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4b4e38a4-1395-415d-94fd-3fc7bb2ec59f - Lecture & Workshop 3 RFCC.mp4

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    LECTURER: Ok, hello everyone.
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    Welcome again to the Accounting
    and Governance class.
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    Could anyone please tell me
    if the volume is ok?
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    Perfect. Ok, thank you.
    Thank you.
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    So, I hope you have had
    a very good week,
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    and I hope that you will do well
    in your first assessable homework
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    that is in the process of marking
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    by another lecturer,
    that is the person who will mark
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    all our assessment.
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    So just be a bit patient,
    during this week
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    we will release the results of the
    first assessable homework.
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    Now today we will continue
    with what we started last week.
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    Last week what you learnt was
    how to record transactions
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    using debits and credits
    and preparing the journal entries
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    and you know that for
    each journal entry
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    you need at least two entries,
    one debit entry and one credit entry.
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    it could be more than two,
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    but normally we have one debit
    and one credit
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    and of course the total debit
    and total credit should be the same,
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    the same amount in each journal entry.
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    So what we will go through
    today is
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    another type of entries
    which is adjusting entries.
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    I hope you have studied the
    material that is posted
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    on the course learning at Griffith,
    you have watched the videos
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    and looked at the PowerPoint too
    and have of course understanding of this.
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    But as usual I will explain everything
    you need to understand well,
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    how to deal with these
    different types of entries
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    that are the adjusting entries.
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    The purpose of this session
    is that you will end the session
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    with a clear understanding of that,
    adjusting entries and also closing entries
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    which is another type of entry.
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    The journal entries that you
    learnt last week
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    are entries that you prepare
    from transactions
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    that you have in the business so when
    the accountant records these transactions
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    the accountant receives information
    that is mainly through the cash received
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    and cash paid so they are
    very based on the cash.
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    Cash received and cash paid.
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    I will answer that Jade
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    They are mainly related to
    cash received and cash paid
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    but sometimes the accountant also receives
    information of invoices
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    that are sent to customers so they record
    an income or revenue and purchases
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    so they record the purchase as well.
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    So not all are cash journal entries
    but most of them I would say yes.
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    The first difference with adjusting entries
    is in adjusting entries,
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    we do not involve cash.
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    Cash is never involved
    in an adjusting entry.
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    So what are these adjusting entries?
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    And in this I will answer what Jade asked.
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    Why adjustments are not done each month
    as a normal activity
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    then it will not be such
    a big adjustment at the end,
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    and you are totally correct Jade
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    But that depends...
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    it depends on what is
    our accounting period.
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    It depends on the company.
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    The normal accounting period
    is one year.
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    If a company does not prepare
    financial statements every month
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    for example, or every quarter,
    well, it will happen what you said.
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    The adjusting entries are
    at the end of the year.
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    But what's happening there
    in the real world
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    companies prepare the financial
    statement
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    every quarter or even every month
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    and in that case if we define the
    accounting period as one month
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    that means at the end of the month
    we need to prepare the adjusting entries.
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    The concept of adjusting entries is that
    we prepare adjusting entries
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    at the end of the accounting period,
    ok?
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    That is the thing.
    At the end of the accounting period.
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    If the accounting period is one month
    we prepare adjusting entries
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    at the end of the month.
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    If the accounting period is the whole year
    we prepare the adjusting entries
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    at the end of the year, ok?
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    That is one concept that we need to
    have in relation to adjusting entries.
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    The other thing is what we are adjusting
    because the name is adjusting entries?
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    What we are adjusting with these entries.
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    We adjust revenues or income
    and expenses.
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    That is what we adjust to reflect
    in the financial statements,
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    all the income or revenue
    that has earned in the period,
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    and to reflect all the expenses
    that have been incurred during the period.
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    That is what we show with
    the adjustment entries.
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    That's why we cannot do adjustment entries
    in the middle of the month
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    or at the beginning of the month,
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    it's always at the end of the period
    because at the end of the period
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    we want to have in our
    financial statement
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    all the income earned in that period
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    and all the expenses incurred
    in that period.
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    So this is the most
    important concept
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    to start with adjusting entries.
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    Then as I said some expenses
    and revenue menu can be recorded exactly,
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    that's the things, others,
    some expenses revenues cannot be recorded
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    we need to adjust to have
    all the expenses incurred recorded
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    and the same for income or revenue.
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    To align with the business
    activity statement,
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    the business activity statement
    is a tax concept.
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    In many cases the tax period is the same
    as the accounting period
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    in that case a year but we need
    to be careful that we do not mix
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    with the tax concept when we
    are talking with accounting
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    because there may be some differences.
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    Ok, so we will start as usual today
    with the lecture
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    in which I will pose
    four multiple choice questions.
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    You will answer the questions,
    and this will be a good feedback
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    for you and for me about
    the understanding of some basic concepts
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    of this topic.
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    If I see that the distribution of
    your answer is not very good
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    which is a good feedback
    in the sense that that lets me explain
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    why this answer is correct
    or why it's not correct
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    for your own learning.
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    We will discuss that and I will use
    these questions to explain
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    probably some of the concepts
    if they are not clear.
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    So please feel free as usual to ask
    any question during the lecture
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    and then during the workshop.
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    Last week we talked for more than
    four and a half hours
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    in the whole thing because
    of the number of questions
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    but probably today we will be less than
    that because the topic is more specific
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    but I am happy to answer all the questions
    to explain well,
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    my main purpose is for you
    to understand these topics.
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    That is the main purpose because then
    you will be evaluated on this topic
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    The second assessable homework
    will be next week
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    after the topic four,
    module four.
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    So that assessable homework two
    includes this module,
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    module three,
    adjusting and closing entries
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    and also the module four.
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    That's why it's very important,
    if there is anything you do not understand
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    please ask, ok?
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    I hope no Jade (INAUDIBLE)
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    Jade I hope it will not be
    four and a half hours.
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    Ok, for me it's ok.
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    I have enough energy I think
    to beat four and a half hours.
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    I feel sorry for you sometimes but
    maybe you're very tired after that time
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    but we will do the best we can.
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    Ok, so we will start
    with the questions...
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    Here we have the first question, ok?
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    Have a look.
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    The question is when is the $1000
    considered to be earned?
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    So it's about the day in which this
    is considered to be earned.
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    Look at all the dates that you
    have there and then define
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    and you can vote for your answer
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    When they are earned?
    Take your time.
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    Pima can't see properly, ok.
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    Pima, you can zoom,
    I will put a bit bigger.
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    Maybe that can be...
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    Ok, good.
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    Ok, what is the answer?
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    We have a distribution of answers
    in the poll
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    so it's good to explain a bit.
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    That is the feedback I need,
    so if there are
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    a whole distribution
    of your answers means, yeah.
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    I need to explain how can we determine
    when the $1000 are earned.
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    Most of you actually answered correctly
    but there are of course,
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    there are many other different answers.
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    So this question is about
    when revenue is earned, ok?
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    That is the question,
    we are using accrual accounting.
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    In accrual accounting revenue is recorded
    when it is earned
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    not when cash is received,
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    and expenses when they are incurred
    not when they are paid, ok?
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    So we need to identify from the dates
    when these $1000 are earned.
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    The dress manufacturer received
    a purchase order for 10 dresses
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    for a total price of $1000,
    15th November.
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    On 15th November the manufacturer
    received the order, nothing happened,
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    so the revenue is not earned, ok?
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    The 10 dresses were delivered
    on 30th November.
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    Delivered means that revenue is earned.
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    When is revenue earned?
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    When the products are delivered
    to the customer.
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    They are passed from the company
    to the customer.
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    At that point, revenue is earned.
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    In the case of services,
    it's when services are provided.
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    When the service is provided,
    service revenue is earned.
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    So that is the correct answer, ok?
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    There is some echo, probably
    somebody has the microphone on.
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    So this is the correct answer,
    and the other dates,
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    the customer is sent an invoice
    on 5th December.
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    No, the producer already delivered it,
    doesn't matter that the invoice was sent
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    after the delivery of the products.
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    The payment, that means the check
    is received 10th December.
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    Again, it's not related with when we
    receive the payment
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    or when we bank the payment.
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    So, the correct answer is that.
    any questions?
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    What is the answer Adash?
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    I put here, can you see the blue...
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    I wrote in the screen,
    the blue circle.
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    It doesn't save.
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    30th November, that is the correct answer.
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    I'm not sure if... Can you see
    because I drew a blue circle in C
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    Can you see that?
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    Ah, it's not a line.
    Double is in the white space.
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    Ah, I didn't know that. Ok.
    Ok, interesting.
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    In my screen it's exactly in C
    but probably there are differences in this
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    Probably just zoom each,
    probably.
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    I move my zoom in and out
    and the circle is in C, it doesn't move.
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    Ok, we go to the next one.
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    If a resource has been consumed
    but an invoice has not been received
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    at the end of the accounting period,
    which of this is correct?
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    I will update...
    It doesn't move the page.
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    Ok, if you cannot follow this
    I can change to put...
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    Yes, I will reset the board.
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    Ok, so if a resource has been consumed
    but an invoice has not been received
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    at the end of the accounting period,
    what is the situation?
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    We have some different answers
    but most of you are correct.
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    The correct answer is B.
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    Ok, B, an adjusting entry should be
    recorded to recognize the expense.
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    Why is this?
    Because the resource has been consumed.
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    When expenses are incurred is when
    the resources are used or consumed.
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    That means that we need to record
    an expense, ok?
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    So in this case the only one,
    and adjusting entry should be recorded
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    to recognize the expense.
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    Any question on this?
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    Is it clear?
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    Ok, we will go to the next one,
    thank you Jade.
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    Number three,
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    if an entity fails to adjust
    the prepaid rent account
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    for rent that has expired,
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    what effect will this have on the
    monthly financial statement?
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    Here you need to think a bit more
    because it's what's happening,
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    the adjusting entry was not recorded,
    what would be the effect on that?
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    I will update the poll.
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    The previous answer was B.
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    It is prepaid rent failed to adjust
    for the month that was paid.
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    This is the prepaid rent that was recorded
    as a prepaid rent
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    but now in this month the rent has expired
    so it was used,
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    the office or the building
    that we are renting was used, yeah.
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    You see in my poll you still chose
    number one, is it correct?
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    Ah, yes, yes.
    I didn't change the numbers,
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    I just updated the poll solutions,
    but I didn't change the number.
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    This is for the question three, for each
    question I update the poll,
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    I do not change the number because that
    takes a bit more time
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    to change that number
    so I just update the answers
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    to lead them in zero,
    you come out again for each question.
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    Ok, so we have a distribution of answers
    and now there is a whole distribution
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    of the answers,
    so I think this is important to explain.
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    If an entity fails to adjust
    a prepaid rent account
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    that means we have a
    prepaid rent account
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    we pay in advance the rent
    of the office,
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    we'll assume that this is the rent
    of the office.
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    We pay in advance the rent of the office
    before we use the office, we pay.
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    How do we record that?
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    We record that as a prepayment
    which is an asset, we debit that,
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    and we credit cash.
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    So we debit prepayment,
    we credit cash.
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    That was the original entry.
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    Now at the end of this period,
    it says that the rent has expired
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    so we used the office for this period
    so that is what we need to adjust.
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    We need to credit the prepaid rent
    for the amount of the rent that expired
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    we need to credit prepaid rent
    and we need to debit the expense.
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    What happens if we do not do this?
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    I will write in the same paper
    what this means,
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    so we will...
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    when we do the adjustment
    we will increase, ok, the expenses,
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    we increase expenses,
    that is one of the entries,
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    we debit rent expense
    and we will decrease the prepaid rent,
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    the prepayment, ok?
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    I will just put prepayment,
    pre.
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    This is the prepaid rent
    which is an asset.
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    What effect will this have
    on the monthly financial statement
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    if we do not record this?
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    If we do not do this,
    what is the effect?
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    What happened with the expenses?
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    Expenses will be understated
    because we didn't record this.
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    What happens we will have in assets,
    assets will be overstated.
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    So to find the right answer here
    you need to look at all the answers.
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    What answers we had that assets
    are overstated? Only D and E.
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    In C, well...
    Sorry, C, D and E.
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    In A it doesn't say anything
    about assets
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    B, nothing about assets,
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    so only C, D and E assets
    will be overstated.
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    That is one thing because of this,
    because we didn't decrease the prepayment
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    which is an asset.
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    Assets will be all overstated.
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    How will we know which one is correct?
    C, D or E?
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    We need to look at those expenses
    will be understated,
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    but we don't have this,
    C, D and E talk about profits.
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    Then you need to relate profit
    with expenses.
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    If expenses are understated,
    what happens with profits?
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    Profit will be overstated, ok?
    Profit will be overstated.
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    That's why E will be incorrect answer.
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    Is that clear that, very well?
    Profit increases?
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    So we need to relate this,
    you can see now we are using
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    all the elements that you had
    planned before, ok?
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    Profit equals revenues plus expenses.
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    These expenses are understated,
    profit is overstated.
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    Any question?
    Ok.
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    Yes, (INAUDIBLE)
    I need to add one more thing.
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    Profit will be overstated and that is
    the answer for question D and E.
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    What is the difference between D and E?
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    Equity in D will be understated,
    in E equity will be overstated.
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    So now we need to relate
    the profit with equity.
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    So when profit is overstated,
    equity is overstated.
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    If profit is understated,
    Equity is understated.
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    So what is correct?
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    Asset overstated, profit and equity
    would be overstated.
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    Ok, that answer your question Jade?
    Good.
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    Ok, so we will go through the last one.
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    Here you have the last one
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    On 1st September Carlson Limited borrowed
    $10,000 from the bank for three months
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    at the annual interest rate of 9%.
    Annual interest rate 9%.
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    Principal and interest are payable
    to the bank on 1st December,
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    so this is for three months long.
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    If the company prepares monthly
    financial statements
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    the adjusting entry that the company
    should make for interest on 30th September
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    that means after one month would be
    which of these ones?
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    I will reupdate the poll.
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    Ok. So how we determine this,
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    we need to look at what is the interest
    for one month
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    because the expense incurred in this case
    the interest expense,
  • 31:55 - 31:59
    is the interest that...
  • 31:59 - 32:03
    that is the interest for only one month.
  • 32:03 - 32:08
    We are preparing the adjusting entry
    at 30th of September.
  • 32:08 - 32:15
    The loan started on 1st September
    so it's the interest for one month.
  • 32:15 - 32:21
    This will clarify the answer for if you
    calculate the interest for the year.
  • 32:21 - 32:27
    The annual interest rate is 9%,
    for one month it will be 9% divided by 12
  • 32:27 - 32:31
    that is the interest per month,
    and then you multiply by $10000
  • 32:32 - 32:37
    to calculate what is the interest
    per month which is $75.
  • 32:37 - 32:40
    So at the end of September
    we need to record,
  • 32:40 - 32:46
    debit interest expense $75,
    and credit interest payable
  • 32:46 - 32:52
    because it will not be paid until
    1st December.
  • 32:53 - 33:00
    So we debit interest expense $75
    we credit interest payable, $75,
  • 33:00 - 33:04
    the correct answer is D, ok?
  • 33:07 - 33:10
    Ok at that?
  • 33:12 - 33:16
    When we have a loan
    we need to pay interest.
  • 33:16 - 33:19
    What is that interest?
    It's an expense.
  • 33:19 - 33:23
    It's the expense incurred because
    we borrowed money.
  • 33:23 - 33:29
    And we can calculate based on
    the interest rate.
  • 33:29 - 33:34
    The interest rate is always given
    and always is given per annum
  • 33:34 - 33:37
    so what is the annual interest rate?
  • 33:37 - 33:42
    In this case it is 9%,
    you can see here.
  • 33:42 - 33:46
    9% is the interest rate,
    but this is the interest rate
  • 33:46 - 33:48
    for 12 months, ok?
  • 33:49 - 33:53
    So to calculate, very well Joshua,
    to calculate per month
  • 33:53 - 34:00
    we need to multiply the 9% by 112,
    or simply divide it by 12, ok?
  • 34:00 - 34:04
    And then you will have what is
    the interest per month
  • 34:04 - 34:10
    because between the 1st of September
    and 30th September
  • 34:10 - 34:14
    we need to prepare the adjusting entries,
    it's one month.
  • 34:14 - 34:20
    so the interest expense will be
    the interest for only one month, ok?
  • 34:20 - 34:27
    So very good.
    Good Adash and that is $75.
  • 34:28 - 34:30
    Ok, so we've finished
    the multiple choice questions,
  • 34:30 - 34:37
    do you have any questions about concept
    because now we will apply the concept
  • 34:37 - 34:41
    in exercises about adjusting entries,
  • 34:41 - 34:46
    so any question about concepts that
    you would like to ask at this point?
  • 34:49 - 34:53
    All good?
    Ok.
  • 34:54 - 34:58
    So, we will go...
    Excellent Ruby, thank you.
  • 34:59 - 35:07
    Yes, yeah, we will go through
    the practice questions now.
  • 35:07 - 35:12
    And I will start briefly with a very...
  • 35:13 - 35:16
    a very brief review of what
    you have learnt
  • 35:16 - 35:18
    about adjusting entries.
  • 35:21 - 35:24
    It is only three months,
    just another.
  • 35:24 - 35:28
    It's only three months long because
    it starts on 1st September
  • 35:28 - 35:32
    and is payable on 1st December.
  • 35:33 - 35:35
    The interest and the principal both.
  • 35:35 - 35:44
    So you pay back the $10000 on 1st December
    with all the interest of the three months.
  • 35:46 - 35:55
    Ok, now we will talk a bit about
    adjusting entries.
  • 35:59 - 36:03
    I will explain using this diagram
    that you have in your PowerPoint
  • 36:03 - 36:08
    and you have seen in your videos,
    I will not go into whole detail of course
  • 36:08 - 36:13
    but just with this...
    this is the big summary.
  • 36:13 - 36:15
    The big summary of adjusting entries.
  • 36:16 - 36:22
    We have two types
    of adjusting entries
  • 36:22 - 36:25
    or I would say four types
    if we combine revenues and expenses.
  • 36:25 - 36:30
    But we have the accruals
    and we have the prepayments, ok?
  • 36:30 - 36:34
    They are two different adjusting entries.
    What means accrual?
  • 36:34 - 36:40
    Accrual if we're talking about revenue
    means receivable, ok?
  • 36:40 - 36:47
    Accrued revenue it will be the same as
    to say revenue receivable.
  • 36:48 - 36:53
    Accrued expenses when you see this term,
    accrued expenses,
  • 36:53 - 36:57
    that means expenses payable, ok?
  • 36:57 - 37:01
    So accruals means receivable or payable
  • 37:01 - 37:05
    depending on whether it's revenues
    or expenses.
  • 37:06 - 37:09
    And then we have the prepayments.
  • 37:09 - 37:14
    Prepayments means payments in advance,
    ok?
  • 37:14 - 37:21
    We can receive a payment in advance
    and that is what we call
  • 37:21 - 37:26
    unearned revenue or revenue received
    in advance, ok?
  • 37:26 - 37:30
    That is the payment received
    in advance,
  • 37:30 - 37:36
    Or we can pay in advance and that is
    what we call prepayments.
  • 37:38 - 37:43
    So these adjustments,
    and these are all the adjustments,
  • 37:43 - 37:47
    there are no other adjustments for
    timing differences.
  • 37:47 - 37:51
    There are adjustments to correct errors,
    we will not go there,
  • 37:51 - 37:53
    we are talking about the timing difference
  • 37:53 - 37:58
    that means to record revenues
    when they are earned,
  • 37:58 - 38:00
    expenses when they are incurred.
  • 38:00 - 38:03
    All the purpose of adjusting entries
    is that,
  • 38:03 - 38:07
    to record the revenues
    in the accounting period
  • 38:07 - 38:13
    that are earned in that accounting period
    and to record expenses that are incurred
  • 38:13 - 38:16
    in that accounting period.
  • 38:16 - 38:21
    From the normal transactions that
    you learnt last week,
  • 38:21 - 38:25
    we may have many cases in which revenue
    was not recorded,
  • 38:25 - 38:30
    expenses was not recognized as well,
    and we need to adjust them
  • 38:30 - 38:33
    because the main purpose
    of the financial statements
  • 38:33 - 38:39
    in particular the income statement
    is to show the revenues
  • 38:39 - 38:43
    earned in that period,
    in the period of the income statement
  • 38:43 - 38:48
    and to show the expenses incurred
    in the same period.
  • 38:48 - 38:51
    So that is the purpose
    of adjusting entries,
  • 38:51 - 38:59
    to reflect revenues earned and expenses
    incurred in the accounting period.
  • 38:59 - 39:03
    So this is the big summary.
    Now how do we deal with this?
  • 39:03 - 39:09
    Well, in the case of prepayments
  • 39:09 - 39:12
    in the case of prepayments
  • 39:12 - 39:18
    we have different accounts that can
    be considered as a prepayment.
  • 39:18 - 39:23
    One is the prepaid expenses like
  • 39:23 - 39:27
    prepaid insurance, prepaid rent,
  • 39:27 - 39:33
    but there are others that we can give
    the same treatment of this prepayment
  • 39:33 - 39:37
    which is supplies or depreciations.
  • 39:37 - 39:42
    That means the payments that
    the company makes in advance
  • 39:42 - 39:45
    and therefore they are considered
    as prepayments.
  • 39:45 - 39:50
    So what are the terms involved
    in this prepaid expenses?
  • 39:50 - 39:56
    Well, we have an asset that has an
    unadjusted balance.
  • 39:56 - 40:03
    For example, we have prepaid insurance.
    That is an account of asset.
  • 40:03 - 40:09
    And we do not adjust this because we pay
    for that at the beginning of the t,
  • 40:09 - 40:15
    ok, 1st of January for example,
    and then on the 30th June we are halfway
  • 40:15 - 40:19
    of the total period provided
    by the policy.
  • 40:19 - 40:24
    The policy normally,
    the insurance policy covers 12 months.
  • 40:24 - 40:28
    So we are using the policy
    during 12 months.
  • 40:28 - 40:30
    But what's happening in June?
  • 40:30 - 40:36
    Well, we do not have the same amount
    in assets because we already consumed
  • 40:36 - 40:42
    half of the policy, six months,
    so half of the policy has been consumed.
  • 40:43 - 40:47
    Then we need to adjust the amount
    in assets.
  • 40:47 - 40:52
    Here you had the unadJusted balance
    of the asset,
  • 40:53 - 40:56
    that is the total amount of the policy,
    we need to adjust that.
  • 40:56 - 41:01
    How do we adjust that?
    We need to record an expense.
  • 41:01 - 41:06
    An expense for the six months use
    of the policy.
  • 41:06 - 41:10
    So we will record debit expense,
    that is the adjusting entry,
  • 41:10 - 41:16
    we debit the expense,
    and we decrease the asset
  • 41:16 - 41:21
    that means we credit
    the prepaid insurance.
  • 41:21 - 41:27
    So you can see here,
    this is your adjusting entry.
  • 41:27 - 41:30
    We have a debit entry,
    we have a credit entry.
  • 41:30 - 41:36
    We debit insurance expense,
    we credit prepaid insurance.
  • 41:36 - 41:40
    So this is one case.
  • 41:40 - 41:44
    And the same we will use for prepaid rent,
  • 41:44 - 41:50
    for supplies, for depreciation, ok?
  • 41:50 - 41:53
    Jade did the question.
  • 42:01 - 42:04
    Oh good, excellent Jade.
    That's my purpose,
  • 42:04 - 42:09
    just to explain in detail what it means,
    this thing.
  • 42:09 - 42:12
    Is there anybody that might have
    a question on this?
  • 42:15 - 42:20
    We will go through the four
    that are adjusting entries.
  • 42:20 - 42:25
    This is related to the prepaid expenses.
  • 42:27 - 42:31
    Ok, we go through the second one.
  • 42:31 - 42:36
    The second one is what we call
    the un-earned revenues.
  • 42:36 - 42:42
    So revenues received in advance,
    what is the concept?
  • 42:42 - 42:47
    Imagine that the company
    has a building,
  • 42:47 - 42:51
    and they are renting offices
  • 42:51 - 42:57
    from this building so they have a
    number of clients that rent offices.
  • 42:57 - 43:02
    And they ask the tenants
    to pay in advance
  • 43:02 - 43:06
    before they start using the building,
  • 43:06 - 43:11
    they have to pay for example
    three months in advance.
  • 43:11 - 43:14
    So the company received the cash
    for this,
  • 43:14 - 43:18
    but the tenant still is not using
    the office,
  • 43:18 - 43:20
    so how will we record this first entry?
  • 43:20 - 43:23
    This is the entry that you learnt
    last week,
  • 43:23 - 43:25
    this is a normal transaction.
  • 43:25 - 43:29
    The company receives cash
    so we will debit cash, ok?
  • 43:29 - 43:34
    And we will have this
    unearned revenue
  • 43:34 - 43:38
    or rent revenue received in advance
  • 43:38 - 43:42
    which is a liability for that amount.
  • 43:43 - 43:44
    Why is this a liability?
  • 43:44 - 43:49
    Because at this point the company
    has not provided yet
  • 43:49 - 43:53
    the office for the tenant to use, ok?
  • 43:53 - 43:59
    The tenant has not used the office yet,
    they pay in advance.
  • 43:59 - 44:03
    So we have a liability because we have
    an obligation to provide the office,
  • 44:03 - 44:06
    the tenant already paid.
  • 44:06 - 44:09
    Now, what happens after one month
  • 44:09 - 44:12
    if we are doing financial statements
    every month.
  • 44:12 - 44:17
    We need to prepare an adjusting entry
    because we already provided this service
  • 44:17 - 44:20
    to the tenant,
    we already provided the office,
  • 44:20 - 44:25
    the tenant used this resource
    already one month,
  • 44:25 - 44:29
    so we need to adjust
    our liability accounts.
  • 44:29 - 44:34
    So the liability account has
    an adjusted balance, ok?
  • 44:34 - 44:39
    When the tenant pays in advance,
    and now after one month
  • 44:39 - 44:45
    we need to reduce this for the month
    the office was already used.
  • 44:45 - 44:50
    So we will debit this liability
    that is part of the adjusting entry,
  • 44:50 - 44:57
    and we will credit revenue because now
    we earn this revenue,
  • 44:57 - 45:00
    that is the rent revenue.
  • 45:00 - 45:04
    We earn that because
    we already provided one month
  • 45:04 - 45:09
    the renting of the office to the tenant.
  • 45:09 - 45:13
    So here you have again,
    the adjusting entry.
  • 45:13 - 45:17
    We have one debit entry,
  • 45:17 - 45:22
    the rent revenue received in advance,
  • 45:22 - 45:25
    a debit entry,
    and we will have a credit entry
  • 45:25 - 45:30
    which is simply rent revenue.
  • 45:33 - 45:36
    Any question on this second one?
  • 45:40 - 45:44
    We will practice with many
    exercises today
  • 45:44 - 45:50
    for you to have a very, very clear
    understanding of the adjusting entries.
  • 45:51 - 45:55
    Ok, the last two.
  • 45:55 - 45:59
    The last two I would say they are simple
    adjusting entries.
  • 46:00 - 46:05
    We have accrued revenues.
    As I mentioned before,
  • 46:05 - 46:12
    accrued revenues means
    revenues receivable.
  • 46:12 - 46:19
    This is the case when the company
    sells products or provides services
  • 46:19 - 46:24
    but we still do not record that sale
  • 46:24 - 46:28
    and we have not received the cash yet,
  • 46:28 - 46:32
    but the service is provided
    or the products are delivered
  • 46:32 - 46:34
    so we need to record revenue.
  • 46:34 - 46:39
    If we have not recorded this
    in the normal journal entry
  • 46:39 - 46:45
    that you learnt last week,
    we will need to record the revenue.
  • 46:45 - 46:49
    Sales revenue or service revenue,
    so we credit this.
  • 46:49 - 46:54
    What will be the other accounting ball?
    It will be the receivable.
  • 46:54 - 46:57
    An accounts receivable which is an asset
  • 46:57 - 47:01
    so here you have debit
    the accounts receivable
  • 47:01 - 47:05
    credit service revenue
    or sales revenue,
  • 47:05 - 47:10
    depending on whether we are
    selling produce or providing services.
  • 47:10 - 47:13
    So that is the third adjusting entry
  • 47:13 - 47:18
    and the last adjusting entry
    is accrued expenses.
  • 47:18 - 47:23
    That means expenses payable.
  • 47:23 - 47:30
    So this is the case when we have
    an expense incurred
  • 47:30 - 47:36
    but we have not recorded that,
    the most typical case is employees
  • 47:36 - 47:41
    that work during the month.
    We have not paid their salaries yet
  • 47:41 - 47:45
    because we pay the first days
    of the following month,
  • 47:45 - 47:49
    so we didn't record the expense
    but they already worked,
  • 47:49 - 47:53
    so there is a resource that has
    been consumed
  • 47:53 - 47:57
    and therefore we need
    to record an expense.
  • 47:57 - 48:05
    We need to record an expense
    and so we debit salaries expense,
  • 48:05 - 48:09
    for example, but because we have
    not paid yet in this period,
  • 48:09 - 48:15
    we need to record a credit in this
    liability which is salaries payable.
  • 48:15 - 48:20
    So here we have our adjusting entry.
  • 48:21 - 48:28
    This is in a very brief summary what
    you have learnt about adjusting entries.
  • 48:28 - 48:31
    Any question at this point?
  • 48:37 - 48:39
    All good?
  • 48:39 - 48:44
    So we can now apply these two
    practical exercises
  • 48:44 - 48:48
    and we will work with many
    adjusting entries,
  • 48:48 - 48:53
    so you will have the opportunity,
    to practice now with this
  • 48:56 - 48:58
    so I will put that...
  • 49:23 - 49:27
    Can you see the exercise?
    I am not sure about the zoom,
  • 49:27 - 49:32
    if it is ok or not,
    but I hope it's ok.
  • 49:33 - 49:37
    Ok, excellent, excellent.
    Thank you Jade, thank you all of you.
  • 49:37 - 49:44
    Ok, so we will apply to this exercise
    and we will start the exercise
  • 49:44 - 49:48
    at the point that we left last week.
  • 49:48 - 49:51
    Do you remember what we did last week?
  • 49:51 - 49:56
    We prepared the normal journal entries
    that come from transactions
  • 49:56 - 50:00
    and then we post the journal entries
    into ledger accounts,
  • 50:00 - 50:04
    and then we prepare a trial balance.
  • 50:04 - 50:08
    And we call that the unadjusted
    trial balance
  • 50:08 - 50:14
    because it's a trial balance that
    is prepared before the adjusting entries.
  • 50:14 - 50:21
    Ok, so we will start with this,
    the unadjusted trial balance, ok?
  • 50:21 - 50:24
    at 30th June.
  • 50:24 - 50:30
    And as you remember the trial balance
    is simply the list of all the accounts,
  • 50:30 - 50:34
    here you can see cash, account receivable,
    prepaid insurance, supplies,
  • 50:34 - 50:37
    all the accounts of the company, ok?
  • 50:37 - 50:41
    With the ending balance at
    the end of the period
  • 50:41 - 50:45
    so you can see the trial balance,
    the unadjusted trial balance
  • 50:45 - 50:50
    is prepared at the end of the period
    is the first thing that we do
  • 50:50 - 50:54
    at the end of the period before preparing
    the adjusting entries, ok?
  • 50:54 - 50:57
    So we prepare the unadjusted trial balance
  • 50:57 - 51:02
    and we have the ending balance
    for each of these accounts.
  • 51:02 - 51:07
    The ending balance of cash,
    the ending balance of accounts receivable
  • 51:07 - 51:14
    and service revenue is sitting
    on the fence, yes.
  • 51:14 - 51:16
    It moves to the fence,
    it should be here.
  • 51:16 - 51:19
    It should be on the column of credit
    of course,
  • 51:19 - 51:21
    that is a typing thing.
  • 51:21 - 51:25
    Service revenue should be
    in the credit side of course,
  • 51:26 - 51:29
    76,600.
  • 51:29 - 51:33
    Salaries expense, rent expense,
    so you have all of these.
  • 51:34 - 51:39
    The characteristic of the trial balance is
    that total debit should equal total credit
  • 51:39 - 51:46
    and you can see total debit, 201200
    and the same as total credit.
  • 51:46 - 51:51
    So this is our starting point
    for this exercise.
  • 51:51 - 51:53
    What means this?
  • 51:53 - 51:56
    All the normal journal entries
    are already recorded,
  • 51:56 - 52:00
    all of them are posted to
    the general ledger
  • 52:00 - 52:03
    and we prepare this unadjusted
    trial balance.
  • 52:03 - 52:08
    What is next?
    Well, here you have the exercise.
  • 52:08 - 52:16
    One thing before we go to the next page
    these are not the total,
  • 52:16 - 52:19
    all the accounts of the company.
  • 52:19 - 52:24
    There are accounts that they have
    zero balance,
  • 52:24 - 52:27
    and of course they are not in the
    unadjusted trial balance
  • 52:27 - 52:30
    but here you have them listed.
  • 52:30 - 52:33
    The accumulated depreciation
    is one account,
  • 52:33 - 52:38
    office equipment another,
    electricity payable, salaries payable,
  • 52:38 - 52:39
    and so on.
  • 52:39 - 52:42
    So there are a number of accounts
    that have zero balance,
  • 52:42 - 52:48
    and therefore they are not in this
    unadjusted trial balance,
  • 52:48 - 52:52
    but they are accounts.
  • 52:53 - 52:59
    So we will go through the exercise.
  • 52:59 - 53:01
    Here we have added data.
  • 53:01 - 53:06
    This added data refers to
    the adjusting entries
  • 53:06 - 53:09
    that we need to prepare.
  • 53:09 - 53:13
    They are related to revenues earned
  • 53:13 - 53:16
    or income earned and expenses incurred
  • 53:16 - 53:23
    so we need to prepare one adjusting entry
    for each of this additional data
  • 53:23 - 53:27
    and that is what is required,
    if you look at the question requirements,
  • 53:27 - 53:30
    prepare the adjusting entries
    for the month of June
  • 53:30 - 53:33
    so this is just for one month.
  • 53:33 - 53:35
    Prepare the adjusted trial balance
  • 53:35 - 53:38
    that is prepared after
    the adjusting entries
  • 53:38 - 53:42
    and we will calculate the profit
    for the month.
  • 53:42 - 53:48
    So we will go one by one
    to see how to prepare this.
  • 53:48 - 53:54
    And I will detail all of them
    in this first exercise
  • 53:54 - 53:58
    and then I will go a bit more quick
    in the second exercise,
  • 53:58 - 54:01
    or in the exercise of the workshop.
  • 54:01 - 54:08
    So the first, supplies on hand
    at 30th June total 7200.
  • 54:09 - 54:19
    What this tells you,
    supplies on hand total 7200.
  • 54:19 - 54:26
    Well, if this is the data we have
    that means somebody went to the...
  • 54:26 - 54:30
    To the place that we have the supplies,
    they count them,
  • 54:30 - 54:33
    they value them and at the end
    the conclusion is
  • 54:33 - 54:39
    we have 7200 supplies on hand.
    That means not used.
  • 54:39 - 54:45
    How much do we have in our
    unadjusted trial balance?
  • 54:45 - 54:52
    So we need to look at here,
    supplies. 13,300.
  • 54:52 - 54:59
    But it says that we have only 7200 so
    that means we need to make an adjustment.
  • 54:59 - 55:05
    We need to reduce this 13,600
  • 55:05 - 55:10
    and to record an expense,
    a supplies expense for the difference.
  • 55:10 - 55:18
    So 13600 less 7200 that we have,
  • 55:18 - 55:22
    that means we have consumed
  • 55:22 - 55:27
    or used 6400 of supplies,
  • 55:27 - 55:29
    and that is the adjusting entry.
  • 55:29 - 55:32
    We need to record the expense for this
  • 55:32 - 55:37
    so we will have a supplies expense of 6400
  • 55:37 - 55:43
    and we will credit supplies to reduce
    the supplies account.
  • 55:44 - 55:51
    So here you have the first journal entry,
    adjusting entry.
  • 55:51 - 55:59
    Supplies expense debit 6400,
    and supplies credit 6400.
  • 56:00 - 56:06
    When you do this and you credit supplies
    by 6400,
  • 56:07 - 56:12
    if you remember the ledger accounts
    when we credit one of the ledger accounts
  • 56:12 - 56:18
    that is supplies, that will decrease
    the balance of supplies account
  • 56:18 - 56:23
    which is 13600,
    so now the new balance of supplies
  • 56:23 - 56:31
    is 7200 which is the amount that we
    really have in supplies.
  • 56:35 - 56:38
    Any question on this?
  • 56:38 - 56:42
    So this is the first adjusting entry.
  • 56:42 - 56:45
    Yes Natalia, yes please tell me.
  • 56:45 - 56:50
    NATALIA: Hello Herman,
    yeah I see...
  • 56:50 - 56:54
    I print out this, I guess many
    of us do print out
  • 56:54 - 56:58
    this worksheet information
  • 56:58 - 57:04
    of the sample of the questions,
    and we have ended one,
  • 57:04 - 57:10
    and last lecture I was asking you
    to let us print full ones
  • 57:10 - 57:16
    because it's hard to follow up because
    our worksheet is empty at the moment,
  • 57:16 - 57:23
    it means we follow up on the computer
    but can't do notes straight on our papers.
  • 57:23 - 57:27
    Yeah, this will be great because...
  • 57:27 - 57:34
    HERMAN: Yeah, actually I remember that
    and at 10 am today,
  • 57:34 - 57:40
    I uploaded the solution for the lecture
    exercise and the workshop exercise.
  • 57:40 - 57:45
    I opened that for you and for everybody,
  • 57:45 - 57:50
    so you can print them and you can be
    with the solutions
  • 57:50 - 57:54
    and you can follow the solutions
    NATALIA: Ok, now yeah...
  • 57:54 - 57:58
    You do this adjusting notes
    much in advance
  • 57:58 - 58:03
    but is it, you can give us indication
    when you do apply the solution
  • 58:03 - 58:08
    on a regular basis because our paper
    is usually a couple days before
  • 58:08 - 58:11
    I print out,
    and have this, yeah.
  • 58:11 - 58:16
    HERMAN: I will do that because I agree
    with what you asked me last week.
  • 58:16 - 58:20
    I agree that it's good that
    you have the solution
  • 58:20 - 58:24
    to follow the lecture and the workshop
    with the solution so you can take notes
  • 58:24 - 58:27
    in the solution which will be easier.
  • 58:27 - 58:34
    That' s why I opened today at 10 am and
    I put an announcement on the blackboard
  • 58:34 - 58:39
    for all of you to know that they are ready
    for you to print,
  • 58:39 - 58:44
    and I think that is what we talked
    because the idea
  • 58:44 - 58:49
    is that you try to do this by yourself
    without the solutions,
  • 58:49 - 58:50
    and that is the main purpose,
  • 58:50 - 58:54
    that's why I put in the same day
    of the lecture and workshop.
  • 58:54 - 58:59
    I will release these only for you
    to print out and to take that today,
  • 58:59 - 59:01
    later in workshop.
  • 59:01 - 59:05
    NATALIA: Ok, and how many it means
    they're empty for purpose,
  • 59:05 - 59:10
    we have a chance to try,
    and field solution is gonna be
  • 59:10 - 59:15
    in the very last day before lecture,
    for future use.
  • 59:15 - 59:18
    HERMAN: Yes, I will do that in that way
    all the time.
  • 59:18 - 59:21
    So I actually did the two purposes.
  • 59:21 - 59:24
    One purpose is for you to try
    without solutions,
  • 59:24 - 59:27
    just with your learning from the videos
    and PowerPoints,
  • 59:27 - 59:32
    and second, to have the solutions
    before the lecture and workshop
  • 59:32 - 59:36
    so you can go through them as well.
  • 59:38 - 59:44
    Ok, good.
    Excellent Natalia, thank you.
  • 59:45 - 59:48
    Now we can go to the second one.
  • 59:52 - 59:59
    The second says an electricity bill
    for 1200 has not been recorded
  • 59:59 - 60:05
    and will not be paid until next month,
    so what does this description mean?
  • 60:05 - 60:10
    If the company receives an electricity
    bill for 1200,
  • 60:10 - 60:15
    it means that they used,
    they consumed electricity for this amount.
  • 60:15 - 60:17
    It is already consumed therefore
    it is an expense,
  • 60:17 - 60:19
    but has not been recorded.
  • 60:19 - 60:22
    So the only thing,
    this is a simple adjusting entry,
  • 60:22 - 60:26
    the only thing that we need to do
    is to record the expense,
  • 60:26 - 60:33
    so we will have electricity expense, 1200,
    but because it was not paid this month,
  • 60:33 - 60:38
    next month will be paid,
    so we will credit a liability
  • 60:38 - 60:44
    which is electricity payable,
    and that is what you have here.
  • 60:44 - 60:48
    So in this adjusting entry
    we will record
  • 60:48 - 60:52
    debit electricity expense 1200,
  • 60:52 - 60:57
    credit electricity payable 1200.
    Yes Natalia?
  • 61:01 - 61:06
    Stella, Stella. I need to put you
    as a caption here...
  • 61:10 - 61:11
    Stella.
  • 61:20 - 61:25
    Give me a second because I need
    to put the caption here of Stella
  • 61:25 - 61:31
    but I don't find you in the list,
    we have a big list of students.
  • 61:42 - 61:46
    Near the top, ok?
  • 61:46 - 61:51
    Ah, there it is. T
    Ok, thank you Stella
  • 61:57 - 62:05
    Ok, yes Jade.
    You have a question?
  • 62:05 - 62:07
    JADE: I do, yes.
  • 62:07 - 62:12
    I put there instead of electricity payable
    I put accounts payable.
  • 62:12 - 62:15
    would that be okay or is that a problem?
  • 62:15 - 62:18
    HERMAN: It is ok.
  • 62:19 - 62:23
    If we are very strict in that
  • 62:23 - 62:28
    which is not the case because accounts
    payable is reasonable to use this.
  • 62:28 - 62:34
    When we talk about accounts payable,
    It's the accounts payable to suppliers,
  • 62:34 - 62:41
    so we always link accounts payable
    for the amount that we owe to suppliers.
  • 62:41 - 62:46
    That's why it's better,
    I would not consider it wrong
  • 62:46 - 62:51
    but it's better to put this explicitly
    electricity payable because this is...
  • 62:51 - 62:58
    These are utilities that the company
    received,
  • 62:58 - 63:02
    so electricity or water
    or that type of thing.
  • 63:02 - 63:06
    So I would prefer to put separated
    from accounts payable
  • 63:06 - 63:11
    just because the concept of accounts
    payable is linked to suppliers of produce.
  • 63:11 - 63:16
    Ok? But it's not wrong.
  • 63:16 - 63:22
    Ok, any other question for the second...
  • 63:22 - 63:26
    for the second adjusting entry?
  • 63:29 - 63:34
    So we'll go through the third
    adjusting entry.
  • 63:34 - 63:40
    Insurance policy, here you can see
    one statement that didn't say anything,
  • 63:40 - 63:44
    and you cannot do anything unless
    you go to the data
  • 63:44 - 63:48
    that is in the unadjusted trial balance.
  • 63:48 - 63:54
    The statement says the insurance policy
    is for a year commencing 1st May 2019.
  • 63:54 - 63:58
    Well, this is all what you need to
    prepare the adjusting entries,
  • 63:58 - 64:01
    because you have the unadjusted
    trial balance.
  • 64:01 - 64:06
    The only information here is that the
    insurance policy is for one year,
  • 64:06 - 64:10
    12 months, and starts on 1st May 2019,
  • 64:10 - 64:15
    so we will see what is the information
    we have in the unadjusted trial balance.
  • 64:15 - 64:21
    First, this company started
    on 1st May 2019
  • 64:21 - 64:25
    which is the same day
    of the insurance policy, ok?
  • 64:25 - 64:29
    Insurance policy is added 1st May 2019.
  • 64:29 - 64:35
    And the trial balance is at June 30.
  • 64:37 - 64:43
    What is the prepaid insurance?
    9600.
  • 64:43 - 64:51
    9600, this is for 12 months,
    so how much is per month?
  • 64:52 - 64:57
    It is 800, so this is equal, ok,
  • 64:57 - 65:03
    800.
    800 per month.
  • 65:06 - 65:11
    800 per month.
    Sorry for my numbers, I'm not very good.
  • 65:13 - 65:18
    So 800 is the insurance expense
    that how much we use
  • 65:19 - 65:23
    or consume of this policy per month.
    800 per month.
  • 65:23 - 65:30
    Now how many months between
    1st May until 30th June?
  • 65:32 - 65:34
    Two months, exactly.
    Two months.
  • 65:34 - 65:39
    So what will be the expense
    that we have to recognize
  • 65:39 - 65:43
    or to record on the 30th of June?
  • 65:43 - 65:47
    The expense for two months,
    that means 1600.
  • 65:48 - 65:52
    That should be a debit
    in insurance expense,
  • 65:52 - 65:58
    and a credit to prepaid insurance
    to reduce this 9600
  • 65:58 - 66:03
    because we already consumed 1600
    of insurance.
  • 66:03 - 66:10
    So the journal entry,
    the adjusting entry for this will be
  • 66:10 - 66:20
    debit insurance expense 1600,
    credit prepaid insurance 1600.
  • 66:23 - 66:26
    Ok, any question on this?
  • 66:30 - 66:35
    Ok, so we can have a look at the...
    Thank you Jade.
  • 66:36 - 66:42
    We can have a look at the next one.
    Salaries, sorry, not salaries.
  • 66:42 - 66:44
    That is the next one.
  • 66:44 - 66:49
    Number four, services were
    performed during the period
  • 66:49 - 66:55
    in relation to $3000
    of revenue in advance.
  • 66:57 - 67:00
    What does this description tell us?
  • 67:00 - 67:07
    First the description is telling us that
    we received revenue in advance,
  • 67:07 - 67:10
    that mean we received a payment
    in advance
  • 67:10 - 67:16
    and now in this period we provide services
    for 3000 of that payment.
  • 67:17 - 67:22
    We need to link this with how much
    we have in revenue received in advance
  • 67:22 - 67:28
    in the unadjusted trial balance
    so we will have a look.
  • 67:28 - 67:36
    The unadjusted trial balance, state this
    revenue received in advance, 4800.
  • 67:36 - 67:42
    Debit because we received this amount
    and we didn't provide the services
  • 67:42 - 67:48
    so we have an obligation to provide them
    and therefore it is a liability, ok?
  • 67:48 - 67:52
    Now we provide services for 3000
    of this 4800,
  • 67:52 - 67:59
    so we need to record a decrease in service
    revenue received in advance,
  • 67:59 - 68:06
    that means we debit 3000 in this account
    and we will have the current balance
  • 68:06 - 68:08
    of all these accounts,
  • 68:08 - 68:11
    so we debit 3000 in service revenue
    received in advance
  • 68:11 - 68:15
    and we will have a credit in service
  • 68:15 - 68:19
    because we earned already this revenue.
  • 68:19 - 68:23
    We provided the service.
    Yes Jade?
  • 68:25 - 68:31
    JADE: Is this classified as an adjustment
    or is it just as a mistransaction?
  • 68:31 - 68:36
    HERMAN: It's an adjustment because
    the original transaction
  • 68:36 - 68:40
    that we already recorded, it is here
    in the unadjusted trial balance.
  • 68:40 - 68:44
    What was the original transaction?
  • 68:44 - 68:50
    When this happens, the service revenue
    received in advance I will write here, ok?
  • 68:50 - 68:56
    We have debit cash because
    we received the payment, ok?
  • 68:56 - 68:59
    That was in the previous period.
  • 68:59 - 69:06
    We record cash for 4800.
    Sorry for the numbers.
  • 69:07 - 69:13
    So 4800. We debit cash,
    and we credit, ok?
  • 69:13 - 69:20
    This revenue received in advance,
    I will put it just like that.
  • 69:20 - 69:25
    Revenue received in advance
    we credit 4800.
  • 69:25 - 69:29
    This is the normal journal entry.
    This is the normal transaction
  • 69:29 - 69:35
    that we recorded in the last period,
    and that's why when you look at this entry
  • 69:35 - 69:42
    and we post the accounts in the ledger,
    this is what we have there, ok?
  • 69:43 - 69:46
    That is the original transaction.
  • 69:46 - 69:50
    What happens now is that
    we just provide services.
  • 69:50 - 69:55
    Of course we didn't receive more money
    because already we were paid in advance
  • 69:55 - 70:00
    but we provide the service
    so we need to decrease this
  • 70:00 - 70:05
    obligation or liability
    for the 3000 already provided.
  • 70:10 - 70:16
    Well, George, it says because the concept
    of revenue received in advance,
  • 70:16 - 70:21
    the concept of that account
    is that we received cash in advance.
  • 70:21 - 70:25
    That is what we received in advance,
    cash, the payment,
  • 70:25 - 70:30
    so if you look at the description,
  • 70:32 - 70:34
    services were performed
    during the period
  • 70:34 - 70:38
    in relation to.
    In relation to what?
  • 70:38 - 70:41
    To revenue received in advance.
  • 70:41 - 70:45
    If you look at this description,
    revenue received in advance,
  • 70:45 - 70:51
    what it means is that the company
    received cash in advance
  • 70:51 - 70:53
    to provide the services.
  • 70:54 - 70:59
    The customer paid before we provide
    the service to the customer.
  • 70:59 - 71:03
    Ok, so cash was involved
    in the original transaction
  • 71:03 - 71:09
    and that is the transaction that
    I showed you that I prepared,
  • 71:09 - 71:13
    so how was it recorded the cash received?
  • 71:13 - 71:20
    We debit cash and we credit revenue
    received in advance from 4800,
  • 71:20 - 71:23
    that was the original transaction,
    it's not for this period,
  • 71:23 - 71:29
    that was before the 30th of June
    and that's why we have in the balance,
  • 71:29 - 71:31
    on 30th June we have that amount.
  • 71:31 - 71:37
    Now in this period the adjusting entry
    at the end of the period,
  • 71:37 - 71:42
    we need to include how much
    we provide of services.
  • 71:42 - 71:47
    And we provide 3000 of this 4800.
  • 71:47 - 71:52
    So because we provide services,
    now we can record the service revenue,
  • 71:52 - 71:57
    it's a credit service revenue,
    and we decrease the obligation.
  • 71:57 - 72:04
    To put the things in context,
    here we are in the month of June.
  • 72:05 - 72:10
    So in June the unadjusted trial balance
    is for June.
  • 72:14 - 72:20
    I will go through the depreciation
    but do not change them...
  • 72:20 - 72:24
    I will go through them,
    but here... Ok.
  • 72:25 - 72:28
    This is the unadjusted...
  • 72:29 - 72:31
    I am clear now, excellent Ann.
  • 72:31 - 72:37
    This is the unadjusted trial balance
    at 30th June.
  • 72:37 - 72:42
    Here means that before 30th June
    we received the cash.
  • 72:42 - 72:48
    Now in the adjusting entry it means that
    also during this period before 30th June
  • 72:48 - 72:56
    we provide 3000 of this 4800,
    services provided, ok?
  • 72:57 - 73:01
    Does this answer your question George?
  • 73:06 - 73:12
    Ok, excellent, good.
    So we can go through the next one.
  • 73:16 - 73:18
    I am here...
  • 73:18 - 73:25
    The next one is quite simple because
    salaries, 6400 are owed on 30th June.
  • 73:26 - 73:30
    What does this mean?
    Salaries owed means that
  • 73:30 - 73:37
    the employees worked,
    so we already consumed these results.
  • 73:37 - 73:45
    The work of our employees and therefore
    we should record a salaries expense.
  • 73:45 - 73:48
    But they are owed,
    that means we have not paid them,
  • 73:48 - 73:55
    and that's why we did not record this as a
    transaction like you learned last week.
  • 73:55 - 74:00
    We need to prepare the adjusting entry,
    so we need to record the pays,
  • 74:00 - 74:06
    salaries expense 6400 debit,
    and a salaries payable
  • 74:06 - 74:11
    because it's owed at the end of the month
    so it will be salaries expense
  • 74:11 - 74:17
    and salaries payable.
  • 74:17 - 74:23
    Here you have debit salaries
    expense 6400
  • 74:23 - 74:27
    credits salaries payable 6400, ok?
  • 74:28 - 74:31
    That I think is simple.
  • 74:34 - 74:36
    Then we have the number six.
  • 74:37 - 74:41
    Office equipment has a five year life
    with no resale value,
  • 74:41 - 74:48
    and is being depreciated at
    $1440 per month for 60 months.
  • 74:48 - 74:55
    In this description they are telling you
    how much is the expense, ok?
  • 74:55 - 75:02
    But if it is not, if it is only they said
    the office equipment has a five year life
  • 75:02 - 75:07
    with no resale value depreciated using
    the straight line method,
  • 75:07 - 75:14
    you will learn this in another lecture
    the depreciation for 60 months.
  • 75:14 - 75:20
    If we do not have the amounts, you can
    just go to the unadjusted trial balance
  • 75:20 - 75:27
    look at the office equipment account,
    86400.
  • 75:29 - 75:32
    If you divide this by 60,
  • 75:32 - 75:38
    you will have exactly 1440 per month, ok?
  • 75:38 - 75:42
    So that is the depreciation expense.
  • 75:42 - 75:46
    Yes, a couple of work, I will not go in
    deep in this topic
  • 75:46 - 75:50
    because there is a whole topic
    about depreciation.
  • 75:50 - 75:55
    Yeah, I will go why credit and...
  • 75:55 - 76:00
    Ok, you let me finish this part
    and I will answer the question
  • 76:00 - 76:02
    of the previous one.
  • 76:03 - 76:08
    So we had this depreciation,
  • 76:08 - 76:10
    what does depreciation mean?
  • 76:10 - 76:14
    When we purchase an equipment like this,
    office equipment,
  • 76:14 - 76:19
    and we pay a big amount of money,
    in this case how much we paid
  • 76:19 - 76:25
    for this office equipment,
    it was 86400, ok?
  • 76:26 - 76:33
    Do you think we can put as an expense
    86400 in the first month?
  • 76:33 - 76:40
    Well, of course not because we will use
    this equipment during 60 months,
  • 76:40 - 76:47
    and remember an expense
    is when we use
  • 76:47 - 76:49
    or consume resources.
  • 76:49 - 76:53
    This resource that is 86400,
  • 76:53 - 76:58
    it will be consumed or used
    during 60 months
  • 76:58 - 77:05
    so we need to calculate how much of this
    we use in one month,
  • 77:06 - 77:08
    or in two months in this case.
  • 77:08 - 77:12
    In two months because it's from
    1st of May till 30th June.
  • 77:12 - 77:19
    How much we use of this in two months,
    ok? Two months.
  • 77:20 - 77:24
    So we divide this by 60,
    we multiply by two,
  • 77:24 - 77:29
    and that will be 2880
  • 77:29 - 77:35
    because per month is 1440
    when you divide by 60,
  • 77:35 - 77:38
    you multiply by two because
    it's two months
  • 77:38 - 77:39
    and now we can record the expense.
  • 77:39 - 77:45
    The name of this expense
    is depreciation expense,
  • 77:46 - 77:52
    so we record debit depreciation expense.
    What is the other account?
  • 77:52 - 77:59
    Well the other account will be to decrease
    this account,
  • 77:59 - 78:00
    office equipment,
  • 78:00 - 78:03
    so you can say well,
    we credit office equipment.
  • 78:03 - 78:08
    That would be the case that we are doing
    in all of these accounts,
  • 78:08 - 78:11
    but in the case of non-current assets
  • 78:11 - 78:16
    we use what we call a contra asset account
  • 78:16 - 78:20
    that means we keep separated
    the decrease of this account
  • 78:20 - 78:24
    and the name of that account
    is accumulated depreciation.
  • 78:25 - 78:30
    The effect is the same as you reduce
    directly office equipment,
  • 78:30 - 78:34
    you credit office equipment
    but in non-current assets like this,
  • 78:34 - 78:37
    this is a topic that we will explore
    in detail,
  • 78:37 - 78:45
    we use another account and the name is
    the accumulated depreciation.
  • 78:46 - 78:50
    It's an asset account
    but with a credit entry.
  • 78:50 - 78:56
    So the adjusting entry for this
  • 78:56 - 79:02
    will be depreciation expense
    debit 2880
  • 79:02 - 79:11
    and we credit accumulated depreciation
    office equipment, ok, 2880.
  • 79:16 - 79:18
    Any question on this?
  • 79:26 - 79:30
    Ok, the last one.
  • 79:36 - 79:43
    The last one is number seven,
    invoices representing
  • 79:43 - 79:45
    Ah, Tablynn...
  • 79:45 - 79:51
    Ah, ok. Before we go to the seven
  • 79:51 - 79:54
    there is a question about the salaries
  • 79:54 - 79:59
    who asked me that question
    about the salaries?
  • 80:00 - 80:05
    Omar who did, in the adjusted trial, ok.
  • 80:05 - 80:09
    I will try to answer the two questions.
  • 80:09 - 80:17
    First, Trina has a question, why
    to credit 6400 in the transaction five?
  • 80:17 - 80:22
    Why to credit?
    Isn't it debit when they pay 6400?
  • 80:22 - 80:30
    Well, remember Trina that we, in any
    journal entry and also adjusting entry,
  • 80:30 - 80:33
    we have a debit side and a credit side.
  • 80:33 - 80:38
    The total debit should be always equal
    to total credit.
  • 80:38 - 80:44
    So what is the debit and what is
    the credit in the 6400 that you have here
  • 80:44 - 80:46
    in transaction five?
  • 80:46 - 80:52
    Salaries of 6400 are owed at that time,
    30th June.
  • 80:53 - 80:58
    So we have an expense,
    and the expense is a debit entry, ok?
  • 80:59 - 81:03
    The salaries expense it will be debit.
  • 81:03 - 81:07
    And we have a salaries payable because
    they were not paid,
  • 81:07 - 81:10
    they are owed at 30th June.
  • 81:10 - 81:15
    So the salaries payable, the liability
    will be the credit entry.
  • 81:16 - 81:21
    So your question is why credit?
    Well, we credit the liability account,
  • 81:21 - 81:28
    that means salaries payable,
    but we debit the salaries.
  • 81:28 - 81:32
    What happens when we pay them in
    the next period?
  • 81:32 - 81:40
    When we pay the salaries we will
    debit the salaries payable,
  • 81:40 - 81:46
    so we decrease this liability,
    and we will credit cash, ok?
  • 81:46 - 81:48
    That is what happened in
    the following period,
  • 81:48 - 81:54
    not in this one.
    And Tablynn...
  • 81:55 - 81:59
    Tablynn you asked a question
    about the depreciation?
  • 81:59 - 82:02
    Yes, depreciation, well,
  • 82:02 - 82:08
    this is the concept that
    we will have in detail,
  • 82:08 - 82:11
    there is a whole lecture about
    depreciation
  • 82:11 - 82:14
    with different methods of depreciation
    but for now,
  • 82:14 - 82:20
    we only need to think in the concept
    of depreciation, the general concept.
  • 82:20 - 82:26
    When we purchase an equipment
    that lasts more than one accounting period
  • 82:26 - 82:31
    we cannot record as an expense
    the cost of the equipment
  • 82:31 - 82:35
    because we will use the equipment
    for a number of periods,
  • 82:35 - 82:39
    so we need to divide the cost of
    the equipment
  • 82:39 - 82:43
    into the number of periods.
  • 82:43 - 82:48
    So we will have just one part of the cost
    in each period,
  • 82:48 - 82:53
    and the easier way is just divide the cost
    by the number of periods.
  • 82:53 - 82:59
    So in this case the total amount
    divided by 60 months that we will use
  • 83:01 - 83:07
    this equipment, office equipment,
    means that we will have an expense
  • 83:07 - 83:13
    of 1440 per month, and we call that,
    that expense,
  • 83:13 - 83:18
    we call that depreciation expense, ok?
  • 83:18 - 83:21
    That is the name of this account,
    depreciation expense.
  • 83:21 - 83:23
    What does that mean?
  • 83:23 - 83:28
    It means that that is
    the part of the equipment
  • 83:28 - 83:33
    that has been used
    or consumed in one period.
  • 83:34 - 83:38
    And that's why we record that
    as a debit for each month,
  • 83:38 - 83:43
    but here we have two months, ok?
    Because from 1st May until 30th June
  • 83:43 - 83:46
    which is the time for this exercise,
    two months,
  • 83:46 - 83:54
    it will be two multiplied by 1440,
    which is 2880.
  • 83:54 - 84:01
    So we will record depreciation expense,
    debit 2880.
  • 84:02 - 84:04
    What is the other account?
  • 84:04 - 84:10
    I mentioned that there is another account
    but the name is accumulated depreciation,
  • 84:10 - 84:15
    so we will record a credit
    in that account.
  • 84:17 - 84:22
    Ok, I'd asked how much would you deduct
    from depreciation expense
  • 84:22 - 84:27
    in the adjusted...
    Excellent Tablynn, thank you.
  • 84:27 - 84:32
    How much would you deduct in the
    adjusted trial balance?
  • 84:32 - 84:38
    I will go through that Adash
    because we started with
  • 84:38 - 84:41
    the unadjusted trial balance.
  • 84:41 - 84:47
    We are doing the adjustments, and then
    I will explain how we will adjust these
  • 84:47 - 84:51
    to the adjusted trial balance.
  • 84:51 - 84:58
    How we transform the unadjusted to the
    adjusted trial balance.
  • 84:58 - 85:00
    Ok, yes Trina.
  • 85:02 - 85:08
    TRINA: Hello, with the salaries,
  • 85:09 - 85:14
    we already had 6400,
    it means that expense increased,
  • 85:14 - 85:20
    that's why expense is debit 6400,
    but with the liabilities,
  • 85:20 - 85:26
    it means that we decrease
    the liabilities, is that right?
  • 85:26 - 85:28
    HERMAN: Yes when (INAUDIBLE)
  • 85:29 - 85:32
    TRINA: So if we decrease the...
    (CROSSTALK)
  • 85:32 - 85:37
    Sorry, if we decrease the liabilities,
    it means it debits liabilities,
  • 85:37 - 85:39
    is that right?
  • 85:39 - 85:42
    HERMAN: Yes, when we pay that is
    another transaction,
  • 85:42 - 85:44
    it's not the adjusting entry.
  • 85:44 - 85:48
    When we pay for the liability,
    we will credit the liability
  • 85:48 - 85:52
    so we decrease the liability,
    and we will debit cash.
  • 85:52 - 85:57
    So we decrease cash because we are paying
    for that liability.
  • 85:58 - 85:59
    But that is another (CROSSTALK)
  • 85:59 - 86:05
    TRINA: yeah, I'm a bit confused because
    we decrease the liabilities,
  • 86:05 - 86:11
    but well you put it credit 6400.
  • 86:11 - 86:14
    HERMAN: Yeah, well, that is the point.
    Trina it's good that you asked
  • 86:14 - 86:21
    because we should not confuse two
    different journal entries, ok?
  • 86:21 - 86:26
    The journal entry that we're talking
    in number five here,
  • 86:26 - 86:28
    is an adjusting entry.
  • 86:28 - 86:32
    We have not paid anything
    in this journal entry.
  • 86:32 - 86:38
    In this transaction, we only recognize
    that the employees worked
  • 86:38 - 86:45
    during the months,
    how much we owe them for this work, 6400.
  • 86:45 - 86:47
    We didn't pay anything.
  • 86:47 - 86:51
    In the transaction here it doesn't say
    that we paid for that.
  • 86:51 - 86:58
    We owe this amount at 30th June.
    So what do we record?
  • 86:58 - 87:04
    We record the expense,
    that means debit salaries expense, 6400,
  • 87:04 - 87:09
    and we record the liability because
    we owe them this amount,
  • 87:09 - 87:15
    so we credit salaries payable, 6400
    and that's all.
  • 87:15 - 87:17
    That's all the adjusting entries.
  • 87:18 - 87:25
    Now in another day, next month,
    we will pay for that.
  • 87:25 - 87:29
    In the payment that is another
    journal entry, not this one,
  • 87:29 - 87:33
    when we pay for that what will we do?
  • 87:33 - 87:37
    We will debit the liability,
    so we decrease the liability.
  • 87:37 - 87:44
    We will debit 6400, and we will pay,
    that means we will credit cash.
  • 87:44 - 87:46
    When we credit cash we decrease
    the cash account
  • 87:46 - 87:51
    because we are paying that amount
    and that is another journal entry
  • 87:51 - 87:53
    for the next period.
  • 87:55 - 88:02
    Does this clarify the point Trina?
    Good, excellent.
  • 88:04 - 88:11
    Ok, we are in the number seven,
    the last one.
  • 88:11 - 88:17
    Invoices representing $8000 of services
    performed during the month
  • 88:17 - 88:23
    have not been recorded as of 30th June,
    so what does this mean?
  • 88:25 - 88:30
    We have provided services because
    it says invoices representing
  • 88:31 - 88:36
    $8000 of services performed during that,
    so we performed this service,
  • 88:36 - 88:39
    and we provided the services
    for $8000
  • 88:39 - 88:43
    but they have not been recorded
    so we need to record them.
  • 88:43 - 88:47
    So we need to record
    an accounts receivable
  • 88:47 - 88:52
    because it doesn't say anything there
    that we received the money,
  • 88:52 - 88:56
    therefore it is an account receivable,
    we will debit...
  • 88:56 - 88:57
    (CLEARS THROAT)
    Sorry.
  • 88:58 - 89:00
    We will debit the account receivable
    for $8000,
  • 89:00 - 89:06
    and we will credit the service revenue
  • 89:06 - 89:08
    because we earned from that service,
  • 89:08 - 89:12
    we already provided the service,
    so we will credit service revenue.
  • 89:12 - 89:14
    So what we will have...
  • 89:19 - 89:21
    I will do that.
  • 89:23 - 89:29
    What we will have is the
    last adjusting entry.
  • 89:29 - 89:36
    $8000 account receivable debit,
    and credit $8000 service revenue.
  • 89:37 - 89:41
    So we've completed
    all the adjusting entries.
  • 89:42 - 89:46
    Before we go to how we prepare the
    adjusted trial balance,
  • 89:47 - 89:51
    any questions about the adjusting entries?
  • 89:58 - 90:00
    All good? Ok.
  • 90:03 - 90:07
    Excellent Jade, very good.
    That's my purpose.
  • 90:07 - 90:11
    How we prepare the adjusted trial balance?
  • 90:11 - 90:17
    Before we prepare that,
    remember these are journal entries,
  • 90:17 - 90:20
    so the name is adjusted journal entries,
    they are journal entries,
  • 90:20 - 90:27
    so after you prepare the adjusting entries
    what is the next step?
  • 90:27 - 90:30
    You need to post these entries
    to the ledger.
  • 90:30 - 90:34
    The same as we did last week,
    exactly Joshua,
  • 90:34 - 90:39
    we need to post them to the ledger,
    all of them to adjust the balance
  • 90:39 - 90:41
    of each of these accounts.
  • 90:41 - 90:45
    We will not do that, ok?
    You already learnt last week
  • 90:45 - 90:48
    how to post transactions from the journal
    to the ledger,
  • 90:48 - 90:52
    and it's a very repetitive process
    and it's the same in this case
  • 90:52 - 90:58
    so we will not go again through that part
    we will assume that we already did that,
  • 90:58 - 91:03
    Ok, we post all of these
    to the ledger accounts,
  • 91:03 - 91:06
    so the ledger accounts are updated.
  • 91:06 - 91:12
    But I will show you how to prepare
    the adjusted trial balance,
  • 91:12 - 91:15
    using the worksheet, ok?
  • 91:15 - 91:18
    Using a worksheet, it has the advantage
    that you can see
  • 91:18 - 91:23
    what is the unadjusted trial balance,
    you can see the adjustments
  • 91:23 - 91:26
    and how to prepare the
    adjusted trial balance,
  • 91:26 - 91:29
    how you can explain the difference
    between the adjusted
  • 91:29 - 91:33
    and the unadjusted trial balance.
  • 91:34 - 91:37
    So here you have this worksheet.
  • 91:37 - 91:45
    In the worksheet what we do
    is you copy here in this part, ok?
  • 91:45 - 91:50
    You copy the unadjusted trial balance.
  • 91:51 - 91:55
    Of course, total debit should
    be equal to total credit.
  • 91:56 - 92:03
    You just copy that and then you go
    through all the adjusting entries
  • 92:03 - 92:12
    and you put in the adjustment column,
    this, I will do just the first two, ok?
  • 92:12 - 92:14
    Only the first two.
  • 92:14 - 92:17
    So in the first one,
    what do we have here?
  • 92:17 - 92:22
    We debit 6400 in the supplies
    expense account
  • 92:22 - 92:27
    and we credit 6400
    in the supplies account,
  • 92:27 - 92:32
    so we look at this supplies
    expense account.
  • 92:32 - 92:38
    This is the supplies expense account,
    we debit 6400, so we just copy there
  • 92:38 - 92:43
    And the we go to the supplies account
    this is the supplies account,
  • 92:43 - 92:48
    you debit this account, ok?
  • 92:48 - 92:51
    You just copy here in these two columns
  • 92:51 - 92:55
    what you have done
    in the adjusting entries.
  • 92:55 - 93:01
    The second, we will do just the first two.
    The second, what do we have?
  • 93:01 - 93:05
    1200 debit in electricity expense account
  • 93:05 - 93:10
    1200 credit electricity payable account.
  • 93:10 - 93:16
    So you copy that electricity
    expense account,
  • 93:16 - 93:22
    1200 debit, you copy there
    and then you look for electricity payable.
  • 93:22 - 93:30
    Electricity payable credit 1200,
    and you continue with all of this.
  • 93:30 - 93:33
    The only thing that you need to be careful
    is that sometimes,
  • 93:33 - 93:38
    one account appears more than one time
    in the adjusting entries.
  • 93:38 - 93:43
    So if you look at the adjusting entries,
    there is one account
  • 93:43 - 93:47
    that appears two times,
    so service revenue.
  • 93:47 - 93:53
    You have here service revenue,
    credit 3000,
  • 93:53 - 93:58
    and then you have here service revenue,
    8000.
  • 93:58 - 94:04
    So the total amount that we will add
    to service revenue is 11000.
  • 94:04 - 94:11
    That's why here service revenue
    in the credit is 11000,
  • 94:11 - 94:14
    so its the sum of 3000+8000.
  • 94:14 - 94:18
    That you need to be careful because
    we need to add the total amounts,
  • 94:18 - 94:24
    that increase the credit
    of this account.
  • 94:24 - 94:27
    Ok, so we complete these,
    the adjustments.
  • 94:27 - 94:31
    We just copy all the adjusting entries,
    debit or credit
  • 94:31 - 94:34
    in the corresponding accounts.
  • 94:36 - 94:40
    Well, it's a really (INAUDIBLE)
  • 94:40 - 94:44
    because very few accounts
    you will have more than one entry.
  • 94:44 - 94:50
    In this case we have only service revenue
    but you know the to not make a mistake
  • 94:50 - 94:57
    and I did that in the next exercise,
    is this things.
  • 94:57 - 95:01
    Do not make a mistake, I will give you
    a clue to not make a mistake.
  • 95:01 - 95:03
    Instead I've put here the total.
  • 95:03 - 95:07
    Every time you have an amount there
    just put how much,
  • 95:07 - 95:12
    so you put here the 3000,
    I will put in thousands
  • 95:12 - 95:19
    and then you simply add 8,
    so every time you put the number there.
  • 95:19 - 95:22
    Then you know that it's 11000.
  • 95:22 - 95:26
    In this way you will not skip anything.
  • 95:26 - 95:33
    Ok, that is just a way to do
    to not make that mistake.
  • 95:36 - 95:39
    How we prepare now the
    adjusted trial balance.
  • 95:41 - 95:46
    The adjusted trial balance is the same
    as the unadjusted trial balance
  • 95:46 - 95:48
    with all the adjustments.
  • 95:48 - 95:53
    So you can see for the cash accounts,
    there are no adjustments.
  • 95:53 - 95:58
    Ok, no adjustments, so the adjusted
    trial balance is the same
  • 95:58 - 96:01
    as the unadjusted trial balance.
  • 96:02 - 96:07
    Accounts receivable, the unadjusted
    is 23 and 40.
  • 96:07 - 96:13
    The ajustment is debit 8000
    so it directly increases the debit
  • 96:13 - 96:19
    so the adjusted will be the sum
    of all of them.
  • 96:20 - 96:25
    Prepaid insurance we have a debit,
    9600.
  • 96:25 - 96:31
    The adjustment is a credit of 1600,
    a credit decreases a debit,
  • 96:31 - 96:34
    it's the opposite, ok?
    So it will be the difference
  • 96:34 - 96:38
    and there we adjusted this 8000.
  • 96:39 - 96:42
    The same for supplies,
    we have 13600,
  • 96:42 - 96:48
    the adjustment is a credit,
    therefore the credit decreases debit,
  • 96:48 - 96:54
    that will be 7200, ok?
  • 96:55 - 96:56
    And so on.
  • 96:56 - 97:00
    Office equipment there is no adjustment
    accumulated depreciation
  • 97:00 - 97:02
    of office equipment,
    there is nothing here,
  • 97:02 - 97:07
    because this is an account that was
    in zero but we have an adjustment
  • 97:07 - 97:13
    2880, so the adjusted trial balance
    will be a credit 2880.
  • 97:16 - 97:20
    So you can see to prepare the adjusted
    trial balance is simple.
  • 97:20 - 97:26
    If we're working with the worksheet,
    we just add or subtract the adjustment
  • 97:26 - 97:30
    depending on whether they are
    on the same side or the opposite side.
  • 97:30 - 97:33
    If they are on the same side,
    a debit increases a debit,
  • 97:33 - 97:38
    a credit increases a credit,
    but in the opposite side
  • 97:38 - 97:44
    a credit will decrease a debit
    or a debit will decrease a credit.
  • 97:47 - 97:50
    Any question?
  • 97:53 - 97:59
    So once you have this worksheet...
    Excellent Joshua,
  • 98:00 - 98:03
    Once you have the worksheet,
    the adjusted trial balance
  • 98:03 - 98:07
    you can just copy.
    You have the list of...
  • 98:09 - 98:13
    You have the list of all this, ok?
    The list of the accounts,
  • 98:13 - 98:18
    you have the balance,
    the debit balance or the credit balance
  • 98:18 - 98:23
    of all of these accounts,
    and you can just copy them
  • 98:23 - 98:29
    to have the adjusted trial balance
    so if this is the adjusted trial balance
  • 98:29 - 98:33
    the list of the accounts,
    what accounts have a debit balance
  • 98:34 - 98:40
    after the adjustments,
    or credit balance, all of these accounts.
  • 98:45 - 98:51
    That's the complete exercise and
    the adjusted trial balance.
  • 98:53 - 98:55
    Any question?
  • 98:58 - 99:02
    I think maybe we will use again
    the four hours
  • 99:02 - 99:05
    because we still do not finish
    the lecture,
  • 99:05 - 99:07
    we have the second exercise
    of the lecture
  • 99:07 - 99:10
    and then we have the exercise
    of the workshop
  • 99:10 - 99:14
    so definitely we are using
    the consultation time of the
  • 99:14 - 99:19
    four hours to complete,
    but at this point,
  • 99:19 - 99:23
    we are already one hour 40 minutes.
  • 99:23 - 99:28
    It's good for you to have a break
    so you can just prepare your coffee.
  • 99:32 - 99:35
    No Natalia, I will answer that.
    You prepare your coffee,
  • 99:35 - 99:42
    you're soft drink, take a rest,
    and we will meet in 10 minutes.
  • 99:43 - 99:48
    Before I go I will just answer
    the question to Natalia.
  • 99:48 - 99:53
    Still accountants do this step manually?
    No, Natalia, no.
  • 99:53 - 99:57
    I will talk about this when we come back
    after 10 minutes
  • 99:57 - 100:02
    because I will talk about the assignment.
    That will answer your question.
  • 100:02 - 100:05
    And Tablynn, can you explain profit thing?
  • 100:05 - 100:10
    Yes I will do that in the next exercise,
    need more exercise,
  • 100:10 - 100:13
    we will do four Abdul, today.
  • 100:13 - 100:18
    If we aren't late, pm,
    no problem for me,
  • 100:18 - 100:24
    but if you have the strength
    to still be there,
  • 100:24 - 100:26
    we'll be good...
  • 100:26 - 100:30
    We will...
    We will do many exercises today,
  • 100:30 - 100:37
    but for now take a rest, relax.
    I need to grab my coffee as well,
  • 100:37 - 100:44
    and 10 minutes, so it's 2.40.
    At 2.50 we continue.
  • 100:45 - 100:52
    I will disconnect the microphone,
    2.50 we continue, ok?
  • 111:17 - 111:22
    Ok, here we are again, more relaxed
  • 111:22 - 111:26
    and ready for another one
    and a half hours.
  • 111:35 - 111:39
    Before starting with the next exercise
  • 111:39 - 111:46
    I will just give you some information
  • 111:47 - 111:49
    about your first assignment.
  • 111:51 - 111:57
    The assignment that you will have
    is a very practical assignment
  • 111:57 - 112:06
    and this will address one of the questions
    about Natalia,
  • 112:06 - 112:11
    Natalia asked, still accountant do
    these steps manually?
  • 112:11 - 112:17
    Well, accountants do not do this manually
    but of course the need to understand
  • 112:17 - 112:21
    what the system does because if not,
    the possibility of errors
  • 112:21 - 112:22
    could be very big.
  • 112:22 - 112:26
    When you enter a journal entry
    you need to understand
  • 112:26 - 112:31
    what continues after that,
    even the system is doing that
  • 112:31 - 112:35
    but you need to know how your ledger
    is updated,
  • 112:35 - 112:39
    how the trial balance is prepared,
    it's very important to do that.
  • 112:39 - 112:44
    That's why you learn to do this manually
    even though then
  • 112:44 - 112:47
    the system will do this for you.
  • 112:47 - 112:52
    OK, but you need to be able to check
    whether the system is doing well or not.
  • 112:53 - 112:56
    In this course you will have
    the opportunity to deal with
  • 112:56 - 113:02
    one of the most commonly used
    Accounting software,
  • 113:02 - 113:09
    it's a cloud accounting because
    everything is in the cloud
  • 113:09 - 113:12
    and not in the computer of
    the organization,
  • 113:12 - 113:14
    and that is Xero.
  • 113:14 - 113:21
    Xero is used by many small
    and medium companies.
  • 113:21 - 113:25
    Not the very big ones because they
    have their own systems,
  • 113:25 - 113:31
    but many small and medium companies
    use Xero.
  • 113:31 - 113:38
    Accounting Pod is an organization
    that facilitates
  • 113:38 - 113:43
    the learning of this software.
  • 113:43 - 113:49
    Griffith University has an arrangement
    with Accounting Pod
  • 113:49 - 113:55
    to provide this facilitation,
    for learning Xero,
  • 113:55 - 114:01
    and we have set up the assignment
    that you will have in this,
  • 114:01 - 114:04
    using this software.
  • 114:04 - 114:12
    So next Monday, 3rd August,
    the module,
  • 114:12 - 114:19
    the practice module of Accounting Pod
    will be open for you.
  • 114:19 - 114:24
    And it will be open practically
    the whole month of August,
  • 114:24 - 114:29
    until the 27th of August,
    that will be closed at 5.00 pm.
  • 114:29 - 114:37
    So what is the idea is that you do this.
    You follow step by step
  • 114:37 - 114:42
    all the processes and you will learn
    how to use this software,
  • 114:42 - 114:46
    so you will do what accountants do
    in the practice, ok?
  • 114:46 - 114:53
    And this assessment, the assignment
    we have two parts,
  • 114:53 - 114:58
    we have the practice module
    that it's called,
  • 114:58 - 115:02
    that will be open next Monday,
  • 115:02 - 115:08
    and then after it is closed,
    that means the 27th of August.
  • 115:08 - 115:14
    On the 1st of September we will open
    the second part of this assessment
  • 115:14 - 115:17
    which is the Xero assessment.
  • 115:17 - 115:20
    That will be opened on the
    1st of September,
  • 115:20 - 115:24
    and it will be closed on the 23rd
    of September, 5.00 pm,
  • 115:24 - 115:28
    so at that point you need to finish
    the second part.
  • 115:28 - 115:34
    Your marks will be based on what you do
    in this task.
  • 115:35 - 115:37
    The marks are allocated...
  • 115:41 - 115:45
    The marks are allocated to the task
    that you are doing.
  • 115:45 - 115:51
    Now, in the question by Jade,
    what learning modules
  • 115:51 - 115:53
    will the practice on Xero cover?
  • 115:53 - 116:01
    What you need to know is just the basics
    of the accounting cycle,
  • 116:01 - 116:07
    so to understand what is a journal entry,
    what are the ledger accounts.
  • 116:07 - 116:13
    But the training that you will do,
    you will see it's very...
  • 116:13 - 116:19
    Totally different to what we are doing
    in the accounting period,
  • 116:19 - 116:26
    because you will do tasks related
    to a software.
  • 116:26 - 116:30
    I will explain in a bit of detail
    but next week, on Tuesday of next week,
  • 116:30 - 116:34
    I will dedicate more time to explain
    to you in more detail
  • 116:34 - 116:40
    what you have to do because at that point
    you will have this already open, ok?
  • 116:40 - 116:47
    Now it's not there,
    you cannot see this software yet.
  • 116:49 - 116:54
    There are three modules in each
    assessment task,
  • 116:54 - 116:57
    the practice and the assessment.
  • 116:57 - 117:01
    Your marks for the assignment
    will be the average of all these,
  • 117:02 - 117:05
    ok, the practice and the assessment.
  • 117:05 - 117:09
    You will have a rubric for this
    so you will know exactly how
  • 117:09 - 117:11
    your marks will be allocated.
  • 117:11 - 117:15
    The system marks you, so it's not that
    I will mark this.
  • 117:15 - 117:22
    For each task completed,
    the system will mark you,
  • 117:22 - 117:25
    and you will have the marks
    according to the task.
  • 117:25 - 117:29
    I will give you some guidelines
    next week on that.
  • 117:29 - 117:38
    But in the first part, the practice set,
    there are three modules, actually four,
  • 117:39 - 117:44
    but the important models
    are modules two and three.
  • 117:44 - 117:51
    The module one is just a welcome for you
    to have a welcome to the system,
  • 117:51 - 117:54
    there are no marks allocated there.
  • 117:54 - 117:59
    Module two is the basics,
    and there are 20 marks allocated there.
  • 117:59 - 118:07
    There are very simple tasks that will
    tell you how to work in Xero.
  • 118:07 - 118:14
    One of the tasks is for example to set up
    an authentication in door,
  • 118:14 - 118:23
    so it's not related to accounting at all,
    but is related to working with this...
  • 118:23 - 118:26
    with the system.
  • 118:26 - 118:31
    My suggestion would be to always
    look at the question that you have
  • 118:31 - 118:37
    for each task and the possible answer,
    and then look at the content.
  • 118:38 - 118:45
    Try to not answer the question immediately
    but go through the content.
  • 118:45 - 118:49
    You will learn through the content,
    not just answering the questions.
  • 118:49 - 118:55
    Try not to do what is...
    You look at the question, possible answer,
  • 118:55 - 118:58
    and then you try to find the answer
    in the content,
  • 118:58 - 119:00
    because you will not learn a lot.
  • 119:00 - 119:06
    The idea is that you learn how
    to use Xero, this system, ok?
  • 119:06 - 119:09
    And to learn that it's good that you
    go through the content
  • 119:09 - 119:13
    trying to learn what is this about?
  • 119:13 - 119:17
    And the next module,
    the module three that is Xero,
  • 119:17 - 119:20
    in that module you will work in Xero.
  • 119:20 - 119:26
    So module two is just to prepare,
    you will be prepared to work with Xero
  • 119:27 - 119:32
    but it's not yet the working withing Xero.
  • 119:32 - 119:36
    Module three yes,
    you will have a number of tasks
  • 119:36 - 119:41
    following the instructions that
    Accounting Pod will give you
  • 119:41 - 119:45
    to complete this task
    and provide the answers.
  • 119:47 - 119:51
    So then the module four is just to wrap up
    a couple of questions,
  • 119:51 - 119:53
    but not really important.
  • 119:53 - 119:57
    Module two and three are
    the most important.
  • 119:57 - 120:01
    Now when you finish one module,
    then you will have access to the next one
  • 120:01 - 120:04
    and so on,
    so you need to go step by step.
  • 120:04 - 120:12
    In this sense, this is,
    even though you need some knowledge
  • 120:12 - 120:16
    in accounting that you already have,
    you don't need more than that
  • 120:16 - 120:22
    because it's different to learn how to
    work with a software in accounting
  • 120:22 - 120:27
    than how to do accounting,
    that is what you are doing now.
  • 120:28 - 120:32
    Then the assessment part is just the
    application of all what you have learned
  • 120:32 - 120:37
    in the practice part,
    and in a different case scenario.
  • 120:38 - 120:42
    So that is in general what you will
    from next week,
  • 120:42 - 120:46
    there is time,
    don't wait till the last two days.
  • 120:46 - 120:52
    For example, it opens 2nd August,
    it will be closed 27th of August,
  • 120:52 - 120:56
    do not wait until the 25th of August
    for all the task,
  • 120:56 - 121:00
    because you need time for that.
  • 121:00 - 121:03
    You need time to reflect on what
    you're learning,
  • 121:03 - 121:09
    you need time to properly do the task
    and go just a little bit
  • 121:09 - 121:13
    during the time this will be open.
  • 121:14 - 121:19
    It will not take a long time, ok?
    it will not take a very long time,
  • 121:19 - 121:23
    probably you can do this in three
    or four days, if you dedicate full time,
  • 121:23 - 121:27
    but that is not the best way to learn.
  • 121:28 - 121:33
    Yes, you will have marks Cecilia
    in the practice part
  • 121:33 - 121:39
    and actually the total marks
    that you will have is the average
  • 121:40 - 121:45
    weighted average of the practice part
    and the assessment part.
  • 121:45 - 121:48
    I also considered to give marks
    for the practice part
  • 121:48 - 121:52
    because in the practice part,
    it will be easier for you,
  • 121:52 - 121:56
    but the intention is that you learn
    how to use the software
  • 121:56 - 122:00
    and how to use this software
    is in the practice part.
  • 122:00 - 122:03
    In the assessment part
    you will apply all of this,
  • 122:03 - 122:07
    so there are marks allocated
    in the practice part as well, yeah.
  • 122:09 - 122:13
    So this is just some information that
    I want to give you in advance
  • 122:13 - 122:21
    and next week with this open,
    I will show you the screens
  • 122:22 - 122:26
    and I can share screens
    for you to do this.
  • 122:27 - 122:32
    Cecilia, is there any way we can practice
    using the system without getting marks?
  • 122:32 - 122:36
    Yes, because you don't need to submit
  • 122:36 - 122:40
    but now you will see
    it's very straightforward,
  • 122:40 - 122:43
    the system will tell you
    exactly what to do,
  • 122:43 - 122:47
    so if you do well, you don't need
    to do it again,
  • 122:47 - 122:48
    but try to do well.
  • 122:48 - 122:54
    Now there is some not in the practice part
    but in the assessment part
  • 122:54 - 123:03
    there is feedback that you can receive
    and also you can ask questions.
  • 123:03 - 123:10
    Now the specific question of the software
    please do not ask me that way
  • 123:10 - 123:13
    but to the system, there is a box
    that you will see next week,
  • 123:13 - 123:16
    that says 'leave us a message'.
  • 123:16 - 123:22
    You leave all the questions there
    and they will answer you immediately.
  • 123:22 - 123:24
    If you have a problem with this,
    of course you contact me
  • 123:24 - 123:33
    and I will deal with them, but they
    answer quite quick all your questions.
  • 123:34 - 123:39
    Ok, now I have another message,
  • 123:39 - 123:43
    and this is another caption.
  • 123:44 - 123:49
    Who sent me a message about captioning?
    They'll need the captioning.
  • 123:52 - 124:00
    Cassandra is that you?
    Ok, I've added you.
  • 124:06 - 124:11
    Ok, so now we can continue
    with the next exercise.
  • 124:16 - 124:21
    And we are still in the lecture
    so definitely will end a bit late
  • 124:24 - 124:30
    but I prefer to clarify anything you need
    it's important for you.
  • 124:36 - 124:38
    Ok, so...
  • 124:43 - 124:50
    I guess we don't need to put this...
    Ok.
  • 124:52 - 124:59
    Here you have the next question.
    This is...
  • 124:59 - 125:02
    I do not know if you can see well
    in your screen
  • 125:02 - 125:05
    because this uses the whole one
    in my screen.
  • 125:05 - 125:08
    Can you see we're on this table?
  • 125:11 - 125:15
    Yes, ok, excellent.
    Excellent, thank you.
  • 125:17 - 125:26
    So this exercise starts as well
    from the unadjusted trial balance,
  • 125:26 - 125:28
    the same as this one.
  • 125:28 - 125:34
    And they open for business
    on 1st of April 2019
  • 125:34 - 125:41
    and the trial balance is on 30th of June,
    so how many months do we have?
  • 125:41 - 125:47
    This is important because we will need
    this to calculate the adjusting entries,
  • 125:47 - 125:50
    how many months since we started?
    Three months.
  • 125:50 - 125:55
    So remember that from 1st of April
    until the date,
  • 125:55 - 125:57
    very good Natalia, three months,
  • 125:57 - 126:03
    until the date of these financial
    statements, three months,
  • 126:03 - 126:05
    that is what we will consider.
  • 126:05 - 126:08
    So what we have here in this,
    this is the worksheet.
  • 126:08 - 126:11
    You can see we add more columns.
  • 126:11 - 126:19
    What we have at the beginning is the
    unadjusted trial balance,
  • 126:19 - 126:23
    that I am showing you there,
    unadjusted trial balance.
  • 126:23 - 126:27
    Then we put in the adjustments,
    all the adjusting entries,
  • 126:27 - 126:33
    we will do that in this exercise as well,
    and from this we prepare what is called
  • 126:33 - 126:36
    the adjusted trial balance.
  • 126:37 - 126:44
    But now we will add the last part
    for today which is the closing entries
  • 126:44 - 126:48
    so you can see we have now
    three types of entries.
  • 126:48 - 126:55
    Just the general entries, or journal
    entries that come from transactions
  • 126:55 - 126:57
    that we did last week.
  • 126:57 - 127:02
    We have the adjusting entries
    that we prepared in the first part,
  • 127:02 - 127:07
    and we have the closing entries and we
    will see what are the closing entries.
  • 127:07 - 127:11
    After the closing entries we prepare
    another trial balance
  • 127:11 - 127:15
    which is the post-closing trial balance.
  • 127:15 - 127:20
    And with this we complete,
    almost complete the accounting cycle.
  • 127:20 - 127:25
    After this we only need to prepare
    the financial statements.
  • 127:26 - 127:32
    So we have the list of accounts,
    here you have all the list of accounts
  • 127:32 - 127:38
    that we will use in this and we have the
    ending balance of each of these accounts
  • 127:40 - 127:44
    in the unadjusted trial balance,
    that means before adjustment,
  • 127:44 - 127:50
    these are the balances
    of all of these accounts, ok?
  • 127:54 - 127:59
    Here we continue with different
    types of accounts,
  • 127:59 - 128:02
    we will go in detail with all of them.
  • 128:02 - 128:05
    And of course,
    the unadjusted trial balance
  • 128:05 - 128:09
    the total debits should be equal
    to total credit.
  • 128:09 - 128:15
    That's in all the trial balances,
    total debit equals total credit.
  • 128:17 - 128:20
    So here we have the additional data.
  • 128:20 - 128:24
    The additional data as you already know
    is the data that we need
  • 128:24 - 128:31
    to prepare the adjusting entries,
    so we will go through these six entries,
  • 128:31 - 128:38
    six additional data to prepare
    the adjusting entries.
  • 128:39 - 128:43
    We will journalize the adjusting entries
    so we will record them,
  • 128:43 - 128:48
    what is the debit, what is the credit
    of each of this adjusting entries.
  • 128:48 - 128:51
    And then with this adjusting entries,
  • 128:51 - 128:56
    we will complete the adjusted trial
    balance in the worksheet.
  • 128:58 - 129:01
    Then from the adjusted trial balance
    in the worksheet,
  • 129:01 - 129:05
    we will prepare the closing entries.
  • 129:06 - 129:08
    And using the information
    of the closing entries,
  • 129:08 - 129:13
    we will prepare the post-closing entries
    trial balance.
  • 129:13 - 129:15
    So this is a very complete exercise,
  • 129:15 - 129:18
    the starting with the unadjusted
    trial balance
  • 129:18 - 129:23
    until the post-closing entries
    trial balance.
  • 129:23 - 129:28
    So we will start with
    the adjusting entries.
  • 129:28 - 129:35
    The first one, insurance expires
    at a rate of $900 per month
  • 129:35 - 129:41
    and is an annual premium commencing
    1st April 2019.
  • 129:41 - 129:50
    So what might this description
    be telling us?
  • 129:50 - 129:55
    It says that three months, so it's already
    calculated the total policy divided by 12,
  • 129:55 - 130:00
    it should be 900 per month,
    that is the insurance expense per month
  • 130:00 - 130:05
    when this started on 1st of April,
    at the beginning of this period
  • 130:05 - 130:09
    and we have already three months
    if you remember.
  • 130:09 - 130:15
    So in three months by $900
    is 2700.
  • 130:15 - 130:21
    We need to record the debit,
    the insurance expense clearly,
  • 130:21 - 130:25
    then prepaid insurance.
  • 130:25 - 130:33
    So we look at our journal entries,
    insurance expense, and prepaid insurance.
  • 130:33 - 130:38
    Here you have debit 2700
    insurance expense,
  • 130:38 - 130:44
    credit 2700 prepaid insurance,
    and that is the first one, ok?
  • 130:47 - 130:52
    I will go a bit quicker in this
    but please stop me at any time
  • 130:52 - 130:56
    and ask me if there is something that
    you would like to clarify.
  • 130:56 - 131:00
    Of course I will explain well but because
    we've gone through this already
  • 131:00 - 131:02
    they are similar.
  • 131:02 - 131:09
    If it is clear just..
    Just (INAUDIBLE).
  • 131:11 - 131:16
    Ok, sorry.
    What was the question?
  • 131:18 - 131:23
    Here is it prepaid insurance?
    Yes it is prepaid insurance.
  • 131:23 - 131:30
    Ok, ok. So to answer that question we
    need to look at from where comes this.
  • 131:30 - 131:36
    Insurance expires at the rate of $900
    per month.
  • 131:36 - 131:42
    From where does this come?
    This comes from a prepaid insurance
  • 131:42 - 131:47
    so that means the company paid in advance
    it's a prepayment,
  • 131:47 - 131:53
    the insurance for the next 12 months
    on 1st April.
  • 131:53 - 132:00
    1st April the company paid the whole year,
    that means 12 months insurance.
  • 132:00 - 132:02
    What amount?
  • 132:02 - 132:08
    To know that you need to look
    at the account prepaid insurance,
  • 132:08 - 132:15
    here you have, ok,
    prepaid insurance debit 10800.
  • 132:15 - 132:19
    If you divide this by 12 it's 900.
  • 132:19 - 132:23
    That means every month you need
    to record an insurance expense
  • 132:23 - 132:28
    because you will consume this policy
    in 12 months.
  • 132:28 - 132:34
    So every month you need to record
    an insurance expense of 900 every month
  • 132:34 - 132:47
    and we have three months so it will be
    the total of 2700 as insurance expense
  • 132:47 - 132:55
    and we decrease the prepaid insurance,
    very good, excellent.
  • 132:56 - 133:03
    Ok, the second one,
    an inventory of supplies shows 7200
  • 133:03 - 133:08
    of unused supplies on 30th June.
  • 133:08 - 133:15
    So we still have 7200 supplies
    in the inventory.
  • 133:15 - 133:19
    How much do we have in the
    unadjusted trial balance?
  • 133:21 - 133:30
    Supplies, 11400,
    and we have 7200 at the end of June
  • 133:30 - 133:32
    so we have use the difference.
  • 133:32 - 133:40
    What is the difference between 11400
    and 7200? It's 4200.
  • 133:40 - 133:48
    So we have a supplies expense debit 4200
    and we credit this account supplies
  • 133:48 - 133:52
    to reduce 4200 from here.
  • 133:52 - 134:03
    So the journal entry, the adjusting entry,
    it will be supplies expense 4200 debit
  • 134:04 - 134:10
    and we credit supplies 4200.
    With this we decrease the supplies account
  • 134:10 - 134:16
    and now we will have the balance
    that we calculate here.
  • 134:16 - 134:20
    That we count, we count the items,
    we value the items
  • 134:20 - 134:24
    and what we have
    at the end of June is 7200, ok?
  • 134:24 - 134:33
    So that is the second adjustment.
    The third one.
  • 134:34 - 134:40
    The depreciation for the year
    ended 30 is 5400 on the building
  • 134:40 - 134:43
    and 4500 on furniture.
  • 134:43 - 134:46
    Here you have two items.
  • 134:46 - 134:51
    The two of them are what we call
    the non-current assets,
  • 134:51 - 134:58
    so they're assets that last for more than
    one accounting period.
  • 134:58 - 135:06
    We have buildings and furniture
    and this description is telling us
  • 135:06 - 135:13
    that depreciation expense
    for the year 30th June 2019,
  • 135:13 - 135:15
    that is the ending...
  • 135:17 - 135:20
    That is the date of the unadjusted
    trial balance.
  • 135:20 - 135:27
    The deprecieation expense is 5400
    on the building, 4500 on furniture.
  • 135:29 - 135:32
    No we need to think in the accounts.
  • 135:32 - 135:37
    Depreciation expense is one account
    so it doesn't matter how many items
  • 135:37 - 135:39
    we are depreciating
  • 135:39 - 135:45
    we need to add them and we will have
    the depreciation expense,
  • 135:45 - 135:46
    the total depreciation expense.
  • 135:46 - 135:53
    If you add these two amounts,
    5400 and 4500 it will be 9900
  • 135:53 - 135:59
    so we will have a debit of depreciation
    expense, 9900.
  • 135:59 - 136:01
    What is the other account?
  • 136:01 - 136:04
    The other account is accumulated
    depreciation
  • 136:04 - 136:11
    but we have one accumulated depreciation
    account for each item
  • 136:11 - 136:13
    of the non-current asset.
  • 136:13 - 136:16
    How many items do we have here?
    Two.
  • 136:16 - 136:19
    So we have building,
    we have furniture.
  • 136:19 - 136:24
    So two different accounts, one account
    will be accumulated depreciation,
  • 136:24 - 136:30
    building, the other account will be
    accumulated depreciation furniture
  • 136:30 - 136:34
    We need to distinguish them
    and to record them separately.
  • 136:34 - 136:39
    So we will have a depreciation expense
    9900, one account,
  • 136:39 - 136:45
    and then we will have accumulated
    depreciation of building, 5400.
  • 136:45 - 136:49
    Accumulated depreciation
    of furniture, 4500.
  • 136:49 - 136:53
    and the journal entry, the adjusting
    entry will be this one.
  • 136:53 - 136:59
    Here you can see 9900 depreciation
    expense, one account.
  • 136:59 - 137:02
    All the depreciation expense together.
  • 137:02 - 137:04
    But then we have two different
    accounts,
  • 137:04 - 137:09
    so accumulated depreciation
    of the building, 5400,
  • 137:09 - 137:12
    accumulated depreciation
    of furniture, 4500.
  • 137:12 - 137:17
    The sum of course is 9900 so...
  • 137:21 - 137:25
    it would be okay Jade that if you
    separated depreciation expense
  • 137:25 - 137:30
    but we need to think that depreciation
    expense is just one account.
  • 137:30 - 137:35
    It will not cause any problem
    because at the end we will have two.
  • 137:35 - 137:39
    It's like we separate these
    in two adjusting entries.
  • 137:39 - 137:42
    It is possible, it's ok,
    it's not wrong,
  • 137:42 - 137:46
    but because we have one
    depreciation expense,
  • 137:46 - 137:49
    we record them together.
  • 137:49 - 137:54
    Now this is a journal entry for adjusting
    entries in which you have three entries.
  • 137:54 - 137:58
    Ok, I mentioned to you that most of
    the you have two entries,
  • 137:58 - 138:00
    one debit, one credit,
    there could be more.
  • 138:00 - 138:01
    this is the case.
  • 138:01 - 138:06
    In this case you have one debit
    and you have two credits.
  • 138:06 - 138:10
    The important thing is any journal entry
    or adjusting entry,
  • 138:10 - 138:16
    the total debit should be equal to
    total credits which is the case here.
  • 138:16 - 138:22
    Ok, next one.
  • 138:23 - 138:26
    The mortgage interest rate is 6%.
  • 138:26 - 138:29
    The mortgage was taken out
    on 1st April.
  • 138:29 - 138:34
    This is the only data that is given in the
    additional data for adjusting entries,
  • 138:34 - 138:39
    so we need to look at the data in the
    unadjusted trial balance to calculate this
  • 138:39 - 138:43
    so here we know 6% is the interest rate.
  • 138:43 - 138:51
    Always when it's given like this,
    it's annual interest rate, ok?
  • 138:51 - 138:55
    Annual interest rate.
    Always this is the annual,
  • 138:55 - 139:01
    that is the normal period for
    the interest rate of a mortgage.
  • 139:01 - 139:06
    So we will need to see what is the total
    of the mortgage
  • 139:06 - 139:08
    so we go to our...
  • 139:14 - 139:16
    And here you have mortgage payable.
  • 139:16 - 139:22
    This is the unadjusted trial balance,
    mortgage payable 210000.
  • 139:22 - 139:24
    210000.
  • 139:24 - 139:31
    If you multiply 210000 by 6%
    how much is that?
  • 139:32 - 139:36
    12600, very well Jade,
    12600.
  • 139:36 - 139:40
    That is the interest for the year, ok?
  • 139:40 - 139:46
    But we need the interest for three months
    so we divide this by 12
  • 139:46 - 139:48
    and we will have the interest
    per month.
  • 139:48 - 139:51
    We multiply by 3, ok,
  • 139:51 - 139:57
    and that is the interest for
    the three months
  • 139:57 - 140:01
    and for the three months
    we will multiply that by three, Jade,
  • 140:01 - 140:07
    monthly it will be 3150, ok?
  • 140:08 - 140:16
    So 3150 is the interest expense
    that we need to record here.
  • 140:16 - 140:19
    Good Jade.
  • 140:20 - 140:25
    Ok, so interest expense 3150.
  • 140:26 - 140:31
    Interest expense for the three months
    and we have an interest payable
  • 140:31 - 140:32
    because we have not paid that.
  • 140:32 - 140:39
    So interest payable, 3150.
    This is the adjusting entry.
  • 140:42 - 140:44
    Next one.
  • 140:45 - 140:51
    9000 of rent revenue paid in advance
    pertains to June.
  • 140:51 - 140:56
    The remainder pertains to July,
    so what does this mean?
  • 140:56 - 141:02
    The tenant paid in advance
  • 141:04 - 141:06
    for the rent until July,
  • 141:06 - 141:15
    but until June the tenant already used
    $9000 of this payment
  • 141:15 - 141:21
    because they used the office
    or the rent.
  • 141:24 - 141:30
    George, the previous one,
    sorry, you're talking about the mortgage?
  • 141:30 - 141:32
    The mortgage interest?
  • 141:36 - 141:38
    It's that one?
    Ok.
  • 141:39 - 141:47
    Ok, yeah, I will go through that George
    as soon as I finish this that I started
  • 141:47 - 141:51
    so here we have the revenue
    received in advance.
  • 141:52 - 141:58
    9000, that pertains to June,
    that means the tenant already used this.
  • 141:58 - 142:03
    We have provided this credit to the tenant
    until June for 9000.
  • 142:03 - 142:10
    So we need to record this income
    because this is revenue
  • 142:10 - 142:17
    and we will credit rent revenue for 9000
    and we will debit
  • 142:17 - 142:22
    the rent revenue received in advance
    which is a liability
  • 142:22 - 142:25
    when the tenant pays in advance
    the amount.
  • 142:25 - 142:27
    So this will be...
  • 142:32 - 142:36
    Debit rent revenue received in advance
    we decrease the liability
  • 142:36 - 142:41
    because the tenant already used
    this building until 30th June
  • 142:41 - 142:46
    and we record now the
    rent revenue, ok?
  • 142:46 - 142:51
    So that is the number five.
    I will go with the interest,
  • 142:51 - 142:58
    the interest of the number four.
    I will go again with this.
  • 142:58 - 143:01
    The mortgage interest rate is 6%.
  • 143:01 - 143:04
    Please remember, always the interest
    is per year,
  • 143:04 - 143:08
    so we need to know how much
    is the interest per month.
  • 143:08 - 143:10
    How do we calculate that?
  • 143:10 - 143:14
    Well, 6% of what?
  • 143:14 - 143:16
    That is the thing that we need
    to calculate.
  • 143:16 - 143:20
    6% of the total mortgage interest...
    Sorry.
  • 143:20 - 143:25
    6% of the total mortgage that we have
    for this loan that we have
  • 143:25 - 143:32
    so here you have,
    this is our trial balance.
  • 143:32 - 143:35
    Remember this is our unadjusted
    trial balance.
  • 143:35 - 143:40
    If we go down through the accounts
    we will have this mortgage payable.
  • 143:41 - 143:45
    Credit because it's a loan,
    it's a loan payable, it's a liability.
  • 143:45 - 143:50
    This is the total amount we borrow,
    210000.
  • 143:51 - 143:55
    How much is the interest per year?
    6% of this.
  • 143:55 - 144:03
    If you calculate your 6% of 210000,
    then that is 12600,
  • 144:03 - 144:06
    but that is per year.
  • 144:06 - 144:11
    How many months is the period of time
    here from 1st April to 30th June?
  • 144:11 - 144:13
    It's three months.
  • 144:13 - 144:19
    So 210000 divided by 12,
    sorry.
  • 144:19 - 144:24
    210000 multiplied by 6% is 12600.
  • 144:24 - 144:28
    12600 divided by 12,
    that will be per month
  • 144:28 - 144:32
    and then we multiply by three,
    that will be three months.
  • 144:32 - 144:37
    The amount is 3150.
  • 144:37 - 144:47
    So we record that interest expense, 3150
    because it's an interest already accrued
  • 144:48 - 144:52
    in this specific time, until 30th June,
    three months.
  • 144:52 - 144:56
    And the interest payable because
    we had not paid that
  • 144:56 - 144:59
    is the same amount,
    3150.
  • 144:59 - 145:05
    We have this liability for
    the interest payable
  • 145:05 - 145:10
    and we have the interest expense,
    that clarified the point George?
  • 145:16 - 145:18
    Ok, excellent.
  • 145:20 - 145:27
    Now the last adjusting entry
    is salaries.
  • 145:27 - 145:29
    This is a simple one.
  • 145:29 - 145:38
    Salaries of 1800 are unpaid at 30th June.
    So what does this mean?
  • 145:39 - 145:44
    That means that the employees
    already work for this amount,
  • 145:44 - 145:49
    1800 but the company didn't pay them.
  • 145:49 - 145:54
    So we owe that salary,
    so we will record the expense,
  • 145:54 - 145:58
    salaries expense 1800,
    and we have to record the liability
  • 145:58 - 146:02
    because we owe the salaries,
    that means salaries payable,
  • 146:02 - 146:04
    that is the liability.
  • 146:04 - 146:13
    So debit salaries expense, 1800
    credit salaries payable, ok?
  • 146:17 - 146:24
    1800. So there you have
    the last adjusting entry.
  • 146:24 - 146:27
    So we've finished the adjusting
    entries,
  • 146:27 - 146:31
    and now we can put all of these
    adjusting entries
  • 146:31 - 146:35
    to the spreadsheet.
  • 146:40 - 146:47
    So if we put them
    to the spreadsheet,
  • 146:48 - 146:51
    you have here all the adjustments.
  • 146:53 - 146:58
    There is a number that you can see
    in this column after adjustment,
  • 146:58 - 147:03
    this is just a column
    that can help you to know
  • 147:03 - 147:08
    which are the transactions that the...
  • 147:08 - 147:11
    the adjustment that we are recording
    in the adjustment.
  • 147:11 - 147:14
    I will look at that,
    I will go through the first one
  • 147:14 - 147:18
    just for you to have the reference
    because we did this already.
  • 147:18 - 147:22
    We don't need to go through all of them.
  • 147:22 - 147:27
    In the first, this is the number one,
    the first adjusting entry.
  • 147:27 - 147:38
    We record debit 2700 insurance expense,
    credit 2700 prepaid insurance.
  • 147:40 - 147:45
    So prepaid insurance is a credit...
    there you have the number one
  • 147:45 - 147:47
    for you to have as a reference.
  • 147:47 - 147:52
    This is the adjusting one.
    Credit 2700
  • 147:52 - 147:56
    and we have a debit in insurance expense,
  • 148:00 - 148:03
    insurance expense a debit, 2700
  • 148:02 - 148:08
    and here you can see the number one
    again as a reference.
  • 148:08 - 148:12
    So all of them have a reference
    to what transaction it is.
  • 148:12 - 148:17
    So we can complete this table
  • 148:21 - 148:24
    just copying all the adjustments,
  • 148:24 - 148:26
    the debit and the credit in the
    corresponding account
  • 148:26 - 148:29
    and we will complete the adjustment.
  • 148:29 - 148:32
    Then we can prepare
    the adjusted trial balance
  • 148:32 - 148:36
    the same as I explained
    in the previous exercise.
  • 148:36 - 148:40
    Cash for example, 15000 debit,
    there are no adjustments,
  • 148:40 - 148:45
    so the adjusted trial balance
    is 15000 debit cash.
  • 148:45 - 148:51
    Prepaid insurance we have it there 10800
    in the unadjusted balance,
  • 148:51 - 148:53
    the adjustment is credit,
  • 148:53 - 148:57
    so credit decreases the debit
    we need to strike this,
  • 148:57 - 149:01
    so the adjusted trial balance
    is debit 8100.
  • 149:02 - 149:07
    And we continue with all the adjustments
    until we have really
  • 149:07 - 149:11
    the adjusted trial balance.
  • 149:12 - 149:17
    So we can copy all the amounts here,
    in the adjusted trial balance
  • 149:17 - 149:21
    and this is our adjusted trial balance.
  • 149:21 - 149:25
    So in the first exercise we finished
    in this part,
  • 149:25 - 149:27
    but now we will continue
    with the second part
  • 149:27 - 149:32
    which is the closing entries.
  • 149:34 - 149:38
    What are closing entries,
    what are the closing entries?
  • 149:38 - 149:44
    So now I will explain a bit conceptually
    what are closing entries
  • 149:44 - 149:49
    and then we will apply them
    in this exercise.
  • 149:51 - 149:57
    I mentioned last week that there
    are permanent accounts
  • 149:57 - 149:59
    from all the accounts of the company.
  • 149:59 - 150:05
    There are permanent accounts
    and there are temporary accounts.
  • 150:05 - 150:08
    What is the difference between
    the permanent accounts
  • 150:08 - 150:10
    and the temporary accounts?
  • 150:10 - 150:16
    The permanent accounts are accounts
    that the ending balance of any period
  • 150:16 - 150:20
    is the beginning balance
    of the following period.
  • 150:20 - 150:26
    So we carry forward the balance
    of the accounts to the following period
  • 150:26 - 150:32
    and we continue for all the
    life of the company with this.
  • 150:32 - 150:37
    Ending balance becomes the opening balance
    of the following period.
  • 150:37 - 150:41
    If you remember when we balanced
    the accounts last week
  • 150:42 - 150:48
    we ended each of the ledger accounts
    with what is the opening balance
  • 150:48 - 150:53
    for the following period which was
    ending balance for the current period.
  • 150:53 - 151:00
    So these are the permanent accounts.
    But we have also temporary accounts.
  • 151:01 - 151:03
    What are temporary accounts?
  • 151:03 - 151:08
    Temporary accounts are accounts
    that must be closed
  • 151:08 - 151:11
    at the end of the accounting period.
  • 151:12 - 151:15
    Why do we have to close them?
  • 151:15 - 151:19
    Because we want to start
    the following period
  • 151:19 - 151:25
    with zero balance in each
    of these accounts, zero balance.
  • 151:25 - 151:28
    So we need to keep these accounts
    with zero balance.
  • 151:28 - 151:30
    How can we do this?
  • 151:31 - 151:36
    Well, we need to transfer the
    balance of these accounts
  • 151:36 - 151:38
    to a permanent account.
  • 151:39 - 151:42
    Then we can leave the account
    in zero balance.
  • 151:42 - 151:49
    This is very important for,
    very good Joshua, to retain earnings.
  • 151:49 - 151:54
    This is very important particularly for
    all the accounts of the income statement
  • 151:54 - 151:58
    because we want to start
    each accounting period
  • 151:58 - 152:02
    with zero balances in the income
    statement accounts,
  • 152:02 - 152:06
    that means all the revenues
    and expenses account
  • 152:06 - 152:08
    should be zero, why?
  • 152:08 - 152:13
    Because we want to menasure
    the profit for the period.
  • 152:13 - 152:19
    If we do not start from a zero balance
    we will not have the profit of the period
  • 152:19 - 152:25
    we will have a mix of profit
    of the periods and the current period, ok?
  • 152:25 - 152:32
    So to know the profit of the period
    we have to start with zero balance
  • 152:32 - 152:34
    in all of these accounts.
  • 152:34 - 152:39
    So what are the temporary accounts?
    All the income statement accounts.
  • 152:39 - 152:46
    That means all the revenues accounts
    or any other income
  • 152:46 - 152:50
    and all the expenses accounts.
  • 152:50 - 152:54
    All of them are temporary accounts.
  • 152:54 - 152:59
    In addition there is one account
    that we add retained earnings
  • 152:59 - 153:03
    or the equity account
    which is dividends.
  • 153:03 - 153:09
    Dividends is also very good Tamara,
    dividends is also a temporary account
  • 153:09 - 153:13
    and we need to close dividends
    at the end of the accounting period.
  • 153:13 - 153:16
    So how do we close them?
  • 153:16 - 153:20
    Well, to know that,
    we can start from here,
  • 153:20 - 153:23
    the adjusted trial balance.
  • 153:23 - 153:28
    Now what type of account do we have here?
    And we always put these in this order.
  • 153:28 - 153:34
    First we have the asset account,
    so you have cash here, ok?
  • 153:35 - 153:39
    Prepaid insurance, supplies, land,
    building,
  • 153:39 - 153:43
    accumulated depreciation is an asset
    account even though it's a credit,
  • 153:43 - 153:48
    but I already explained that and we will
    go in more detail with this account
  • 153:48 - 153:51
    in another topic.
    That is an asset account,
  • 153:51 - 153:54
    same to accumulated
    depreciation of credit.
  • 153:54 - 153:59
    All of these are asset accounts.
  • 153:59 - 154:04
    After the asset account we record
    the liabilities account.
  • 154:04 - 154:09
    So here you have accounts payable,
    rent revenue received in advance,
  • 154:09 - 154:15
    salaries payable, interest payable,
    mortgage payable, ok?
  • 154:15 - 154:19
    All of these are liabilities accounts.
  • 154:20 - 154:23
    After the liabilities accounts
    we have the equity accounts,
  • 154:23 - 154:26
    so we have check capital and rent revenue.
  • 154:26 - 154:31
    These two are the equity accounts,
    sorry, only check capital,
  • 154:31 - 154:33
    and retained earnings.
  • 154:33 - 154:38
    Check capital and retained earnings,
    that's what I mean.
  • 154:38 - 154:41
    Check capital and retained earnings
    are equity accounts.
  • 154:41 - 154:45
    In this case in this company
    we don't have retained earnings.
  • 154:45 - 154:50
    Why don't we have retained earnings?
    Because this company just started, ok?
  • 154:50 - 154:54
    It started on 1st April,
    so this is the first period,
  • 154:54 - 154:56
    30th June 2017.
  • 154:56 - 155:01
    And because it's the first period we
    don't have yet retained earnings account.
  • 155:01 - 155:07
    So check capital and retained earnings
    are equity accounts.
  • 155:10 - 155:13
    Then we have the income
    statement accounts.
  • 155:13 - 155:17
    The first account that we have
    all the revenues.
  • 155:17 - 155:22
    Rent revenue in this case,
    it may be service revenue,
  • 155:22 - 155:26
    it may be sales revenue,
    fees revenue, interest revenues,
  • 155:26 - 155:29
    all the revenues accounts,
    they will be in this part.
  • 155:30 - 155:32
    And then all the expenses accounts,
  • 155:32 - 155:36
    so we have advertisement expense,
    depreciation expense,
  • 155:36 - 155:40
    electricity expense, insurance, interest,
    salaries, supplies expenses,
  • 155:40 - 155:42
    all the expense accounts.
  • 155:43 - 155:46
    So this is the adjusted trial balance.
  • 155:46 - 155:49
    What are the accounts that
    we need to close?
  • 155:49 - 155:54
    In this case we don not have dividends,
    we have revenue, rent revenue,
  • 155:54 - 155:58
    and we have all of these expenses.
  • 155:58 - 156:00
    These are the accounts that
    we need to bring.
  • 156:00 - 156:02
    How will we close this?
  • 156:02 - 156:06
    There are two steps to close the accounts.
  • 156:06 - 156:13
    The first step we will close
    all the expenses and then the revenues
  • 156:13 - 156:19
    to another temporary account
    that we will create
  • 156:19 - 156:24
    that the name is the income
    summary account.
  • 156:24 - 156:29
    Income summary account is the name of
    another temporary account
  • 156:29 - 156:33
    and the purpose is to close
    all the expenses
  • 156:33 - 156:36
    and the revenues to this account.
  • 156:36 - 156:42
    So how do we close the expense?
    here you have advertisement expenses,
  • 156:42 - 156:47
    (INAUDIBLE) 3000,
    depreciation expense the balance
  • 156:47 - 156:53
    is debit 9900 so we have
    a number of expenses.
  • 156:53 - 157:03
    We add all of them and we will debit the
    income summary accounts for the sum
  • 157:03 - 157:07
    and we will credit each of them
    one by one
  • 157:07 - 157:11
    we cannot credit the total of them,
  • 157:11 - 157:18
    we need to close each account one by one
    so we need to credit advertisement expense
  • 157:18 - 157:24
    credit 3000,
    depreciation expense credit 9900.
  • 157:24 - 157:27
    Electricity expense we credit 6000
    and so on
  • 157:27 - 157:31
    because if you credit advertisement
    expense by 3000,
  • 157:31 - 157:37
    what is the balance of advertising expense
    after that? Zero.
  • 157:38 - 157:45
    If you credit depreciation expense by 9900
    what is the balance after that? Zero.
  • 157:46 - 157:51
    We're leaving each account at zero
    that's why we need to do one by one.
  • 157:51 - 157:57
    But for the sum of all of this credit
    we will have one debit which is
  • 157:57 - 158:02
    the income summary account,
    or profit and loss summary account.
  • 158:02 - 158:04
    It could be any of these.
  • 158:06 - 158:08
    With revenue we do the same.
  • 158:08 - 158:13
    So to close these revenue accounts,
    what we should do?
  • 158:14 - 158:17
    We need to debit by 64200.
  • 158:17 - 158:24
    We debit rent revenue by 64200,
    what is the balance after this? Zero.
  • 158:24 - 158:28
    And what we credit?
    Income summary account again.
  • 158:28 - 158:36
    So income summary account will be
    the same account that we use for expenses
  • 158:36 - 158:40
    but in this case we credit the
    income summary account.
  • 158:40 - 158:44
    So you can see what we have done
    at this point is to transfer
  • 158:44 - 158:49
    the amount of all the expenses
    and revenues to this temporary account
  • 158:49 - 158:53
    which is income summary account.
  • 158:59 - 159:02
    Here you have the closing entries.
  • 159:03 - 159:09
    We credit all of the expense accounts,
    remember the normal balance is a debit
  • 159:09 - 159:13
    so to close them we credit.
    This is a journal entry.
  • 159:13 - 159:18
    You can see this is a journal entry
    in which we debit income summary,
  • 159:18 - 159:21
    the sum of all the expenses.
  • 159:21 - 159:25
    We debit income summary and
    we credit each of these accounts.
  • 159:25 - 159:27
    How many entries has this journal entry?
  • 159:27 - 159:33
    You can see it has eight entries.
  • 159:33 - 159:38
    We have one debit, and seven credits.
  • 159:38 - 159:44
    So this is one journal entry,
    with this journal entry we close
  • 159:44 - 159:46
    all the expense accounts.
  • 159:46 - 159:50
    That means these are closing entries.
  • 159:50 - 159:55
    We transfer the expenses
    to the income summary accounts.
  • 159:55 - 159:58
    For debt revenue, the same.
  • 159:58 - 160:03
    In this case we need to debit
    the revenue account
  • 160:03 - 160:06
    because the balance is credit
    so when we credit,
  • 160:06 - 160:11
    we leave this account in zero,
    and we debit the rent revenue
  • 160:11 - 160:14
    and we credit the income
    summary account.
  • 160:15 - 160:20
    This is another journal entry,
    a closing entry.
  • 160:21 - 160:23
    What is next?
  • 160:23 - 160:26
    Then we need to close
    the income summary account.
  • 160:26 - 160:30
    What is the balance of the
    income summary account?
  • 160:30 - 160:33
    The income summary account
    is the difference
  • 160:34 - 160:35
    between the credit and the debit .
  • 160:35 - 160:37
    what is higher?
  • 160:37 - 160:43
    Well, we have 64200 credit
    and 48750 debit.
  • 160:44 - 160:49
    so that difference is 15450 credit, ok?
  • 160:50 - 160:53
    That is the balance of the income
    summary account at this point.
  • 160:53 - 160:58
    To close that, we need to debit,
    it is the third closing entry.
  • 160:58 - 161:03
    We debit 15450 from the
    income summary account
  • 161:03 - 161:07
    and we credit retained earnings.
    This is a permanent account.
  • 161:07 - 161:11
    So we transfer this balance to
    the retained earnings account.
  • 161:11 - 161:15
    Now the income summary account is closed.
  • 161:15 - 161:18
    You can verify this if you were
    at all debit,
  • 161:18 - 161:25
    48750 + 15450
    will be equal to 64200.
  • 161:25 - 161:31
    Income summary account is closed
    the ending balance in this case is zero
  • 161:31 - 161:34
    and all the balance is transferred
    to retained profit.
  • 161:34 - 161:40
    You can see what we have done
    is to transfer the profit
  • 161:40 - 161:44
    of the accounting period through
    the journal entries
  • 161:44 - 161:46
    that are the closing entries.
  • 161:46 - 161:50
    We transfer the profit to
    the retained earnings
  • 161:50 - 161:55
    an that is what we do every period
    at the end of each period we do this.
  • 161:55 - 161:57
    So what is retained earnings?
  • 161:57 - 162:03
    It's the accumulation of all profits
    and all losses since the company started
  • 162:03 - 162:07
    because we do this at the end
    of this period.
  • 162:07 - 162:12
    So we are accumulating the profits
    in this written profit account.
  • 162:12 - 162:13
    What about dividends?
  • 162:13 - 162:17
    Dividends is another temporary account
    we will see another exercise
  • 162:17 - 162:21
    in which dividends is included
    in the workshop exercise
  • 162:21 - 162:25
    in which dividends is also closed
    to retained earnings,
  • 162:25 - 162:28
    so retained earnings are
    decreased by dividends.
  • 162:30 - 162:34
    Now, one last word in relation
    to closing entries.
  • 162:34 - 162:38
    Closing entries you can see
    is very simple.
  • 162:38 - 162:43
    It's just to close each of the expense
    and revenues accounts
  • 162:43 - 162:45
    and also dividends,
  • 162:45 - 162:50
    and leaving the accounts
    with zero balance.
  • 162:50 - 162:59
    The normal mistake that the students do
    in this part even is simple
  • 162:59 - 163:04
    is the confusion between the debit
    or the credit to close the account.
  • 163:04 - 163:11
    So because students know that
    expenses are debit,
  • 163:11 - 163:15
    they close all expense accounts
    with the debit here.
  • 163:16 - 163:20
    Put the debit and put the income
    summary account as the credit.
  • 163:20 - 163:23
    But that, what is the effect of that?
  • 163:24 - 163:28
    With that, the effect that will be
    will be that you double
  • 163:28 - 163:30
    the balance of each account.
  • 163:30 - 163:35
    If you debit advertisement expenses
    by 3000 and you have a balance of 3000
  • 163:35 - 163:41
    what is the ending balance of
    the advertisement expenses? 6000.
  • 163:41 - 163:47
    Ok, you double the balance on the account
    you are not closing the account.
  • 163:47 - 163:50
    To close the account should
    be the opposite side,
  • 163:50 - 163:56
    it should be you credit 3000 because
    the account has a balance of debit, 3000.
  • 163:56 - 164:01
    So be careful with that, I have seen
    so many times the same mistake.
  • 164:03 - 164:11
    Remember that taking out on these
    so do not make this type of mistake.
  • 164:12 - 164:15
    Any question about closing entries?
  • 164:24 - 164:28
    The whole point Natalia,
    or the last part?
  • 164:31 - 164:35
    The last part?
    Excellent, yes.
  • 164:36 - 164:39
    Ok, excellent.
  • 164:40 - 164:44
    For one second I thought
    it was the whole point.
  • 164:44 - 164:46
    Excellent.
    Thank you Natalia.
  • 164:48 - 164:51
    A common mistake,
    what is the common mistake?
  • 164:51 - 164:56
    Here we are closing the account
    to ...
  • 164:56 - 165:01
    Remember two things,
    to close has a meaning.
  • 165:01 - 165:04
    What is the meaning to close?
  • 165:04 - 165:10
    To close means leave with zero balance
    that is the meaning, ok.
  • 165:10 - 165:13
    Close means leave this account
    with zero balance.
  • 165:13 - 165:19
    So if we close advertisement expense
    it means leave this with zero balance
  • 165:19 - 165:21
    at the end of the period.
  • 165:21 - 165:27
    After closing entries we want
    advertising expense equals zero balance
  • 165:27 - 165:30
    so that means we transfer
    the balance to another account.
  • 165:30 - 165:35
    We're transferring here to income summary
    in this first step.
  • 165:36 - 165:42
    So what about if we have instead of,
    I will write over here,
  • 165:42 - 165:52
    instead of credit 3000,
    we put 3000 here, we debit.
  • 165:53 - 165:57
    And we do the same with
    all the other accounts.
  • 165:58 - 166:04
    That means that this, the income
    summary will not be a debit of 48000
  • 166:04 - 166:10
    but will be a credit of 48750, ok?
  • 166:10 - 166:14
    So what will be the effect of this?
  • 166:14 - 166:20
    And we put here the 9900,
    the 6000, the 2000...
  • 166:20 - 166:22
    All of them in debit.
  • 166:22 - 166:27
    What is the balance of all of these
    accounts if you do that?
  • 166:28 - 166:32
    What is the balance after closing entries
    if you debit this account?
  • 166:32 - 166:36
    What will be the balance
    of advertisement expense?
  • 166:37 - 166:47
    It will be 6000 because the balance
    before closing entries is debit 3000.
  • 166:48 - 166:54
    If you debit in the closing entry by 3000
    the debit increases the debit
  • 166:54 - 166:58
    so a debit of 3000 will be added
    to the debit of 3000,
  • 166:58 - 167:01
    that means now the balance is 6000.
  • 167:01 - 167:08
    You're not closing the account,
    you double the balance of the account.
  • 167:08 - 167:14
    So that's why you need to be very careful
    that the closing entry
  • 167:14 - 167:20
    should be the opposite side of the
    accounts that we are closing.
  • 167:22 - 167:28
    All the expense accounts,
    they have a debit balance.
  • 167:28 - 167:30
    What is the opposite side?
    Credit.
  • 167:30 - 167:34
    So we need to credit all the
    expense accounts.
  • 167:35 - 167:39
    The revenues accounts,
    what is the normal balance? Credit.
  • 167:39 - 167:44
    To close we need to debit,
    the opposite side.
  • 167:45 - 167:51
    That is the important thing
    so be careful with that,
  • 167:51 - 167:55
    so do not make a mistake on this.
  • 167:58 - 168:09
    Ok, Yes, Zijing, only need to close
    the temporary account.
  • 168:10 - 168:14
    The permanent account we will
    carry forward the balance.
  • 168:14 - 168:16
    The ending balance at
    the end of the period
  • 168:16 - 168:19
    will be the beginning balance
    of the next period.
  • 168:19 - 168:21
    We do not start with a zero balance.
  • 168:21 - 168:25
    We start with the ending balance
    of the previous period
  • 168:25 - 168:30
    so we only close temporary accounts.
    What are the temporary accounts?
  • 168:30 - 168:34
    All the income statement accounts
    plus dividends, ok?
  • 168:38 - 168:44
    So we finish with this and here
    you have all the closing entries
  • 168:45 - 168:53
    and that's the last part of this
    exercise I think, yes.
  • 168:58 - 169:02
    Yes, that was the last question
    to prepare the closing entries.
  • 169:03 - 169:07
    So we finish,
    just we finish the lecture,
  • 169:07 - 169:12
    and it is time to (INAUDIBLE)
  • 169:14 - 169:19
    We need still to go through
    the workshop.
  • 169:20 - 169:25
    Yes I did here profit and loss,
    there are different names for this,
  • 169:25 - 169:30
    and over time the name has changed
    in the accounting standards,
  • 169:30 - 169:37
    but when we talk about income statements
    it's the same as profit and loss statement
  • 169:37 - 169:43
    it's the same.
    And we talk, there is another name,
  • 169:43 - 169:46
    it's not very used now,
    but you can see in some books
  • 169:46 - 169:50
    that there's the statement
    of financial performance.
  • 169:50 - 169:54
    That is also called the income statement.
  • 169:54 - 169:59
    And the balance sheet has another name,
    it's the statement of financial position.
  • 169:59 - 170:04
    But for the names that we're using
    is normally income statement
  • 170:04 - 170:08
    or statement of profit or loss.
  • 170:08 - 170:11
    And then we have,
  • 170:12 - 170:15
    retained profit will always credit, right?
  • 170:15 - 170:18
    Good question Ezekiel.
  • 170:19 - 170:27
    Retained profit normally should be
    and has to be in the credit side
  • 170:27 - 170:34
    except if the company has a lot of loss
    and then retained profit
  • 170:34 - 170:37
    will go to the other side,
    we'll have a debit balance.
  • 170:37 - 170:41
    That is a company that has
    accumulated losses,
  • 170:41 - 170:44
    and they don't have profit.
    it's not the normal situation
  • 170:44 - 170:50
    and it will be very bad for the company.
    Normally it should be on the credit side.
  • 170:52 - 170:56
    It is possible the debit side,
    but not usual, and not good.
  • 171:01 - 171:05
    Ok, so now we can go
    through the workshop.
  • 171:05 - 171:10
    So we need to plan a bit at this point
    because 3.50.
  • 171:12 - 171:19
    The normal time from 1.00-4.00
    is the workshop and the lecture,
  • 171:20 - 171:22
    and then 4.00-5.00
    I have the consultation
  • 171:22 - 171:26
    but what I am doing is just to answer
    all the questions
  • 171:27 - 171:33
    while I am explaining the exercise,
    so I go through the questions immediately.
  • 171:36 - 171:40
    That I think is better because we
    don't need to go back
  • 171:40 - 171:45
    but we solve anything that you have,
    any question you have immediately.
  • 171:45 - 171:49
    But because we have not gone
    through the workshop,
  • 171:50 - 171:54
    I will use the consultation time
    for the workshop.
  • 171:54 - 171:59
    Now I understand if any of you
    cannot stay for the workshop,
  • 171:59 - 172:02
    for the consultation which is 4.00-5.00,
  • 172:04 - 172:07
    it's ok, so feel free to go,
    no problem.
  • 172:08 - 172:13
    Remember the lecture and the workshop
    will be recorded
  • 172:13 - 172:17
    and will be uploaded
    on the ECOS 360 tab,
  • 172:17 - 172:22
    so you will have the complete record,
    yes and there's no problem.
  • 172:22 - 172:27
    You will have the complete record
    of the lecture and the workshop.
  • 172:27 - 172:31
    So I will explain this as part
    of the consultation,
  • 172:31 - 172:34
    the exercise of the workshop, ok?
  • 172:36 - 172:42
    And then if you have more questions
    yes, please feel free to ask
  • 172:42 - 172:44
    any question you may have.
  • 172:45 - 172:49
    Ok, so we go through the second one.
  • 173:07 - 173:13
    The workshop, the scheme that we have used
    is similar to the lecture,
  • 173:13 - 173:18
    we start with four multiple choice
    questions to revise some concepts
  • 173:18 - 173:21
    and then we go through the exercise.
  • 173:21 - 173:28
    And in the exercise we will do the same,
    we will practice with adjusting entries,
  • 173:28 - 173:35
    we will practice with closing entries
    and that is the topic for today,
  • 173:35 - 173:39
    so a lot of practice in this.
  • 173:41 - 173:43
    So we will start with this.
  • 173:43 - 173:50
    I will have a look at the first question
    which is similar to the first question
  • 173:50 - 173:52
    of the lecture.
  • 173:52 - 173:55
    Ok, have a look at this,
    I will update the poll.
  • 174:43 - 174:48
    Ok, so furniture factory employees
    work overtime to finish an order
  • 174:48 - 174:51
    that was sold on 28th February.
  • 174:51 - 174:54
    The office sent a statement
    to the customer in early March
  • 174:54 - 174:59
    and the payment is received
    by mid March.
  • 174:59 - 175:06
    The overtime expenses should be
    expressed in which period?
  • 175:31 - 175:41
    Ok, good practically most of you
    have the right answer,
  • 175:43 - 175:46
    in February.
    Why in February?
  • 175:46 - 175:51
    Because they said that when
    it's sold this order?
  • 175:51 - 175:53
    On 28th February, so it's February,
  • 175:53 - 175:59
    the month is February and
    the employees work during February.
  • 175:59 - 176:05
    So the resource,
    that means the work of the employees
  • 176:05 - 176:11
    was used on February,
    that means the right answer is that one,
  • 176:11 - 176:12
    February, A.
  • 176:13 - 176:16
    A is the right answer, ok?
  • 176:18 - 176:25
    Number two, have a look,
    I will update the poll.
  • 176:39 - 176:45
    The company purchased office supplies
    costing $4000 and debit office supplies
  • 176:45 - 176:48
    for the full amount.
    At the end of the accounting period,
  • 176:48 - 176:54
    a critical count of supplies reveal 1600
    is still on hand.
  • 176:54 - 176:56
    What is the appropriate journal entry?
  • 176:56 - 176:59
    We have done already two weeks
    aside for this,
  • 176:59 - 177:07
    so if you understood well,
    please apply the same as we have done
  • 177:08 - 177:10
    in the first two exercises.
  • 178:30 - 178:34
    Ok, most of you correct,
    what is the...
  • 178:36 - 178:41
    The right answer is C.
    Ok, why?
  • 178:42 - 178:48
    if the company purchases office supplies
    costing 4000, debit all these supplies,
  • 178:48 - 178:50
    so what is the balance of these accounts?
  • 178:50 - 178:57
    The unadjusted balance is office supplies
    or simply supplies, debit $4000,
  • 178:57 - 179:02
    that is the unadjusted balance
    but at the end of the accounting period
  • 179:02 - 179:06
    the physical count revealed 1600.
  • 179:06 - 179:10
    So that is what we have
    in the supplies account.
  • 179:10 - 179:14
    The rest were consumed,
    what's due,
  • 179:14 - 179:17
    so we need to record a
    debit supplies expense
  • 179:17 - 179:21
    by the difference, 2400,
  • 179:21 - 179:24
    that is the difference between
    4000 and 1600.
  • 179:24 - 179:29
    And we credit office supplies so we
    reduced the balance of office supplies
  • 179:29 - 179:37
    by 2400 and now what is the balance
    after adjustment? 1600, ok?
  • 179:37 - 179:42
    This is the normal way that you will see
    always what happened
  • 179:42 - 179:45
    with the supplies account,
    but there is another way
  • 179:45 - 179:49
    that I will explain,
    I will explain it now.
  • 179:50 - 179:57
    What about if this company purchased
    office supplies that cost 4000 dollars,
  • 179:57 - 180:05
    but debit the supplies expense,
    the office supplies expense.
  • 180:05 - 180:07
    So we debit, ok?
  • 180:07 - 180:10
    And that is the journal entry
    that they record
  • 180:10 - 180:13
    because they thought that they would
    consume all of this
  • 180:13 - 180:15
    in this accounting period.
  • 180:15 - 180:21
    So they debit supplies 4000.
  • 180:25 - 180:30
    They debit supplies 4000,
    and then credit.
  • 180:30 - 180:39
    If they paid cash, 4000.
    That is the original entry, ok?
  • 180:41 - 180:44
    Supplies expense.
  • 180:47 - 180:52
    So they debit an expense account.
    Why do they do this?
  • 180:52 - 180:58
    Because they think that they will consume
    all of these supplies in the month.
  • 180:59 - 181:08
    But at the end of the month they realize
    that they still have 1600 on hand.
  • 181:08 - 181:14
    What will be the adjusting entry
    in this case?
  • 181:17 - 181:19
    Think a bit.
  • 181:21 - 181:24
    And think what would be the
    adjusting entry in this case
  • 181:24 - 181:29
    because we need to adjust this,
    the expense was not 4000.
  • 181:29 - 181:33
    It was less than 4000 because we
    still have 1600.
  • 181:33 - 181:35
    We need to adjust that.
  • 181:35 - 181:41
    What will be the adjusting entry
    in this case if we record everything?
  • 181:41 - 181:47
    Debit office supplies,
    and credit supplies expenses, very good.
  • 181:47 - 181:52
    For what amount?
    For 1600.
  • 181:52 - 182:00
    So we will debit office supplies 1600
  • 182:02 - 182:07
    so now we have this, ok?
  • 182:09 - 182:15
    1600 debit, now we have the balance,
    and we need to credit the expense
  • 182:15 - 182:17
    because the expense was not 4000.
  • 182:17 - 182:26
    The expense was the difference,
    so we will credit the expense by 1600.
  • 182:26 - 182:31
    This is a different way to look at
    the supplies expenses account.
  • 182:31 - 182:37
    It is possible, it's not frequent but it
    is possible that this is what may happen.
  • 182:47 - 182:52
    A full reversal if it is...
    if it is given.
  • 182:52 - 182:57
    It's not a reversal actually,
    it depends on how the data is presented.
  • 182:57 - 183:01
    For example if the data is presented
    as I did in this exercise
  • 183:01 - 183:07
    or all the previous ones,
    you only need to adjust as we have done
  • 183:07 - 183:12
    but if the data is presented in this way
    that all the expenses,
  • 183:12 - 183:17
    all the supplies purchased are recorded
    as an expense,
  • 183:17 - 183:23
    then the other adjustment
    should be reversed.
  • 183:23 - 183:28
    What will give you the clue is
    how we record the purchase of this.
  • 183:28 - 183:33
    We record as supplies,
    or we record as supplies expense.
  • 183:33 - 183:35
    That will make the difference.
  • 183:39 - 183:45
    Ok, it's good to clarify this,
    because I have seen an exercise
  • 183:45 - 183:49
    in which they use the other way.
  • 183:50 - 183:59
    We have two possibilities and
    I will put this in here.
  • 184:03 - 184:14
    First, all purchases are
    recorded as supplies.
  • 184:17 - 184:22
    Ok, all purchases are
    recorded as supplies.
  • 184:24 - 184:26
    Now this you want....
  • 184:31 - 184:34
    All purchases are recorded as supplies.
  • 184:34 - 184:38
    What we should do when all purchases
    are recorded as supplies,
  • 184:38 - 184:43
    we do what you have learnt in
    the two previous exercises
  • 184:43 - 184:45
    in the lecture and in this...
  • 184:45 - 184:51
    in this multiple choice question.
  • 184:51 - 184:57
    We adjust the ending balance
    of supplies, ok?
  • 184:58 - 185:06
    But what about all purchases are
    recorded as expenses?
  • 185:12 - 185:15
    That is the other situation,
    all purchases are recorded as supplies
  • 185:15 - 185:19
    first situation we have worked with that,
    the second situation,
  • 185:19 - 185:26
    all purchases are recorded as expenses
    and we purchased $4000 of supplies
  • 185:26 - 185:32
    and because we think that we will use
    all of them in this accounting period
  • 185:32 - 185:39
    we record the 4000 as supplies expense
    when we purchase them.
  • 185:39 - 185:46
    At the end of the month we have
    1600 on hand,
  • 185:46 - 185:51
    so we didn't spend all of them.
    We still have supplies
  • 185:51 - 185:55
    and we need to prepare an adjusting
    entry to reflect this.
  • 185:56 - 186:04
    So how we will reflect in this case, we
    will record in this case a debit supplies
  • 186:07 - 186:13
    1600, ok?
    We record 1600 supplies
  • 186:14 - 186:23
    and we credit supplies expense,
    1600.
  • 186:28 - 186:33
    That will be the adjusting entry.
    What do we do with this adjusting entry?
  • 186:33 - 186:36
    We put in supplies which is
    an asset account,
  • 186:36 - 186:42
    we put the amount that we have on hand
    at the end of the period, 1600.
  • 186:42 - 186:49
    And we reduce the supplies
    expense by 1600
  • 186:49 - 186:52
    because we didn't consume
    all of them, ok?
  • 186:52 - 186:57
    This is the situation when purchases
    are recorded as expenses.
  • 186:57 - 187:00
    It's another situation,
    it's not the most common situation
  • 187:00 - 187:06
    but it's good that you know that
    adjustment is to reflect
  • 187:06 - 187:10
    what we have at the
    end of the period, ok?
  • 187:11 - 187:14
    It's clear now?
  • 187:19 - 187:21
    What are the questions?
  • 187:24 - 187:29
    Ok, Tablynn,
    Tablynn please clarify the point.
  • 187:32 - 187:38
    We go to the next one, number 3.
  • 187:41 - 187:45
    I will update the poll,
    thank you Tablynn.
  • 187:49 - 187:56
    Ok, this company purchased a computer
    for 3000 on 1st December.
  • 187:56 - 188:01
    It is estimated the annual depreciation
    of the computer is $600,
  • 188:01 - 188:03
    the annual depreciation.
  • 188:03 - 188:07
    A financial statement had to be prepared
    on 31st December.
  • 188:07 - 188:10
    The company should make
    the following adjustment.
  • 188:10 - 188:15
    So it's not very difficult,
    what is the adjusting entry in this case?
  • 188:15 - 188:19
    Have a look at the alternatives
    and choose one of them.
  • 189:38 - 189:42
    Ok, are you ready?
  • 189:44 - 189:49
    We have most of you answered correctly
    but we have a distribution
  • 189:49 - 189:52
    in the answer as well.
  • 189:53 - 189:59
    The correct answer is B.
  • 190:02 - 190:06
    What is the, I would not say tricky,
  • 190:06 - 190:09
    but what is the thing that you
    need to be careful of
  • 190:09 - 190:11
    with the data provided?
  • 190:11 - 190:19
    It is important and this is a good
    practice for you for the final exam
  • 190:19 - 190:23
    because in the final exam you will have
    multiple choice questions
  • 190:23 - 190:25
    and you will have exercises.
  • 190:25 - 190:28
    And the multiple choice questions
    what is essential?
  • 190:28 - 190:35
    In the multiple question it is to read
    carefully everything in the question
  • 190:35 - 190:40
    before you choose one of the answers
    because here I can see
  • 190:40 - 190:45
    why there are some errors.
  • 190:45 - 190:50
    It says this is the amount
    of the computer, $3000.
  • 190:50 - 190:59
    It is estimated annual depreciation
    is $600, annual depreciation.
  • 190:59 - 191:03
    Financial statements are to be prepared
    on 31st December.
  • 191:03 - 191:07
    What is the period of time for
    this accounting period?
  • 191:07 - 191:12
    It's from the 1st of December
    to the 31st of December,
  • 191:12 - 191:15
    that's one month.
  • 191:15 - 191:22
    So were talking about an accounting
    period of one month, exactly Joshua.
  • 191:22 - 191:27
    One month, and here we have the
    depreciation of a whole year,
  • 191:27 - 191:31
    so to calculate the depreciation
    for one month
  • 191:31 - 191:33
    you need to divide this by 12.
  • 191:33 - 191:36
    If you divide by 12 it's 50
  • 191:36 - 191:46
    so that immediately leaves out A and E
    and also the answer,
  • 191:46 - 191:49
    so we're not only between B and C, ok?
  • 191:49 - 191:54
    Now to record the depreciation expense
    debit always,
  • 191:54 - 191:57
    always debit depreciation expense
    always it's a debit,
  • 191:57 - 192:00
    and credit the accumulated depreciation.
  • 192:00 - 192:04
    That's why this is the right answer, ok?
  • 192:04 - 192:09
    So this is a good opportunity I can use
    to explain to you how to avoid
  • 192:09 - 192:14
    some common errors when you do this
    in an exam,
  • 192:14 - 192:17
    and only, maybe you know the answer,
  • 192:17 - 192:21
    but because you didn't read
    very carefully the data
  • 192:21 - 192:23
    then you can make a mistake.
  • 192:23 - 192:29
    So be careful with these types of things
    when you answer these questions.
  • 192:30 - 192:35
    Ok, now the last multiple choice question,
  • 192:39 - 192:42
    is this one,
    I will update the poll.
  • 192:56 - 193:00
    An entity failed to adjust the revenue
    received in advance account
  • 193:00 - 193:03
    for rent that has been earned.
  • 193:03 - 193:08
    What effect will this have
    on the financial statements?
  • 193:14 - 193:16
    (COUGHS)
  • 194:34 - 194:39
    Ok, most of you again are correct,
  • 194:40 - 194:43
    but there are different answers as well.
  • 194:43 - 194:51
    But the right answer is E,
    ok? That is the right answer.
  • 194:51 - 194:55
    I will explain how to solve this
    type of questions,
  • 194:55 - 195:00
    because there are many similar questions,
    but the question is,
  • 195:00 - 195:03
    what is the effect on the
    financial statement
  • 195:03 - 195:08
    if an adjustment entry is not prepared?
  • 195:08 - 195:10
    Ok, so how we answer
    this type of question?
  • 195:10 - 195:14
    The best way is to go step by step.
  • 195:15 - 195:20
    It says the entity failed to adjust
    revenue received in advance account
  • 195:20 - 195:23
    for rent that has bee earned.
  • 195:23 - 195:27
    So what happens when we have
    a revenue received in advance?
  • 195:27 - 195:30
    Yes, it is a liability.
  • 195:31 - 195:34
    Revenue received in advance is
    a liability account,
  • 195:34 - 195:41
    and what happens when we earn the rent
    and we do not adjust this liability?
  • 195:41 - 195:45
    The adjustment means a decrease
    of the liability.
  • 195:45 - 195:49
    If we do not decrease the liability,
    revenue received in advance,
  • 195:51 - 195:54
    these liabilities will be overstated.
  • 195:54 - 195:59
    How many of the answers,
    and that is the way that you can see
  • 195:59 - 196:03
    when you are answering this type
    of question in an exam,
  • 196:03 - 196:09
    how many of the answers have that,
    that the liabilities will be overstated?
  • 196:09 - 196:13
    Well, we have D and E only,
    only two,
  • 196:13 - 196:16
    so you can discard already three.
  • 196:16 - 196:19
    So you are going step by step
    answering the question,
  • 196:19 - 196:26
    and even you don't know the second part
    but now your choice is only between two
  • 196:27 - 196:30
    so a better probability
    to have the correct answer.
  • 196:30 - 196:34
    These are just some tricks that you
    can apply when you answer
  • 196:34 - 196:38
    these types of questions, ok?
  • 196:38 - 196:42
    So first, liabilities will be overstated
    and what else?
  • 196:42 - 196:44
    The difference is in revenue.
  • 196:44 - 196:47
    What happens in revenue
    if we do not record this?
  • 196:48 - 196:54
    If we do not record this it means
    we do not record revenue already earned,
  • 196:54 - 197:02
    so the revenue account will be understated
    because we miss to record this revenue.
  • 197:03 - 197:06
    So this will be the second part,
    understated,
  • 197:06 - 197:10
    and that's why the right answer is E.
  • 197:12 - 197:15
    Any questions? Any conceptual questions?
  • 197:15 - 197:20
    Because with these four questions
    we finished up the conceptual part.
  • 197:20 - 197:26
    Excellent Jade, we finished all the
    conceptual part about adjusting entries
  • 197:26 - 197:31
    but now we will apply them again
    in a couple of exercises.
  • 197:34 - 197:42
    So we go through the first exercise
    which is this.
  • 197:44 - 197:50
    This company began operations
    1st February 2019
  • 197:50 - 197:53
    and the trial balance is at 30th June.
  • 197:53 - 197:58
    So how many months is
    this accounting period?
  • 197:58 - 198:04
    The accounting period is five months,
    very good.
  • 198:04 - 198:09
    We need to keep that in mind,
    five months is the accounting period
  • 198:09 - 198:14
    to calculate the revenues, expenses
    or anything that we will need.
  • 198:14 - 198:17
    What we have here is the
    trial balance again,
  • 198:17 - 198:19
    the unadjusted trial balance.
  • 198:19 - 198:25
    We have all the debit accounts,
    all the credit accounts.
  • 198:25 - 198:29
    They are not all the accounts because
    there are other accounts here,
  • 198:29 - 198:34
    you can see other accounts that have
    zero balance at this moment
  • 198:34 - 198:38
    but they are accounts of the company
    that we will use.
  • 198:38 - 198:44
    And then we have the transactions,
    not transactions, sorry.
  • 198:45 - 198:50
    Not transactions,
    the data for the adjustments.
  • 198:51 - 198:56
    The first again we have supplies,
    so these are similar,
  • 198:56 - 198:57
    so I will go a bit quick,
  • 198:57 - 199:02
    but please stop me if there's anything
    that you don't follow well.
  • 199:02 - 199:06
    So supplies on hand, 490,
  • 199:06 - 199:11
    how much we have in the
    unadjusted trial balance?
  • 199:11 - 199:19
    supplies, 2350, so 2350 less 490
  • 199:19 - 199:24
    that will be 1860.
  • 199:28 - 199:34
    Less 490 that will be 1860,
  • 199:34 - 199:37
    so we record supplies expense
    and supplies.
  • 199:37 - 199:41
    We'll record expense for the
    supplies consumed
  • 199:41 - 199:45
    and we decrease the balance
    of the supplies accounts.
  • 199:48 - 199:53
    Ok, second, electricity bill 110
    has not been recorded,
  • 199:53 - 199:55
    and will not be paid until next month.
  • 199:55 - 200:00
    Quite similar to what we have done,
    we need to record the expense,
  • 200:00 - 200:03
    electricity expense debit 110,
  • 200:03 - 200:08
    and electricity payable credit 110.
  • 200:08 - 200:15
    So here you have electricity expense 110,
    electricity payable 110.
  • 200:19 - 200:24
    The insurance policy is for the year
    commencing 1st February 2019.
  • 200:24 - 200:28
    This is the day that the company started
    for the year,
  • 200:28 - 200:31
    so we need to see here how much is...
  • 200:31 - 200:36
    prepaid insurance in total for
    a year is 2520,
  • 200:36 - 200:43
    so if we divide this by 12
    and we have five months in this period
  • 200:43 - 200:50
    we will need to multiply by 5,
    so dividing this by 12, multiplied by five
  • 200:50 - 200:56
    the insurance expense will be 1050
  • 200:57 - 201:04
    so we have insurance expense debit 1050
  • 201:04 - 201:07
    credit prepaid insurance will decrease
    the amount that we have
  • 201:07 - 201:12
    in prepaid insurance, 1050.
  • 201:15 - 201:20
    Services were performed during the period
    in relation to 800 of revenue
  • 201:20 - 201:22
    received in advance.
  • 201:22 - 201:27
    So we have a revenue received in advance
    and we need to decrease that 800
  • 201:27 - 201:30
    to record the service revenue.
  • 201:30 - 201:33
    We will debit revenue received
    in advance by 800,
  • 201:33 - 201:38
    we will credit service revenue
    by the same amount.
  • 201:41 - 201:45
    So we debit the service revenue
    received in advance, 800
  • 201:45 - 201:49
    and we credit service revenue.
  • 201:53 - 201:54
    Next one.
  • 201:56 - 202:00
    Ok, yes.
    Yeah, that's good.
  • 202:00 - 202:03
    Services were perfomed during the period
  • 202:03 - 202:06
    in relation to 800 of revenue
    received in advance
  • 202:06 - 202:08
    What does that mean?
  • 202:09 - 202:13
    That means that previously
    we have received cash
  • 202:13 - 202:20
    for services that we have not provided,
    we received in advance,
  • 202:20 - 202:23
    so we record this as a liability.
  • 202:23 - 202:28
    The liability, the name of the account
    is service revenue received in advance
  • 202:28 - 202:33
    and we can confirm this
    in the trial balance.
  • 202:35 - 202:41
    The liability here you can see
    service revenue received in advance.
  • 202:41 - 202:48
    We have received cash for 1500
    for services we have not provided, ok?
  • 202:48 - 202:54
    Now in this data it says services were
    performed during the period
  • 202:54 - 203:01
    for 800 of this 1500 that we received cash
    we provide service for 800,
  • 203:01 - 203:06
    so we will have this revenue credit
    and we need to decrease
  • 203:06 - 203:11
    the liability that we have
    by the same amount, by 800.
  • 203:11 - 203:19
    Ok, so the journal entry will be service
    revenue received in advance we credit
  • 203:19 - 203:23
    so we decrease that 1500 that we have
  • 203:23 - 203:27
    we decrease for the services
    already performed.
  • 203:27 - 203:31
    And we record the service revenue credit.
  • 203:32 - 203:35
    Now it's better George?
  • 203:43 - 203:45
    Shouldn't we be deducting?
  • 203:45 - 203:48
    (INAUDIBLE)
  • 203:50 - 203:58
    Actually we are deducting 800
    from the 1500 we have with this
  • 203:58 - 204:04
    in the debit entry because we debit.
  • 204:05 - 204:09
    We are reducing the balance of service
    revenue received in advance
  • 204:09 - 204:13
    that has a credit balance of 1500.
  • 204:14 - 204:22
    We debit 800 because we performed
    services for 800,
  • 204:22 - 204:24
    so we deduct that.
  • 204:24 - 204:31
    With the debit entry we are reducing
    an account that has a credit balance.
  • 204:34 - 204:37
    Excellent, very good.
  • 204:38 - 204:40
    You're welcome.
  • 204:40 - 204:46
    Ok, so the next one, salaries.
  • 204:47 - 204:50
    Salaries of 770 are owed
    at 30th June,
  • 204:50 - 204:52
    we have done something similar.
  • 204:52 - 204:58
    So what are the accounts to record
    the expense, salaries expense 770
  • 204:58 - 205:00
    and because we have not paid
    these salaries,
  • 205:00 - 205:06
    they will be liability
    salaries payable, 770.
  • 205:08 - 205:12
    Here you have salaries
    expense 770 debit,
  • 205:12 - 205:17
    salaries payable liability 770.
  • 205:20 - 205:26
    The next one, office equipment has
    a five year life with no resale value
  • 205:26 - 205:31
    and is being depreciated at $375
    per month for 60 months.
  • 205:32 - 205:36
    Ok, this is the amount per month,
    depreciation expense per month.
  • 205:36 - 205:40
    But how many months do we have?
    Five months.
  • 205:40 - 205:46
    So we need to multiply 375 by five,
    that is 1875
  • 205:46 - 205:52
    so we record depreciation expense
    here is the adjusting entry,
  • 205:52 - 205:58
    depreciation expense 1875 debit
  • 205:58 - 206:05
    and we credit the accumulated
    depreciation office equipment 1875.
  • 206:08 - 206:10
    And the last.
  • 206:11 - 206:16
    Invoices representing 1500
    of services performed during the month
  • 206:16 - 206:18
    have not been recorded.
  • 206:18 - 206:26
    So we provide services, we send
    the invoice but we have not recorded
  • 206:26 - 206:31
    so we need to record, simply record
    that we have not received cash
  • 206:31 - 206:36
    so we record a debit to
    accounts receivable
  • 206:36 - 206:40
    and a credit to service revenue.
  • 206:44 - 206:48
    And here you have 1500
    debit account receivable,
  • 206:48 - 206:51
    credit service revenue.
  • 206:53 - 207:00
    So we went a bit more faster through
    the adjusting entry
  • 207:00 - 207:02
    because you have seen they're
    very similar,
  • 207:02 - 207:09
    so if you become accustomed with this
    you will do well in any adjusting entries
  • 207:10 - 207:12
    that you may face in any exercise.
  • 207:12 - 207:17
    They're similar once you become accustomed
    to how to record adjusting entries,
  • 207:17 - 207:22
    it will be easier for you to do this.
  • 207:26 - 207:32
    Invoices...
    sorry, what was the question reading?
  • 207:32 - 207:36
    Invoices we did combine them.
  • 207:37 - 207:42
    You mean in the last transaction
    the number seven?
  • 207:43 - 207:50
    The number seven when it says
    invoices representing 1500 of services,
  • 207:50 - 207:56
    yes, it could be one, it could be two,
    it could be more than one,
  • 207:56 - 207:58
    but here we put all together
  • 207:58 - 208:02
    because all of them are
    for the same period
  • 208:02 - 208:08
    so we can add them and in total
    it's 1500.
  • 208:08 - 208:13
    We do not record invoice by invoice
    unless they're from different dates
  • 208:13 - 208:16
    and we're preparing
  • 208:17 - 208:21
    each day by day as we did last week,
    that is day by day,
  • 208:21 - 208:26
    in that case we need to record each time
    but we're preparing adjusting entries.
  • 208:26 - 208:29
    Adjusting entries is for the whole month
  • 208:29 - 208:33
    so we need to include all the invoices
    of the month, ok?
  • 208:33 - 208:37
    Because the one point in time
    that we're doing this
  • 208:37 - 208:40
    is the last day of the
    accounting period
  • 208:40 - 208:43
    so we add all the invoices for the month.
  • 208:47 - 208:53
    Just because we have only one
    service revenue account,
  • 208:53 - 208:58
    we have one service revenue account
    and therefore we add them.
  • 208:59 - 209:07
    If you remember the ledger last week,
    we have one service revenue account
  • 209:07 - 209:08
    or sales revenue account.
  • 209:08 - 209:12
    Now if we have two different accounts
    for example
  • 209:12 - 209:16
    we have invoices for services
    that we provided
  • 209:16 - 209:21
    and we have invoices for products
    that we delivered
  • 209:21 - 209:28
    and we have one service account
    and we have one sales revenue account,
  • 209:28 - 209:31
    two different accounts,
    one for services one for products,
  • 209:31 - 209:37
    in that case we need to add
    all the services invoices
  • 209:37 - 209:40
    and to put them in the service
    revenue account
  • 209:40 - 209:44
    and all the sales of products
    and we put them in the other account
  • 209:44 - 209:46
    in that case we need to
    keep them separated.
  • 209:46 - 209:49
    But if it is only one account
    that we are using
  • 209:49 - 209:52
    this is the adjusting entry,
    we add all of them.
  • 209:56 - 210:02
    Ok, accounts receivable debit
    and services performed credit
  • 210:02 - 210:05
    for the seventh transaction.
  • 210:06 - 210:08
    Ok, well yes.
  • 210:08 - 210:12
    The seventh transaction we have
    a number of invoices
  • 210:12 - 210:15
    but the total is 1500.
  • 210:15 - 210:16
    Services performed.
  • 210:18 - 210:21
    Invoices for services performed
    means service revenue,
  • 210:21 - 210:26
    we've earned this revenue because
    we provided the services
  • 210:26 - 210:32
    so we have a credit in the account
    of service revenue, 1500.
  • 210:32 - 210:35
    But we have not received the cash
    for this.
  • 210:35 - 210:40
    It doesn't say here that we
    buy services for cash
  • 210:40 - 210:42
    so therefore it is an account receivable.
  • 210:42 - 210:46
    We need to debit the
    accounts receivable
  • 210:51 - 211:01
    Ok, so once we have this,
    all the adjusting entries recorded
  • 211:02 - 211:06
    we can go to our worksheet
  • 211:06 - 211:09
    and here in the worksheet,
    the same as we have done,
  • 211:09 - 211:12
    we have the unadjusted trial balance.
  • 211:12 - 211:20
    We copy all the adjtustments here and
    we prepare the adjusted trial balance.
  • 211:20 - 211:23
    Ok, I will not repeat this part
    because it's very simple.
  • 211:23 - 211:29
    You know for example if you
    have account receivable
  • 211:29 - 211:36
    this is the unadjusted trial balance
    3150, ok, in here.
  • 211:37 - 211:41
    Debit and in the adjustment
    you have another debit.
  • 211:41 - 211:46
    You need to add the two of them
    to have the adjusted trial balance.
  • 211:46 - 211:50
    If you have the prepaid insurance debit
    and the adjustment is a credit,
  • 211:50 - 211:55
    you need to subtract this and
    to calculate the adjusted trial balance.
  • 211:55 - 212:00
    So it's exactly the same as
    we have done before.
  • 212:00 - 212:05
    The important thing, all of them,
    the unadjusted trial balance,
  • 212:05 - 212:08
    total debit equals total credit.
  • 212:08 - 212:12
    The adjustment, this is the sum
    of all the adjusting entries,
  • 212:12 - 212:15
    total debit again equals total credit.
  • 212:15 - 212:21
    The adjusted trial balance again,
    total debit again equals total credit.
  • 212:22 - 212:27
    So always in the trial balance,
    total debit equals total credit.
  • 212:27 - 212:32
    The same as any journal entry.
    Total debit equals total credit.
  • 212:37 - 212:42
    So from that worksheet we can prepare
    what is the adjusted trial balance
  • 212:42 - 212:45
    at 30th June after all the adjustments
  • 212:45 - 212:48
    and here you have the adjustment
    trial balance.
  • 212:48 - 212:52
    It's just a copy of what we have
    in the worksheet.
  • 212:56 - 213:03
    The last problem for today is this one.
  • 213:04 - 213:08
    Here we will start with
    the adjusted trial balance.
  • 213:09 - 213:12
    If you remember the previous problem,
    we had started the problem
  • 213:12 - 213:18
    with the unadjusted trial balance
    and we prepared all the adjustments
  • 213:18 - 213:21
    and at the end we end with
    the adjusted trial balance.
  • 213:21 - 213:26
    In this problem we will start
    with the adjusted trial balance.
  • 213:26 - 213:31
    So here you have the trial balance
    after all adjustments.
  • 213:31 - 213:36
    All adjustments we have
    the trial balance.
  • 213:38 - 213:43
    In this exercise which is a different
    exercise of course from the previous one
  • 213:44 - 213:47
    you can see trial balance have
    the same structure.
  • 213:48 - 213:53
    We have first all the asset accounts,
    cash, accounts receivable,
  • 213:53 - 213:58
    office supplies, equipment,
    accumulated depreciation equipment
  • 213:58 - 214:02
    which is an asset account
    but is credit balance, ok?
  • 214:02 - 214:07
    Then we have the liabilities,
    accounts payable, salaries payable,
  • 214:07 - 214:10
    interest payable,
    rent revenue received in advance
  • 214:10 - 214:15
    bank loans, all of these are
    liabilities accounts.
  • 214:16 - 214:20
    Then we have check capital
    and retained earnings.
  • 214:20 - 214:22
    These are equity accounts.
  • 214:23 - 214:27
    Here we have one temporary account,
    part of equity dividends.
  • 214:29 - 214:31
    Why is dividends on the debit side?
  • 214:31 - 214:33
    Because dividends decrease
    retained earning, ok?
  • 214:34 - 214:37
    But this is a temporary account
    that we need to close
  • 214:37 - 214:40
    to retained earnings account,
  • 214:40 - 214:43
    and then we have the income
    statements account.
  • 214:43 - 214:48
    Revenues, we have two revenues accounts,
    sales revenue and rent revenue,
  • 214:48 - 214:52
    and we have all of these
    expenses accounts.
  • 214:53 - 214:57
    And the total of course should be equal.
    Total debit equals total credit.
  • 214:57 - 215:05
    So the question or the exercise,
    start with the adjusted trial balance.
  • 215:10 - 215:13
    What is required in this question?
  • 215:13 - 215:20
    Prepare the closing entries and prepare
    a post closing entries trial balance,
  • 215:21 - 215:22
    just that.
  • 215:22 - 215:26
    Prepare closing entries and prepare
    post closing entries trial balance
  • 215:26 - 215:30
    starting with the adjusted trial balance.
  • 215:31 - 215:34
    So we will return to the
    adjusted trial balance.
  • 215:35 - 215:38
    How will we prepare the closing entries?
  • 215:38 - 215:40
    We will start with the expenses.
  • 215:41 - 215:44
    Here you have all the expense accounts.
  • 215:44 - 215:50
    How do we close these expenses?
    All the expenses accounts?
  • 215:51 - 215:55
    Well, the balance of these accounts
    is debit,
  • 215:55 - 215:58
    so to close them,
    to leave them with zero balance
  • 215:58 - 216:03
    we need to credit for the same amount.
  • 216:03 - 216:06
    That is the part that I mentioned before,
    don't make a mistake.
  • 216:06 - 216:10
    To close these we need to credit,
    not to debit.
  • 216:10 - 216:16
    If you debit you will double the balance
    of these accounts.
  • 216:16 - 216:20
    So we need to credit by the same amounts.
  • 216:20 - 216:24
    It's very simple, the journal entry.
  • 216:24 - 216:29
    The income summary debit
    and expenses credit, exactly George.
  • 216:29 - 216:31
    That is the point.
  • 216:31 - 216:39
    So the journal entry will be
    credit salaries expense 11340,
  • 216:39 - 216:44
    credit rent expense 6000,
    credit depreciation expense,
  • 216:44 - 216:47
    equipment 1750.
  • 216:47 - 216:53
    Credit supplies expense 900,
    credit electricity expense 750.
  • 216:53 - 216:55
    Credit interest expense 500.
  • 216:55 - 217:00
    So you can see, you have to go one by one
    closing each of these accounts
  • 217:00 - 217:05
    with a credit entry of the same amount
    that we have in the balance.
  • 217:06 - 217:11
    Then you add all of these and you will
    record a debit entry
  • 217:11 - 217:14
    in the income summary account
    for the sum of all of that.
  • 217:14 - 217:18
    In this case if you add this it's 20990
  • 217:18 - 217:26
    so you record your first closing entry
    which is this one.
  • 217:26 - 217:31
    Profit and loss summary or
    income summary accounts, 20990,
  • 217:31 - 217:36
    and the credit in all the
    expense accounts, ok?
  • 217:36 - 217:39
    Salaries expense, rent expense,
    depreciation expense.
  • 217:39 - 217:45
    After this, the balance of all of this
    expense accounts will be zero, ok?
  • 217:45 - 217:50
    Because we have the same amount
    debits and credits so the balance is zero.
  • 217:52 - 217:58
    Then we close the revenues accounts
    and we have two.
  • 217:58 - 218:03
    So we have sales revenue,
    and we have rent revenue.
  • 218:03 - 218:09
    Credit balance, so to close this,
    we need to debit for the same amount.
  • 218:09 - 218:13
    We need to debit sales revenue,
    18600.
  • 218:13 - 218:18
    We need to debit rent revenue 12000,
    one by one again.
  • 218:18 - 218:21
    And then we will credit the income
    summary account
  • 218:21 - 218:22
    for the total.
  • 218:22 - 218:27
    How much is the total?
    30600, the sum of these two,
  • 218:27 - 218:33
    and we have the second closing entry
    which is this.
  • 218:34 - 218:40
    Here we have debit, the sales revenue,
    the rent revenue, now the balance is zero
  • 218:40 - 218:45
    and we credit the profit and loss summary
    or income summary account,
  • 218:45 - 218:48
    you can put the name profit
    and loss summary
  • 218:48 - 218:51
    or income summary accounts,
    correct.
  • 218:51 - 218:54
    You credit by that amount.
  • 218:56 - 219:00
    So we closed all the expenses
    and revenue accounts.
  • 219:00 - 219:03
    But we have opened this
    temporary account
  • 219:03 - 219:06
    that is the profit and loss
    summary account.
  • 219:06 - 219:11
    We need to close that because
    it's also a temporary account.
  • 219:11 - 219:16
    What is the balance of this account
    after all of these closing entries?
  • 219:17 - 219:22
    The balance is the difference between
    30600 credit
  • 219:22 - 219:26
    and 20990 debit,
  • 219:26 - 219:29
    so the difference will be a credit
    because this is higher,
  • 219:29 - 219:39
    will be a credit of 9610.
    That is the next closing entry.
  • 219:40 - 219:44
    Because it will be a credit balance
    we need to debit this account
  • 219:44 - 219:47
    by 9610.
  • 219:47 - 219:50
    Now this account is zero, ok?
  • 219:50 - 219:53
    The profit and loss summary account,
    the balance is zero,
  • 219:53 - 219:56
    we've closed that with this debit entry?
  • 219:56 - 219:58
    What is the credit entry?
  • 219:58 - 220:01
    Retained earnings account
    which is a permanent account.
  • 220:06 - 220:09
    So we close all the
    income statement accounts
  • 220:09 - 220:12
    and the profit and loss summary accounts
    and we only need to close now
  • 220:13 - 220:20
    one additional account that we have
    in the adjusted trial balance.
  • 220:21 - 220:22
    Yes Josh?
  • 220:22 - 220:28
    JOSHUA: Could you explain the second last,
    the (INAUDIBLE)
  • 220:30 - 220:34
    HERMAN: Sorry, I couldn't hear very well,
    can you repeat please?
  • 220:34 - 220:37
    JOSHUA: Yeah, could you explain
    the second last transaction
  • 220:37 - 220:40
    which was about the retained earnings?
  • 220:40 - 220:43
    The income summary to retained earnings.
  • 220:43 - 220:44
    HERMAN: Yes, sure, sure.
  • 220:47 - 220:55
    Here you have the...
    How many closing entries do we have?
  • 220:56 - 221:01
    The first closing entry we close
    all the expenses as I said here.
  • 221:02 - 221:06
    All the expenses are closed
    to profit and loss summary account.
  • 221:06 - 221:09
    The second entry we close the revenues.
  • 221:09 - 221:14
    So all the revenues are closed
    to profit and loss summary account.
  • 221:14 - 221:20
    Now we need to close the profit
    and loss summary account.
  • 221:20 - 221:25
    How much is the balance of
    profit and loss summary accounts
  • 221:25 - 221:28
    after the first two closing entries?
  • 221:30 - 221:36
    In the first closing entry we have
    a debit of 20990.
  • 221:37 - 221:42
    In the second closing entry
    we have a credit of 30600.
  • 221:43 - 221:45
    It's the same account, ok?
  • 221:45 - 221:50
    So we have a credit of 30600,
    we have a debit of 20900,
  • 221:50 - 221:52
    what is the balance?
  • 221:52 - 221:57
    The balance will be a credit
    because this is higher, ok?
  • 221:57 - 222:00
    We have more credit than debit.
  • 222:00 - 222:04
    We subtract this from the credit
    that we have,
  • 222:04 - 222:10
    and the difference will be a credit
    of 9610.
  • 222:11 - 222:15
    That is after the second closing entry.
  • 222:15 - 222:20
    We have a debit balance
    in this temporary account 9610.
  • 222:20 - 222:24
    Now we want to close that.
    How do we close it?
  • 222:24 - 222:27
    Because we have a debit balance,
    we need to credit,
  • 222:27 - 222:33
    so we credit by that amount 9610
  • 222:33 - 222:38
    and with that the balance of the profit
    and loss summary account is zero now.
  • 222:38 - 222:43
    But in this third closing entry,
    the other entry is retained earnings.
  • 222:44 - 222:50
    So in retained earnings, we credit
    retained earnings by this amount.
  • 222:51 - 222:55
    You can see that this is the way
    that you transfer the profits
  • 222:55 - 223:01
    to retained earnings because the profit
    is revenues less expenses.
  • 223:01 - 223:04
    That difference is included
    in the profit and loss summary account.
  • 223:04 - 223:07
    We've closed the revenue,
    we've closed expenses
  • 223:07 - 223:12
    to profit and loss summary account
    so we have a profit of 9610
  • 223:12 - 223:15
    and we close that to retained earnings.
  • 223:20 - 223:24
    And we have one more account.
  • 223:25 - 223:28
    That is dividends.
    Here you can see dividends.
  • 223:28 - 223:32
    They will balance 600.
  • 223:32 - 223:36
    Dividends we know is a temporary account
    that decrease retained earnings,
  • 223:36 - 223:40
    dividends are paid from retained earnings.
  • 223:40 - 223:43
    We need to close this.
    How do we close this?
  • 223:43 - 223:46
    We close to retained earnings account.
  • 223:46 - 223:51
    So to close this which has a debit balance
    we need to credit this account
  • 223:51 - 223:54
    and we will debit retained earnings.
  • 223:54 - 223:57
    You can see we've done a
    debit to retained earnings,
  • 223:57 - 224:00
    decreased retained earnings.
  • 224:00 - 224:04
    So that last closing entry
  • 224:07 - 224:11
    in which we debit the
    retained earnings account.
  • 224:11 - 224:15
    600 and we credit dividends by 600.
  • 224:15 - 224:19
    What is the balance of dividends after
    this closing entry? Zero
  • 224:20 - 224:25
    And retained earnings are decreased
    by this amount.
  • 224:26 - 224:33
    If you think about what we've learnt
    in the first or the second module,
  • 224:35 - 224:38
    how the retained earnings account changed
  • 224:38 - 224:41
    from the beginning of the period
    until the end of the period,
  • 224:42 - 224:46
    well we start with the beginning balance
    of the retained earnings.
  • 224:47 - 224:51
    We add the profits, we subtract
    the dividends
  • 224:51 - 224:55
    and then we have the ending balance
    of retained earnings.
  • 224:55 - 224:59
    Now you can see how we do this
    through journal entries,
  • 224:59 - 225:02
    actually closing entries.
  • 225:02 - 225:05
    It is exactly the same thing.
  • 225:06 - 225:10
    So now we have the closing entries.
  • 225:12 - 225:17
    We can prepare the post
    closing entries trial balance.
  • 225:19 - 225:24
    To prepare the post closing entries
    trial balance is very simple
  • 225:24 - 225:27
    and I will show you exactly
    how to do this
  • 225:27 - 225:30
    from the adjusted trial balance.
  • 225:30 - 225:33
    This is the adjusted trial balance,
    we start with this.
  • 225:33 - 225:36
    What do we have in the
    adjusted trial balance?
  • 225:36 - 225:40
    Asset accounts, liabilities accounts,
    equity accounts
  • 225:40 - 225:45
    and then we have the revenues,
    expenses and dividends accounts
  • 225:45 - 225:47
    that are all temporary.
  • 225:47 - 225:51
    The post closing entry trial balance,
    the main difference
  • 225:51 - 225:57
    with the adjusted trial balance is that
    in the post closing entry trial balance
  • 225:57 - 226:00
    you only have permanent accounts.
  • 226:01 - 226:05
    Is there any change between
    the adjusted trial balance
  • 226:05 - 226:09
    and the post closing entry trial balance
    in the asset accounts? No.
  • 226:10 - 226:12
    Because we didn't close any of them.
  • 226:12 - 226:18
    In the liabilities accounts? No.
    Because we didn't close any of them.
  • 226:19 - 226:23
    What about equity?
    Well, in share capital no,
  • 226:23 - 226:25
    but retained earnings yes.
  • 226:25 - 226:29
    That is the only account
    that will be different
  • 226:29 - 226:34
    in the post closing entry trial balance,
    compared with the adjusted trial balance.
  • 226:34 - 226:36
    Of course the post closing
    entry trial balance,
  • 226:36 - 226:42
    they do not have any income
    statement accounts or dividend accounts.
  • 226:43 - 226:48
    We can see easily how we calculate that
    going from the retained earnings
  • 226:48 - 226:51
    that you have here, ok?
  • 226:52 - 226:55
    Look at here, 1500.
  • 226:55 - 226:59
    What is that 1500 that we have...
  • 227:00 - 227:04
    That we have in the adjusted
    trial balance? Retained earnings.
  • 227:04 - 227:12
    This retained earnings balance is the
    beginning balance of retained earnings
  • 227:12 - 227:13
    not the ending balance.
  • 227:13 - 227:17
    This is not the balance at 30th June.
  • 227:19 - 227:22
    This is the beginning balance
    of retained earnings.
  • 227:22 - 227:24
    Why is it the beginning balance?
  • 227:24 - 227:29
    Because in this statement which is
    the adjusted trial balance
  • 227:29 - 227:33
    you have all revenues,
    you have all the expenses,
  • 227:33 - 227:39
    you have the dividends,
    so all the accounts that affect
  • 227:39 - 227:42
    the ending balance of retained earnings
    are here,
  • 227:42 - 227:46
    and because they are here,
    this is the beginning balance.
  • 227:46 - 227:52
    How we transform this to the ending
    balance of retained earnings?
  • 227:52 - 227:57
    First we need to add the profit.
    What is the profit?
  • 227:57 - 228:02
    We calculate the profit through
    the profit and loss summary account.
  • 228:02 - 228:07
    This is the profit 9610
  • 228:07 - 228:14
    so we will need to add 1500 plus 9610
  • 228:14 - 228:20
    and we need to deduct the dividends 600.
  • 228:20 - 228:24
    That's why in the post closing
    entries trial balance,
  • 228:24 - 228:29
    all the accounts are the same
    as the adjusting trial balance
  • 228:29 - 228:35
    after adjustment but retained earnings
    is 10510.
  • 228:35 - 228:37
    How do we calculate this?
  • 228:37 - 228:40
    This is the ending balance
    of retained earnings.
  • 228:40 - 228:42
    Here you have the explanation.
  • 228:42 - 228:47
    Beginning balance 1500 that we have
    in the adjusted trial balance
  • 228:47 - 228:52
    plus the profit 9610
  • 228:52 - 228:56
    which is the result of the profit
    and loss summary account
  • 228:56 - 228:59
    less the dividends, 600.
  • 228:59 - 229:02
    If you calculate this you get,
  • 229:02 - 229:07
    you will get the ending balance
    of retained earnings
  • 229:09 - 229:12
    And this will be the total.
  • 229:12 - 229:15
    Total debit, total credit,
    that should be the same
  • 229:18 - 229:20
    Any question?
  • 229:25 - 229:28
    All good?
    Excellent.
  • 229:29 - 229:31
    Excellent, we've finished.
  • 229:31 - 229:35
    At least we finished earlier
    than last week.
  • 229:35 - 229:42
    Last week was a marathon that we did
  • 229:42 - 229:46
    but today we finished earlier
    than last week.
  • 229:46 - 229:50
    But if you have any last questions
    of course I will be happy to answer you.
  • 229:51 - 229:55
    Anything that you would like
    to ask or discuss?
  • 229:56 - 230:00
    Yeah last week was a lot,
    yes.
  • 230:02 - 230:05
    Okay, thank you very much.
  • 230:05 - 230:09
    Have a great evening and a great week.
  • 230:09 - 230:11
    Ok, see you next week.
  • 230:11 - 230:17
    Bye, thank you all of you.
    Thank you.
Title:
4b4e38a4-1395-415d-94fd-3fc7bb2ec59f - Lecture & Workshop 3 RFCC.mp4
Video Language:
English
Duration:
03:50:26

English subtitles

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