we owe the salaries,
that means salaries payable,

that is the liability.

So debit salaries expense, 1800
credit salaries payable, ok?

1800. So there you have 
the last adjusting entry.

So we've finished the adjusting
entries,

and now we can put all of these
adjusting entries

to the spreadsheet.

So if we put them
to the spreadsheet,

you have here all the adjustments.

There is a number that you can see 
in this column after adjustment,

this is just a column 
that can help you to know

which are the transactions that the...

the adjustment that we are recording
in the adjustment.

I will look at that,
I will go through the first one

just for you to have the reference
because we did this already.

We don't need to go through all of them.

In the first, this is the number one, 
the first adjusting entry.

We record debit 2700 insurance expense,
credit 2700 prepaid insurance.

So prepaid insurance is a credit...
there you have the number one

for you to have as a reference.

This is the adjusting one.
Credit 2700

and we have a debit in insurance expense,

insurance expense a debit, 2700

and here you can see the number one 
again as a reference.

So all of them have a reference 
to what transaction it is.

So we can complete this table

just copying all the adjustments,

the debit and the credit in the 
corresponding account

and we will complete the adjustment.

Then we can prepare 
the adjusted trial balance

the same as I explained 
in the previous exercise.

Cash for example, 15000 debit,
there are no adjustments,

so the adjusted trial balance 
is 15000 debit cash.

Prepaid insurance we have it there 10800
in the unadjusted balance,

the adjustment is credit,

so credit decreases the debit
we need to strike this,

so the adjusted trial balance 
is debit 8100.

And we continue with all the adjustments
until we have really

the adjusted trial balance.

So we can copy all the amounts here, 
in the adjusted trial balance

and this is our adjusted trial balance.

So in the first exercise we finished
in this part,

but now we will continue 
with the second part

which is the closing entries.

What are closing entries, 
what are the closing entries?

So now I will explain a bit conceptually
what are closing entries

and then we will apply them 
in this exercise.

I mentioned last week that there 
are permanent accounts

from all the accounts of the company.

There are permanent accounts
and there are temporary accounts.

What is the difference between 
the permanent accounts

and the temporary accounts?

The permanent accounts are accounts 
that the ending balance of any period

is the beginning balance 
of the following period.

So we carry forward the balance
of the accounts to the following period

and we continue for all the 
life of the company with this.

Ending balance becomes the opening balance
of the following period.

If you remember when we balanced
the accounts last week

we ended each of the ledger accounts
with what is the opening balance

for the following period which was 
ending balance for the current period.

So these are the permanent accounts.
But we have also temporary accounts.

What are temporary accounts?

Temporary accounts are accounts 
that must be closed

at the end of the accounting period.

Why do we have to close them?

Because we want to start 
the following period

with zero balance in each 
of these accounts, zero balance.

So we need to keep these accounts
with zero balance.

How can we do this?

Well, we need to transfer the 
balance of these accounts

to a permanent account.

Then we can leave the account 
in zero balance.

This is very important for, 
very good Joshua, to retain earnings.

This is very important particularly for 
all the accounts of the income statement

because we want to start 
each accounting period

with zero balances in the income 
statement accounts,

that means all the revenues 
and expenses account

should be zero, why?

Because we want to menasure
the profit for the period.

If we do not start from a zero balance
we will not have the profit of the period

we will have a mix of profit 
of the periods and the current period, ok?

So to know the profit of the period
we have to start with zero balance

in all of these accounts.

So what are the temporary accounts?
All the income statement accounts.

That means all the revenues accounts
or any other income

and all the expenses accounts.

All of them are temporary accounts.

In addition there is one account 
that we add retained earnings

or the equity account 
which is dividends.

Dividends is also very good Tamara,
dividends is also a temporary account

and we need to close dividends
at the end of the accounting period.

So how do we close them?

Well, to know that, 
we can start from here,

the adjusted trial balance.

Now what type of account do we have here?
And we always put these in this order.

First we have the asset account,
so you have cash here, ok?

Prepaid insurance, supplies, land, 
building,

accumulated depreciation is an asset 
account even though it's a credit,

but I already explained that and we will 
go in more detail with this account

in another topic.
That is an asset account,

same to accumulated 
depreciation of credit.

All of these are asset accounts.

After the asset account we record 
the liabilities account.

So here you have accounts payable, 
rent revenue received in advance,

salaries payable, interest payable,
mortgage payable, ok?

All of these are liabilities accounts.

After the liabilities accounts
we have the equity accounts,

so we have check capital and rent revenue.

These two are the equity accounts,
sorry, only check capital,

and retained earnings.

Check capital and retained earnings,
that's what I mean.

Check capital and retained earnings
are equity accounts.

In this case in this company 
we don't have retained earnings.

Why don't we have retained earnings? 
Because this company just started, ok?

It started on 1st April,
so this is the first period,

30th June 2017.

And because it's the first period we 
don't have yet retained earnings account.

So check capital and retained earnings 
are equity accounts.

Then we have the income 
statement accounts.

The first account that we have 
all the revenues.

Rent revenue in this case, 
it may be service revenue,

it may be sales revenue, 
fees revenue, interest revenues,

all the revenues accounts,
they will be in this part.

And then all the expenses accounts,

so we have advertisement expense, 
depreciation expense,

electricity expense, insurance, interest,
salaries, supplies expenses,

all the expense accounts.

So this is the adjusted trial balance.

What are the accounts that 
we need to close?

In this case we don not have dividends,
we have revenue, rent revenue,

and we have all of these expenses.

These are the accounts that 
we need to bring.

How will we close this?

There are two steps to close the accounts.

The first step we will close 
all the expenses and then the revenues

to another temporary account 
that we will create

that the name is the income 
summary account.

Income summary account is the name of
another temporary account

and the purpose is to close 
all the expenses

and the revenues to this account.

So how do we close the expense?
here you have advertisement expenses,

(INAUDIBLE) 3000,
depreciation expense the balance

is debit 9900 so we have 
a number of expenses.

We add all of them and we will debit the
income summary accounts for the sum

and we will credit each of them 
one by one

we cannot credit the total of them,

we need to close each account one by one
so we need to credit advertisement expense

credit 3000,
depreciation expense credit 9900.

Electricity expense we credit 6000
and so on

because if you credit advertisement 
expense by 3000,

what is the balance of advertising expense
after that? Zero.

If you credit depreciation expense by 9900
what is the balance after that? Zero.

We're leaving each account at zero
that's why we need to do one by one.

But for the sum of all of this credit
we will have one debit which is

the income summary account,
or profit and loss summary account.

It could be any of these.

With revenue we do the same.

So to close these revenue accounts, 
what we should do?

We need to debit by 64200.

We debit rent revenue by 64200,
what is the balance after this? Zero.

And what we credit?
Income summary account again.

So income summary account will be 
the same account that we use for expenses

but in this case we credit the 
income summary account.

So you can see what we have done
at this point is to transfer

the amount of all the expenses 
and revenues to this temporary account

which is income summary account.

Here you have the closing entries.

We credit all of the expense accounts,
remember the normal balance is a debit

so to close them we credit.
This is a journal entry.

You can see this is a journal entry
in which we debit income summary,

the sum of all the expenses.

We debit income summary and 
we credit each of these accounts.

How many entries has this journal entry?

You can see it has eight entries.

We have one debit, and seven credits.

So this is one journal entry,
with this journal entry we close

all the expense accounts.

That means these are closing entries.

We transfer the expenses 
to the income summary accounts.

For debt revenue, the same.

In this case we need to debit 
the revenue account

because the balance is credit 
so when we credit,

we leave this account in zero,
and we debit the rent revenue

and we credit the income 
summary account.

This is another journal entry,
a closing entry.

What is next?

Then we need to close
the income summary account.

What is the balance of the 
income summary account?

The income summary account 
is the difference

between the credit and the debit .

what is higher?

Well, we have 64200 credit
and 48750 debit.

so that difference is 15450 credit, ok?

That is the balance of the income 
summary account at this point.

To close that, we need to debit,
it is the third closing entry.

We debit 15450 from the
income summary account

and we credit retained earnings.
This is a permanent account.

So we transfer this balance to 
the retained earnings account.

Now the income summary account is closed.

You can verify this if you were 
at all debit,

48750 + 15450 
will be equal to 64200.

Income summary account is closed
the ending balance in this case is zero

and all the balance is transferred 
to retained profit.

You can see what we have done
is to transfer the profit

of the accounting period through 
the journal entries

that are the closing entries.

We transfer the profit to
the retained earnings

an that is what we do every period
at the end of each period we do this.

So what is retained earnings?

It's the accumulation of all profits 
and all losses since the company started

because we do this at the end
of this period.

So we are accumulating the profits 
in this written profit account.

What about dividends?

Dividends is another temporary account
we will see another exercise

in which dividends is included
in the workshop exercise

in which dividends is also closed 
to retained earnings,

so retained earnings are 
decreased by dividends.

Now, one last word in relation 
to closing entries.

Closing entries you can see 
is very simple.

It's just to close each of the expense 
and revenues accounts

and also dividends,

and leaving the accounts 
with zero balance.

The normal mistake that the students do
in this part even is simple

is the confusion between the debit
or the credit to close the account.

So because students know that
expenses are debit,

they close all expense accounts 
with the debit here.

Put the debit and put the income 
summary account as the credit.

But that, what is the effect of that?

With that, the effect that will be 
will be that you double

the balance of each account.

If you debit advertisement expenses
by 3000 and you have a balance of 3000

what is the ending balance of 
the advertisement expenses? 6000.

Ok, you double the balance on the account
you are not closing the account.

To close the account should 
be the opposite side,

it should be you credit 3000 because 
the account has a balance of debit, 3000.

So be careful with that, I have seen
so many times the same mistake.

Remember that taking out on these
so do not make this type of mistake.

Any question about closing entries?

The whole point Natalia, 
or the last part?

The last part?
Excellent, yes.

Ok, excellent.

For one second I thought 
it was the whole point.

Excellent.
Thank you Natalia.

A common mistake, 
what is the common mistake?

Here we are closing the account
to ...

Remember two things,
to close has a meaning.

What is the meaning to close?

To close means leave with zero balance
that is the meaning, ok.

Close means leave this account
with zero balance.

So if we close advertisement expense
it means leave this with zero balance

at the end of the period.

After closing entries we want 
advertising expense equals zero balance

so that means we transfer 
the balance to another account.

We're transferring here to income summary
in this first step.

So what about if we have instead of,
I will write over here,

instead of credit 3000, 
we put 3000 here, we debit.

And we do the same with 
all the other accounts.

That means that this, the income 
summary will not be a debit of 48000

but will be a credit of 48750, ok?

So what will be the effect of this?

And we put here the 9900,
the 6000, the 2000...

All of them in debit.

What is the balance of all of these 
accounts if you do that?

What is the balance after closing entries
if you debit this account?

What will be the balance 
of advertisement expense?

It will be 6000 because the balance
before closing entries is debit 3000.

If you debit in the closing entry by 3000
the debit increases the debit

so a debit of 3000 will be added 
to the debit of 3000,

that means now the balance is 6000.

You're not closing the account, 
you double the balance of the account.

So that's why you need to be very careful
that the closing entry

should be the opposite side of the 
accounts that we are closing.

All the expense accounts,
they have a debit balance.

What is the opposite side?
Credit.

So we need to credit all the 
expense accounts.

The revenues accounts, 
what is the normal balance? Credit.

To close we need to debit, 
the opposite side.

That is the important thing
so be careful with that,

so do not make a mistake on this.

Ok, Yes, Zijing, only need to close 
the temporary account.

The permanent account we will 
carry forward the balance.

The ending balance at 
the end of the period

will be the beginning balance 
of the next period.

We do not start with a zero balance.

We start with the ending balance 
of the previous period

so we only close temporary accounts.
What are the temporary accounts?

All the income statement accounts
plus dividends, ok?

So we finish with this and here 
you have all the closing entries

and that's the last part of this 
exercise I think, yes.

Yes, that was the last question 
to prepare the closing entries.

So we finish, 
just we finish the lecture,

and it is time to (INAUDIBLE)

We need still to go through 
the workshop.

Yes I did here profit and loss, 
there are different names for this,

and over time the name has changed
in the accounting standards,

but when we talk about income statements
it's the same as profit and loss statement

it's the same.
And we talk, there is another name,

it's not very used now,
but you can see in some books

that there's the statement 
of financial performance.

That is also called the income statement.

And the balance sheet has another name,
it's the statement of financial position.

But for the names that we're using
is normally income statement

or statement of profit or loss.

And then we have,

retained profit will always credit, right?

Good question Ezekiel.

Retained profit normally should be
and has to be in the credit side

except if the company has a lot of loss
and then retained profit

will go to the other side,
we'll have a debit balance.

That is a company that has 
accumulated losses,

and they don't have profit.
it's not the normal situation

and it will be very bad for the company.
Normally it should be on the credit side.

It is possible the debit side,
but not usual, and not good.

Ok, so now we can go 
through the workshop.

So we need to plan a bit at this point
because 3.50.

The normal time from 1.00-4.00
is the workshop and the lecture,

and then 4.00-5.00 
I have the consultation

but what I am doing is just to answer 
all the questions

while I am explaining the exercise,
so I go through the questions immediately.

That I think is better because we 
don't need to go back

but we solve anything that you have,
any question you have immediately.

But because we have not gone 
through the workshop,

I will use the consultation time
for the workshop.

Now I understand if any of you
cannot stay for the workshop,

for the consultation which is 4.00-5.00,

it's ok, so feel free to go,
no problem.

Remember the lecture and the workshop
will be recorded

and will be uploaded 
on the ECOS 360 tab,

so you will have the complete record,
yes and there's no problem.

You will have the complete record
of the lecture and the workshop.

So I will explain this as part 
of the consultation,

the exercise of the workshop, ok?

And then if you have more questions
yes, please feel free to ask

any question you may have.

Ok, so we go through the second one.

The workshop, the scheme that we have used
is similar to the lecture,

we start with four multiple choice 
questions to revise some concepts

and then we go through the exercise.

And in the exercise we will do the same,
we will practice with adjusting entries,

we will practice with closing entries
and that is the topic for today,

so a lot of practice in this.

So we will start with this.

I will have a look at the first question
which is similar to the first question

of the lecture.

Ok, have a look at this, 
I will update the poll.

Ok, so furniture factory employees
work overtime to finish an order

that was sold on 28th February.

The office sent a statement 
to the customer in early March

and the payment is received
by mid March.

The overtime expenses should be 
expressed in which period?

Ok, good practically most of you
have the right answer,

in February.
Why in February?

Because they said that when
it's sold this order?

On 28th February, so it's February,

the month is February and 
the employees work during February.

So the resource, 
that means the work of the employees

was used on February,
that means the right answer is that one,

February, A.

A is the right answer, ok?

Number two, have a look, 
I will update the poll.

The company purchased office supplies
costing $4000 and debit office supplies

for the full amount.
At the end of the accounting period,

a critical count of supplies reveal 1600
is still on hand.

What is the appropriate journal entry?

We have done already two weeks 
aside for this,

so if you understood well,
please apply the same as we have done

in the first two exercises.

Ok, most of you correct,
what is the...

The right answer is C.
Ok, why?

if the company purchases office supplies
costing 4000, debit all these supplies,

so what is the balance of these accounts?

The unadjusted balance is office supplies
or simply supplies, debit $4000,

that is the unadjusted balance
but at the end of the accounting period

the physical count revealed 1600.

So that is what we have 
in the supplies account.

The rest were consumed, 
what's due,

so we need to record a 
debit supplies expense

by the difference, 2400,

that is the difference between 
4000 and 1600.

And we credit office supplies so we 
reduced the balance of office supplies

by 2400 and now what is the balance
after adjustment? 1600, ok?

This is the normal way that you will see
always what happened

with the supplies account, 
but there is another way

that I will explain, 
I will explain it now.

What about if this company purchased 
office supplies that cost 4000 dollars,

but debit the supplies expense,
the office supplies expense.

So we debit, ok?

And that is the journal entry 
that they record

because they thought that they would
consume all of this

in this accounting period.

So they debit supplies 4000.

They debit supplies 4000,
and then credit.

If they paid cash, 4000.
That is the original entry, ok?

Supplies expense.

So they debit an expense account.
Why do they do this?

Because they think that they will consume
all of these supplies in the month.

But at the end of the month they realize
that they still have 1600 on hand.

What will be the adjusting entry
in this case?

Think a bit.

And think what would be the 
adjusting entry in this case

because we need to adjust this,
the expense was not 4000.

It was less than 4000 because we 
still have 1600.

We need to adjust that.

What will be the adjusting entry
in this case if we record everything?

Debit office supplies,
and credit supplies expenses, very good.

For what amount? 
For 1600.

So we will debit office supplies 1600

so now we have this, ok?

1600 debit, now we have the balance,
and we need to credit the expense

because the expense was not 4000.

The expense was the difference,
so we will credit the expense by 1600.

This is a different way to look at
the supplies expenses account.

It is possible, it's not frequent but it 
is possible that this is what may happen.

A full reversal if it is...
if it is given.

It's not a reversal actually,
it depends on how the data is presented.

For example if the data is presented
as I did in this exercise

or all the previous ones,
you only need to adjust as we have done

but if the data is presented in this way
that all the expenses,

all the supplies purchased are recorded
as an expense,

then the other adjustment
should be reversed.

What will give you the clue is 
how we record the purchase of this.

We record as supplies, 
or we record as supplies expense.

That will make the difference.

Ok, it's good to clarify this,
because I have seen an exercise

in which they use the other way.

We have two possibilities and 
I will put this in here.

First, all purchases are
recorded as supplies.

Ok, all purchases are 
recorded as supplies.

Now this you want....

All purchases are recorded as supplies.

What we should do when all purchases
are recorded as supplies,

we do what you have learnt in 
the two previous exercises

in the lecture and in this...

in this multiple choice question.

We adjust the ending balance 
of supplies, ok?

But what about all purchases are 
recorded as expenses?

That is the other situation,
all purchases are recorded as supplies

first situation we have worked with that, 
the second situation,

all purchases are recorded as expenses
and we purchased $4000 of supplies

and because we think that we will use 
all of them in this accounting period

we record the 4000 as supplies expense
when we purchase them.

At the end of the month we have 
1600 on hand,

so we didn't spend all of them.
We still have supplies

and we need to prepare an adjusting 
entry to reflect this.

So how we will reflect in this case, we 
will record in this case a debit supplies

1600, ok?
We record 1600 supplies

and we credit supplies expense,
1600.

That will be the adjusting entry.
What do we do with this adjusting entry?

We put in supplies which is 
an asset account,

we put the amount that we have on hand
at the end of the period, 1600.

And we reduce the supplies 
expense by 1600

because we didn't consume
all of them, ok?

This is the situation when purchases 
are recorded as expenses.

It's another situation, 
it's not the most common situation

but it's good that you know that 
adjustment is to reflect

what we have at the 
end of the period, ok?

It's clear now?

What are the questions?

Ok, Tablynn,
Tablynn please clarify the point.

We go to the next one, number 3.

I will update the poll, 
thank you Tablynn.

Ok, this company purchased a computer
for 3000 on 1st December.

It is estimated the annual depreciation
of the computer is $600,

the annual depreciation.

A financial statement had to be prepared
on 31st December.

The company should make
the following adjustment.

So it's not very difficult,
what is the adjusting entry in this case?

Have a look at the alternatives
and choose one of them.

Ok, are you ready?

We have most of you answered correctly
but we have a distribution

in the answer as well.

The correct answer is B.

What is the, I would not say tricky,

but what is the thing that you
need to be careful of

with the data provided?

It is important and this is a good 
practice for you for the final exam

because in the final exam you will have
multiple choice questions

and you will have exercises.

And the multiple choice questions
what is essential?

In the multiple question it is to read
carefully everything in the question

before you choose one of the answers
because here I can see

why there are some errors.

It says this is the amount 
of the computer, $3000.

It is estimated annual depreciation
is $600, annual depreciation.

Financial statements are to be prepared
on 31st December.

What is the period of time for
this accounting period?

It's from the 1st of December 
to the 31st of December,

that's one month.

So were talking about an accounting
period of one month, exactly Joshua.

One month, and here we have the 
depreciation of a whole year,

so to calculate the depreciation 
for one month

you need to divide this by 12.

If you divide by 12 it's 50

so that immediately leaves out A and E
and also the answer,

so we're not only between B and C, ok?

Now to record the depreciation expense
debit always,

always debit depreciation expense
always it's a debit,

and credit the accumulated depreciation.

That's why this is the right answer, ok?

So this is a good opportunity I can use
to explain to you how to avoid

some common errors when you do this
in an exam,

and only, maybe you know the answer,

but because you didn't read 
very carefully the data

then you can make a mistake.

So be careful with these types of things
when you answer these questions.

Ok, now the last multiple choice question,

is this one, 
I will update the poll.

An entity failed to adjust the revenue
received in advance account

for rent that has been earned.

What effect will this have 
on the financial statements?

(COUGHS)

Ok, most of you again are correct,

but there are different answers as well.

But the right answer is E, 
ok? That is the right answer.

I will explain how to solve this 
type of questions,

because there are many similar questions,
but the question is,

what is the effect on the 
financial statement

if an adjustment entry is not prepared?

Ok, so how we answer 
this type of question?

The best way is to go step by step.

It says the entity failed to adjust 
revenue received in advance account

for rent that has bee earned.

So what happens when we have 
a revenue received in advance?

Yes, it is a liability.

Revenue received in advance is 
a liability account,

and what happens when we earn the rent
and we do not adjust this liability?

The adjustment means a decrease
of the liability.

If we do not decrease the liability,
revenue received in advance,

these liabilities will be overstated.

How many of the answers,
and that is the way that you can see

when you are answering this type 
of question in an exam,

how many of the answers have that,
that the liabilities will be overstated?

Well, we have D and E only, 
only two,

so you can discard already three.

So you are going step by step
answering the question,

and even you don't know the second part
but now your choice is only between two

so a better probability 
to have the correct answer.

These are just some tricks that you 
can apply when you answer

these types of questions, ok?

So first, liabilities will be overstated
and what else?

The difference is in revenue.

What happens in revenue 
if we do not record this?

If we do not record this it means 
we do not record revenue already earned,

so the revenue account will be understated
because we miss to record this revenue.

So this will be the second part,
understated,

and that's why the right answer is E.

Any questions? Any conceptual questions?

Because with these four questions 
we finished up the conceptual part.

Excellent Jade, we finished all the 
conceptual part about adjusting entries

but now we will apply them again
in a couple of exercises.

So we go through the first exercise
which is this.

This company began operations 
1st February 2019

and the trial balance is at 30th June.

So how many months is 
this accounting period?

The accounting period is five months, 
very good.

We need to keep that in mind,
five months is the accounting period

to calculate the revenues, expenses
or anything that we will need.

What we have here is the 
trial balance again,

the unadjusted trial balance.

We have all the debit accounts,
all the credit accounts.

They are not all the accounts because
there are other accounts here,

you can see other accounts that have 
zero balance at this moment

but they are accounts of the company
that we will use.

And then we have the transactions,
not transactions, sorry.

Not transactions, 
the data for the adjustments.

The first again we have supplies,
so these are similar,

so I will go a bit quick,

but please stop me if there's anything
that you don't follow well.

So supplies on hand, 490,

how much we have in the 
unadjusted trial balance?

supplies, 2350, so 2350 less 490

that will be 1860.

Less 490 that will be 1860,

so we record supplies expense 
and supplies.

We'll record expense for the 
supplies consumed

and we decrease the balance 
of the supplies accounts.

Ok, second, electricity bill 110 
has not been recorded,

and will not be paid until next month.

Quite similar to what we have done,
we need to record the expense,

electricity expense debit 110,

and electricity payable credit 110.

So here you have electricity expense 110,
electricity payable 110.

The insurance policy is for the year
commencing 1st February 2019.

This is the day that the company started
for the year,

so we need to see here how much is...

prepaid insurance in total for 
a year is 2520,

so if we divide this by 12
and we have five months in this period

we will need to multiply by 5,
so dividing this by 12, multiplied by five

the insurance expense will be 1050

so we have insurance expense debit 1050

credit prepaid insurance will decrease
the amount that we have

in prepaid insurance, 1050.

Services were performed during the period
in relation to 800 of revenue

received in advance.

So we have a revenue received in advance
and we need to decrease that 800

to record the service revenue.

We will debit revenue received 
in advance by 800,

we will credit service revenue
by the same amount.

So we debit the service revenue 
received in advance, 800

and we credit service revenue.

Next one.

Ok, yes. 
Yeah, that's good.

Services were perfomed during the period

in relation to 800 of revenue 
received in advance

What does that mean?

That means that previously 
we have received cash

for services that we have not provided, 
we received in advance,

so we record this as a liability.

The liability, the name of the account
is service revenue received in advance

and we can confirm this
in the trial balance.

The liability here you can see
service revenue received in advance.

We have received cash for 1500
for services we have not provided, ok?

Now in this data it says services were 
performed during the period

for 800 of this 1500 that we received cash
we provide service for 800,

so we will have this revenue credit
and we need to decrease

the liability that we have
by the same amount, by 800.

Ok, so the journal entry will be service 
revenue received in advance we credit

so we decrease that 1500 that we have

we decrease for the services
already performed.

And we record the service revenue credit.

Now it's better George?

Shouldn't we be deducting?

(INAUDIBLE)

Actually we are deducting 800 
from the 1500 we have with this

in the debit entry because we debit.

We are reducing the balance of service
revenue received in advance

that has a credit balance of 1500.

We debit 800 because we performed
services for 800,

so we deduct that.

With the debit entry we are reducing
an account that has a credit balance.

Excellent, very good.

You're welcome.

Ok, so the next one, salaries.

Salaries of 770 are owed 
at 30th June,

we have done something similar.

So what are the accounts to record 
the expense, salaries expense 770

and because we have not paid 
these salaries,

they will be liability 
salaries payable, 770.

Here you have salaries 
expense 770 debit,

salaries payable liability 770.

The next one, office equipment has
a five year life with no resale value

and is being depreciated at $375 
per month for 60 months.

Ok, this is the amount per month,
depreciation expense per month.

But how many months do we have?
Five months.

So we need to multiply 375 by five,
that is 1875

so we record depreciation expense
here is the adjusting entry,

depreciation expense 1875 debit

and we credit the accumulated 
depreciation office equipment 1875.

And the last.

Invoices representing 1500
of services performed during the month

have not been recorded.

So we provide services, we send 
the invoice but we have not recorded

so we need to record, simply record
that we have not received cash

so we record a debit to 
accounts receivable

and a credit to service revenue.

And here you have 1500
debit account receivable,

credit service revenue.

So we went a bit more faster through
the adjusting entry

because you have seen they're 
very similar,

so if you become accustomed with this
you will do well in any adjusting entries

that you may face in any exercise.

They're similar once you become accustomed
to how to record adjusting entries,

it will be easier for you to do this.

Invoices...
sorry, what was the question reading?

Invoices we did combine them.

You mean in the last transaction 
the number seven?

The number seven when it says
invoices representing 1500 of services,

yes, it could be one, it could be two,
it could be more than one,

but here we put all together

because all of them are 
for the same period

so we can add them and in total 
it's 1500.

We do not record invoice by invoice
unless they're from different dates

and we're preparing

each day by day as we did last week,
that is day by day,

in that case we need to record each time
but we're preparing adjusting entries.

Adjusting entries is for the whole month

so we need to include all the invoices
of the month, ok?

Because the one point in time
that we're doing this

is the last day of the 
accounting period

so we add all the invoices for the month.

Just because we have only one
service revenue account,

we have one service revenue account
and therefore we add them.

If you remember the ledger last week,
we have one service revenue account

or sales revenue account.

Now if we have two different accounts
for example

we have invoices for services 
that we provided

and we have invoices for products 
that we delivered

and we have one service account
and we have one sales revenue account,

two different accounts,
one for services one for products,

in that case we need to add 
all the services invoices

and to put them in the service
revenue account

and all the sales of products
and we put them in the other account

in that case we need to 
keep them separated.

But if it is only one account 
that we are using

this is the adjusting entry,
we add all of them.

Ok, accounts receivable debit 
and services performed credit

for the seventh transaction.

Ok, well yes.

The seventh transaction we have 
a number of invoices

but the total is 1500.

Services performed.

Invoices for services performed 
means service revenue,

we've earned this revenue because
we provided the services

so we have a credit in the account 
of service revenue, 1500.

But we have not received the cash
for this.

It doesn't say here that we 
buy services for cash

so therefore it is an account receivable.

We need to debit the 
accounts receivable

Ok, so once we have this,
all the adjusting entries recorded

we can go to our worksheet

and here in the worksheet, 
the same as we have done,

we have the unadjusted trial balance.

We copy all the adjtustments here and
we prepare the adjusted trial balance.

Ok, I will not repeat this part
because it's very simple.

You know for example if you
have account receivable

this is the unadjusted trial balance 
3150, ok, in here.

Debit and in the adjustment 
you have another debit.

You need to add the two of them
to have the adjusted trial balance.

If you have the prepaid insurance debit
and the adjustment is a credit,

you need to subtract this and 
to calculate the adjusted trial balance.

So it's exactly the same as 
we have done before.

The important thing, all of them,
the unadjusted trial balance,

total debit equals total credit.

The adjustment, this is the sum
of all the adjusting entries,

total debit again equals total credit.

The adjusted trial balance again,
total debit again equals total credit.

So always in the trial balance,
total debit equals total credit.

The same as any journal entry.
Total debit equals total credit.

So from that worksheet we can prepare 
what is the adjusted trial balance

at 30th June after all the adjustments

and here you have the adjustment
trial balance.

It's just a copy of what we have 
in the worksheet.

The last problem for today is this one.

Here we will start with 
the adjusted trial balance.

If you remember the previous problem,
we had started the problem

with the unadjusted trial balance
and we prepared all the adjustments

and at the end we end with 
the adjusted trial balance.

In this problem we will start
with the adjusted trial balance.

So here you have the trial balance
after all adjustments.

All adjustments we have 
the trial balance.

In this exercise which is a different 
exercise of course from the previous one

you can see trial balance have 
the same structure.

We have first all the asset accounts,
cash, accounts receivable,

office supplies, equipment,
accumulated depreciation equipment

which is an asset account 
but is credit balance, ok?

Then we have the liabilities, 
accounts payable, salaries payable,

interest payable, 
rent revenue received in advance

bank loans, all of these are 
liabilities accounts.

Then we have check capital 
and retained earnings.

These are equity accounts.

Here we have one temporary account, 
part of equity dividends.

Why is dividends on the debit side?

Because dividends decrease
retained earning, ok?

But this is a temporary account
that we need to close

to retained earnings account,

and then we have the income 
statements account.

Revenues, we have two revenues accounts,
sales revenue and rent revenue,

and we have all of these 
expenses accounts.

And the total of course should be equal.
Total debit equals total credit.

So the question or the exercise,
start with the adjusted trial balance.

What is required in this question?

Prepare the closing entries and prepare
a post closing entries trial balance,

just that.

Prepare closing entries and prepare
post closing entries trial balance

starting with the adjusted trial balance.

So we will return to the 
adjusted trial balance.

How will we prepare the closing entries?

We will start with the expenses.

Here you have all the expense accounts.

How do we close these expenses?
All the expenses accounts?

Well, the balance of these accounts 
is debit,

so to close them, 
to leave them with zero balance

we need to credit for the same amount.

That is the part that I mentioned before,
don't make a mistake.

To close these we need to credit,
not to debit.

If you debit you will double the balance
of these accounts.

So we need to credit by the same amounts.

It's very simple, the journal entry.

The income summary debit 
and expenses credit, exactly George.

That is the point.

So the journal entry will be 
credit salaries expense 11340,

credit rent expense 6000,
credit depreciation expense,

equipment 1750.

Credit supplies expense 900,
credit electricity expense 750.

Credit interest expense 500.

So you can see, you have to go one by one
closing each of these accounts

with a credit entry of the same amount
that we have in the balance.

Then you add all of these and you will 
record a debit entry

in the income summary account
for the sum of all of that.

In this case if you add this it's 20990

so you record your first closing entry
which is this one.

Profit and loss summary or 
income summary accounts, 20990,

and the credit in all the
expense accounts, ok?

Salaries expense, rent expense, 
depreciation expense.

After this, the balance of all of this 
expense accounts will be zero, ok?

Because we have the same amount
debits and credits so the balance is zero.

Then we close the revenues accounts
and we have two.

So we have sales revenue, 
and we have rent revenue.

Credit balance, so to close this,
we need to debit for the same amount.

We need to debit sales revenue,
18600.

We need to debit rent revenue 12000,
one by one again.

And then we will credit the income
summary account

for the total.

How much is the total?
30600, the sum of these two,

and we have the second closing entry
which is this.

Here we have debit, the sales revenue,
the rent revenue, now the balance is zero

and we credit the profit and loss summary
or income summary account,

you can put the name profit
and loss summary

or income summary accounts, 
correct.

You credit by that amount.

So we closed all the expenses
and revenue accounts.

But we have opened this 
temporary account

that is the profit and loss 
summary account.

We need to close that because 
it's also a temporary account.

What is the balance of this account
after all of these closing entries?

The balance is the difference between 
30600 credit

and 20990 debit,

so the difference will be a credit
because this is higher,

will be a credit of 9610.
That is the next closing entry.

Because it will be a credit balance
we need to debit this account

by 9610.

Now this account is zero, ok?

The profit and loss summary account,
the balance is zero,

we've closed that with this debit entry?

What is the credit entry?

Retained earnings account 
which is a permanent account.

So we close all the 
income statement accounts

and the profit and loss summary accounts
and we only need to close now

one additional account that we have
in the adjusted trial balance.

Yes Josh?

JOSHUA: Could you explain the second last,
the (INAUDIBLE)

HERMAN: Sorry, I couldn't hear very well,
can you repeat please?

JOSHUA: Yeah, could you explain
the second last transaction

which was about the retained earnings?

The income summary to retained earnings.

HERMAN: Yes, sure, sure.

Here you have the...
How many closing entries do we have?

The first closing entry we close 
all the expenses as I said here.

All the expenses are closed
to profit and loss summary account.

The second entry we close the revenues.

So all the revenues are closed 
to profit and loss summary account.

Now we need to close the profit 
and loss summary account.

How much is the balance of 
profit and loss summary accounts

after the first two closing entries?

In the first closing entry we have 
a debit of 20990.

In the second closing entry 
we have a credit of 30600.

It's the same account, ok?

So we have a credit of 30600,
we have a debit of 20900,

what is the balance?

The balance will be a credit
because this is higher, ok?

We have more credit than debit.

We subtract this from the credit
that we have,

and the difference will be a credit
of 9610.

That is after the second closing entry.

We have a debit balance 
in this temporary account 9610.

Now we want to close that.
How do we close it?

Because we have a debit balance,
we need to credit,

so we credit by that amount 9610

and with that the balance of the profit 
and loss summary account is zero now.

But in this third closing entry, 
the other entry is retained earnings.

So in retained earnings, we credit 
retained earnings by this amount.

You can see that this is the way
that you transfer the profits

to retained earnings because the profit
is revenues less expenses.

That difference is included 
in the profit and loss summary account.

We've closed the revenue, 
we've closed expenses

to profit and loss summary account
so we have a profit of 9610

and we close that to retained earnings.

And we have one more account.

That is dividends.
Here you can see dividends.

They will balance 600.

Dividends we know is a temporary account
that decrease retained earnings,

dividends are paid from retained earnings.

We need to close this.
How do we close this?

We close to retained earnings account.

So to close this which has a debit balance
we need to credit this account

and we will debit retained earnings.

You can see we've done a
debit to retained earnings,

decreased retained earnings.

So that last closing entry

in which we debit the 
retained earnings account.

600 and we credit dividends by 600.

What is the balance of dividends after
this closing entry? Zero

And retained earnings are decreased 
by this amount.

If you think about what we've learnt
in the first or the second module,

how the retained earnings account changed

from the beginning of the period
until the end of the period,

well we start with the beginning balance
of the retained earnings.

We add the profits, we subtract 
the dividends

and then we have the ending balance 
of retained earnings.

Now you can see how we do this
through journal entries,

actually closing entries.

It is exactly the same thing.

So now we have the closing entries.

We can prepare the post
closing entries trial balance.

To prepare the post closing entries
trial balance is very simple

and I will show you exactly 
how to do this

from the adjusted trial balance.

This is the adjusted trial balance,
we start with this.

What do we have in the 
adjusted trial balance?

Asset accounts, liabilities accounts,
equity accounts

and then we have the revenues, 
expenses and dividends accounts

that are all temporary.

The post closing entry trial balance,
the main difference

with the adjusted trial balance is that
in the post closing entry trial balance

you only have permanent accounts.

Is there any change between
the adjusted trial balance

and the post closing entry trial balance
in the asset accounts? No.

Because we didn't close any of them.

In the liabilities accounts? No.
Because we didn't close any of them.

What about equity?
Well, in share capital no,

but retained earnings yes.

That is the only account
that will be different

in the post closing entry trial balance,
compared with the adjusted trial balance.

Of course the post closing 
entry trial balance,

they do not have any income 
statement accounts or dividend accounts.

We can see easily how we calculate that
going from the retained earnings

that you have here, ok?

Look at here, 1500.

What is that 1500 that we have...

That we have in the adjusted 
trial balance? Retained earnings.

This retained earnings balance is the
beginning balance of retained earnings

not the ending balance.

This is not the balance at 30th June.

This is the beginning balance 
of retained earnings.

Why is it the beginning balance?

Because in this statement which is 
the adjusted trial balance

you have all revenues, 
you have all the expenses,

you have the dividends,
so all the accounts that affect

the ending balance of retained earnings
are here,

and because they are here,
this is the beginning balance.

How we transform this to the ending
balance of retained earnings?

First we need to add the profit.
What is the profit?

We calculate the profit through
the profit and loss summary account.

This is the profit 9610

so we will need to add 1500 plus 9610

and we need to deduct the dividends 600.

That's why in the post closing 
entries trial balance,

all the accounts are the same 
as the adjusting trial balance

after adjustment but retained earnings
is 10510.

How do we calculate this?

This is the ending balance 
of retained earnings.

Here you have the explanation.

Beginning balance 1500 that we have
in the adjusted trial balance

plus the profit 9610

which is the result of the profit 
and loss summary account

less the dividends, 600.

If you calculate this you get,

you will get the ending balance 
of retained earnings

And this will be the total.

Total debit, total credit,
that should be the same

Any question?

All good? 
Excellent.

Excellent, we've finished.

At least we finished earlier 
than last week.

Last week was a marathon that we did

but today we finished earlier 
than last week.

But if you have any last questions
of course I will be happy to answer you.

Anything that you would like 
to ask or discuss?

Yeah last week was a lot,
yes.

Okay, thank you very much.

Have a great evening and a great week.

Ok, see you next week.

Bye, thank you all of you.
Thank you.