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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 in 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 you 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 when 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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    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 produce.
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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 see, that's the mode.
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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 adjust the 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 month 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,
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    is the interest that...
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    that is the interest for only one month.
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    We are preparing the adjusting entry
    at 30th of September.
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    The loan started on 1st September
    so it's the interest for one month.
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    This will clarify the answer for if you
    calculate the interest for the year.
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    The annual interest rate is 9%,
    for one month it will be 9% divided by 12
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    that is the interest per month,
    and then you multiply by $10000
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    to calculate what is the interest
    per month which is $75.
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    So at the end of September
    we need to record,
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    debit interest expense $75,
    and credit interest payable
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    because it will not be paid until
    1st December.
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    So we debit interest expense $75
    we credit interest payable, $75,
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    the correct answer is D, ok?
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    Ok at that?
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    When we have a loan
    we need to pay interest.
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    What is that interest?
    It's an expense.
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    It's the expense incurred because
    we borrowed money.
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    And we can calculate based on
    the interest rate.
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    The interest rate is always given
    and always is given per annum
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    so what is the annual interest rate?
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    In this case it is 9%,
    you can see here.
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    9% is the interest rate,
    but this is the interest rate
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    for 12 months, ok?
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    So to calculate, very well Joshua,
    to calculate per month
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    we need to multiply the 9% by 112,
    or simply divide it by 12, ok?
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    And then you will have what is
    the interest per month
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    because between the 1st of September
    and 30th September
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    we need to prepare the adjusting entries,
    it's one month.
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    so the interest expense will be
    the interest for only one month, ok?
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    So very good.
    Good Adash and that is $75.
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    Ok, so we've finished
    the multiple choice questions,
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    do you have any questions about concept
    because now we will apply the concept
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    in exercises about adjusting entries,
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    so any question about concepts that
    you would like to ask at this point?
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    All good?
    Ok.
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    So, we will go...
    Excellent Ruby, thank you.
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    Yes, yeah, we will go through
    the practice questions now.
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    And I will start briefly with a very...
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    a very brief review of what
    you have learnt
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    about adjusting entries.
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    It is only three months,
    just another.
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    It's only three months long because
    it starts on 1st September
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    and is payable on 1st December.
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    The interest and the principal both.
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    So you pay back the $10000 on 1st December
    with all the interest of the three months.
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    Ok, now we will talk a bit about
    adjusting entries.
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    I will explain using this diagram
    that you have in your PowerPoint
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    and you have seen in your videos,
    I will not go into whole detail of course
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    but just with this...
    this is the big summary.
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    The big summary of adjusting entries.
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    We have two types
    of adjusting entries
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    or I would say four types
    if we combine revenues and expenses.
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    But we have the accruals
    and we have the prepayments, ok?
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    They are two different adjusting entries.
    What means accrual?
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    Accrual if we're talking about revenue
    means receivable, ok?
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    Accrued revenue it will be the same as
    to say revenue receivable.
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    Accrued expenses when you see this term,
    accrued expenses,
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    that means expenses payable, ok?
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    So accruals means receivable or payable
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    depending on whether it's revenues
    or expenses.
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    And then we have the prepayments.
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    Prepayments means payments in advance,
    ok?
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    We can receive a payment in advance
    and that is what we call
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    unearned revenue or revenue received
    in advance, ok?
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    That is the payment received
    in advance,
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    Or we can pay in advance and that is
    what we call prepayments.
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    So these adjustments,
    and these are all the adjustments,
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    there are no other adjustments for
    timing differences.
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    There are adjustments to correct errors,
    we will not go there,
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    we are talking about the timing difference
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    that means to record revenues
    when they are earned,
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    expenses when they are incurred.
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    All the purpose of adjusting entries
    is that,
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    to record the revenues
    in the accounting period
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    that are earned in that accounting period
    and to record expenses that are incurred
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    in that accounting period.
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    From the normal transactions that
    you learnt last week,
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    we may have many cases in which revenue
    was not recorded,
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    expenses was not recognized as well,
    and we need to adjust them
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    because the main purpose
    of the financial statements
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    in particular the income statement
    is to show the revenues
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    earned in that period,
    in the period of the income statement
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    and to show the expenses incurred
    in the same period.
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    So that is the purpose
    of adjusting entries,
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    to reflect revenues earned and expenses
    incurred in the accounting period.
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    So this is the big summary.
    Now how do we deal with this?
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    Well, in the case of prepayments
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    in the case of prepayments
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    we have different accounts that can
    be considered as a prepayment.
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    One is the prepaid expenses like
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    prepaid insurance, prepaid rent,
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    but there are others that we can give
    the same treatment of this prepayment
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    which is supplies or depreciations.
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    That means the payments that
    the company makes in advance
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    and therefore they are considered
    as prepayments.
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    So what are the terms involved
    in this prepaid expenses?
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    Well, we have an asset that has an
    unadjusted balance.
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    For example, we have prepaid insurance.
    That is an account of asset.
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    And we do not adjust this because we pay
    for that at the beginning of the t,
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    ok, 1st of January for example,
    and then on the 30th June we are halfway
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    of the total period provided
    by the policy.
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    The policy normally,
    the insurance policy covers 12 months.
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    So we are using the policy
    during 12 months.
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    But what's happening in June?
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    Well, we do not have the same amount
    in assets because we already consumed
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    half of the policy, six months,
    so half of the policy has been consumed.
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    Then we need to adjust the amount
    in assets.
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    Here you had the unadJusted balance
    of the asset,
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    that is the total amount of the policy,
    we need to adjust that.
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    How do we adjust that?
    We need to record an expense.
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    An expense for the six months use
    of the policy.
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    So we will record debit expense,
    that is the adjusting entry,
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    we debit the expense,
    and we decrease the asset
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    that means we credit
    the prepaid insurance.
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    So you can see here,
    this is your adjusting entry.
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    We have a debit entry,
    we have a credit entry.
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    We debit insurance expense,
    we credit prepaid insurance.
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    So this is one case.
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    And the same we will use for prepaid rent,
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    for supplies, for depreciation, ok?
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    Jade did the question.
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    Oh good, excellent Jade.
    That's my purpose,
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    just to explain in detail what it means,
    this thing.
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    Is there anybody that might have
    a question on this?
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    We will go through the four
    that are adjusting entries.
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    This is related to the prepaid expenses.
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    Ok, we go through the second one.
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    The second one is what we call
    the un-earned revenues.
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    So revenues received in advance,
    what is the concept?
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    Imagine that the company
    has a building,
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    and they are renting offices
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    from this building so they have a
    number of clients that rent offices.
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    And they ask the tenants
    to pay in advance
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    before they start using the building,
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    they have to pay for example
    three months in advance.
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    So the company received the cash
    for this,
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    but the tenant still is not using
    the office,
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    so how will we record this first entry?
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    This is the entry that you learnt
    last week,
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    this is a normal transaction.
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    The company receives cash
    so we will debit cash, ok?
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    And we will have this
    unearned revenue
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    or rent revenue received in advance
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    which is a liability for that amount.
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    Why is this a liability?
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    Because at this point the company
    has not provided yet
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    the office for the tenant to use, ok?
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    The tenant has not used the office yet,
    they pay in advance.
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    So we have a liability because we have
    an obligation to provide the office,
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    the tenant already paid.
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    Now, what happens after one month
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    if we are doing financial statements
    every month.
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    We need to prepare an adjusting entry
    because we already provided this service
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    to the tenant,
    we already provided the office,
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    the tenant used this resource
    already one month,
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    so we need to adjust
    our liability accounts.
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    So the liability account has
    an adjusted balance, ok?
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    When the tenant pays in advance,
    and now after one month
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    we need to reduce this for the month
    the office was already used.
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    So we will debit this liability
    that is part of the adjusting entry,
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    and we will credit revenue because now
    we earn this revenue,
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    that is the rent revenue.
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    We earn that because
    we already provided one month
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    the renting of the office to the tenant.
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    So here you have again,
    the adjusting entry.
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    We have one debit entry,
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    the rent revenue received in advance,
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    a debit entry,
    and we will have a credit entry
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    which is simply rent revenue.
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    Any question on this second one?
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    We will practice with many
    exercises today
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    for you to have a very, very clear
    understanding of the adjusting entries.
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    Ok, the last two.
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    The last two I would say they are simple
    adjusting entries.
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    We have accrued revenues.
    As I mentioned before,
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    accrued revenues means
    revenues receivable.
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    This is the case when the company
    sells products or provides services
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    but we still do not record that sale
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    and we have not received the cash yet,
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    but the service is provided
    or the products are delivered
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    so we need to record revenue.
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    If we have not recorded this
    in the normal journal entry
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    that you learnt last week,
    we will need to record the revenue.
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    Sales revenue or service revenue,
    so we credit this.
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    What will be the other accounting ball?
    It will be the receivable.
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    An accounts receivable which is an asset
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    so here you have debit
    the accounts receivable
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    credit service revenue
    or sales revenue,
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    depending on whether we are
    selling produce or providing services.
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    So that is the third adjusting entry
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    and the last adjusting entry
    is accrued expenses.
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    That means expenses payable.
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    So this is the case when we have
    an expense incurred
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    but we have not recorded that,
    the most typical case is employees
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    that work during the month.
    We have not paid their salaries yet
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    because we pay the first days
    of the following month,
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    so we didn't record the expense
    but they already worked,
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    so there is a resource that has
    been consumed
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    and therefore we need
    to record an expense.
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    We need to record an expense
    and so we debit salaries expense,
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    for example, but because we have
    not paid yet in this period,
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    we need to record a credit in this
    liability which is salaries payable.
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    So here we have our adjusting entry.
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    This is in a very brief summary what
    you have learnt about adjusting entries.
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    Any question at this point?
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    All good?
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    So we can now apply these two
    practical exercises
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    and we will work with many
    adjusting entries,
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    so you will have the opportunity,
    to practice now with this
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    so I will put that...
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    Can you see the exercise?
    I am not sure about the zoom,
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    if it is ok or not,
    but I hope it's ok.
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    Ok, excellent, excellent.
    Thank you Jade, thank you all of you.
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    Ok, so we will apply to this exercise
    and we will start the exercise
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    at the point that we left last week.
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    Do you remember what we did last week?
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    We prepared the normal journal entries
    that come from transactions
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    and then we post the journal entries
    into ledger accounts,
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    and then we prepare a trial balance.
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    And we call that the unadjusted
    trial balance
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    because it's a trial balance that
    is prepared before the adjusting entries.
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    Ok, so we will start with this,
    the unadjusted trial balance, ok?
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    at 30th June.
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    And as you remember the trial balance
    is simply the list of all the accounts,
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    here you can see cash, account receivable,
    prepaid insurance, supplies,
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    all the accounts of the company, ok?
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    With the ending balance at
    the end of the period
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    so you can see the trial balance,
    the unadjusted trial balance
  • Not Synced
    is prepared at the end of the period
    is the first thing that we do
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    at the end of the period before preparing
    the adjusting entries, ok?
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    So we prepare the unadjusted trial balance
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    and we have the ending balance
    for each of these accounts.
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    The ending balance of cash,
    the ending balance of accounts receivable
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    and service revenue is sitting
    on the fence, yes.
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    It moves to the fence,
    it should be here.
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    It should be on the column of credit
    of course,
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    that is a typing thing.
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    Service revenue should be
    in the credit side of course,
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    76,600.
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    Salaries expense, rent expense,
    so you have all of these.
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    The characteristic of the trial balance is
    that total debit should equal total credit
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    and you can see total debit, 201200
    and the same as total credit.
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    So this is our starting point
    for this exercise.
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    What means this?
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    All the normal journal entries
    are already recorded,
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    all of them are posted to
    the general ledger
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    and we prepare this unadjusted
    trial balance.
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    What is next?
    Well, here you have the exercise.
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    One thing before we go to the next page
    these are not the total,
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    all the accounts of the company.
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    There are accounts that they have
    zero balance,
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    and of course they are not in the
    unadjusted trial balance
  • Not Synced
    but here you have them listed.
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    The accumulated depreciation
    is one account,
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    office equipment another,
    electricity payable, salaries payable,
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    and so on.
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    So there are a number of accounts
    that have zero balance,
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    and therefore they are not in this
    unadjusted trial balance,
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    but they are accounts.
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    So we will go through the exercise.
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    Here we have added data.
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    This added data refers to
    the adjusting entries
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    that we need to prepare.
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    They are related to revenues earned
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    or income earned and expenses incurred
  • Not Synced
    so we need to prepare one adjusting entry
    for each of this additional data
  • Not Synced
    and that is what is required,
    if you look at the question requirements,
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    prepare the adjusting entries
    for the month of June
  • Not Synced
    so this is just for one month.
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    Prepare the adjusted trial balance
  • Not Synced
    that is prepared after
    the adjusting entries
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    and we will calculate the profit
    for the month.
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    So we will go one by one
    to see how to prepare this.
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    And I will detail all of them
    in this first exercise
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    and then I will go a bit more quick
    in the second exercise,
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    or in the exercise of the workshop.
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    So the first, supplies on hand
    at 30th June total 7200.
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    What this tells you,
    supplies on hand total 7200.
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    Well, if this is the data we have
    that means somebody went to the...
  • Not Synced
    To the place that we have the supplies,
    they count them,
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    they value them and at the end
    the conclusion is
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    we have 7200 supplies on hand.
    That means not used.
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    How much do we have in our
    unadjusted trial balance?
  • Not Synced
    So we need to look at here,
    supplies. 13,300.
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    But it says that we have only 7200 so
    that means we need to make an adjustment.
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    We need to reduce this 13,600
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    and to record an expense,
    a supplies expense for the difference.
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    So 13600 less 7200 that we have,
  • Not Synced
    that means we have consumed
  • Not Synced
    or used 6400 of supplies,
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    and that is the adjusting entry.
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    We need to record the expense for this
  • Not Synced
    so we will have a supplies expense of 6400
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    and we will credit supplies to reduce
    the supplies account.
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    So here you have the first journal entry,
    adjusting entry.
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    Supplies expense debit 6400,
    and supplies credit 6400.
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    When you do this and you credit supplies
    by 6400,
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    if you remember the ledger accounts
    when we credit one of the ledger accounts
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    that is supplies, that will decrease
    the balance of supplies account
  • Not Synced
    which is 13600,
    so now the new balance of supplies
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    is 7200 which is the amount that we
    really have in supplies.
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    Any question on this?
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    So this is the first adjusting entry.
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    Yes Natalia, yes please tell me.
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    NATALIA: Hello Herman,
    yeah I see...
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    I print out this, I guess many
    of us do print out
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    this worksheet information
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    of the sample of the questions,
    and we have ended one,
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    and last lecture I was asking you
    to let us print full ones
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    because it's hard to follow up because
    our worksheet is empty at the moment,
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    it means we follow up on the computer
    but can't do notes straight on our papers.
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    Yeah, this will be great because...
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    HERMAN: Yeah, actually I remember that
    and at 10 am today,
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    I uploaded the solution for the lecture
    exercise and the workshop exercise.
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    I opened that for you and for everybody,
  • Not Synced
    so you can print them and you can be
    with the solutions
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    and you can follow the solutions
    NATALIA: Ok, now yeah...
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    You do this adjusting notes
    much in advance
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    but is it, you can give us indication
    when you do apply the solution
  • Not Synced
    on a regular basis because our paper
    is usually a couple days before
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    I print out,
    and have this, yeah.
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    HERMAN: I will do that because I agree
    with what you asked me last week.
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    I agree that it's good that
    you have the solution
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    to follow the lecture and the workshop
    with the solution so you can take notes
  • Not Synced
    in the solution which will be easier.
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    That' s why I opened today at 10 am and
    I put an announcement on the blackboard
  • Not Synced
    for all of you to know that they are ready
    for you to print,
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    and I think that is what we talked
    because the idea
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    is that you try to do this by yourself
    without the solutions,
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    and that is the main purpose,
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    that's why I put in the same day
    of the lecture and workshop.
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    I will release these only for you
    to print out and to take that today,
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    later in workshop.
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    NATALIA: Ok, and how many it means
    they're empty for purpose,
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    we have a chance to try,
    and field solution is gonna be
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    in the very last day before lecture,
    for future use.
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    HERMAN: Yes, I will do that in that way
    all the time.
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    So I actually did the two purposes.
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    One purpose is for you to try
    without solutions,
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    just with your learning from the videos
    and PowerPoints,
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    and second, to have the solutions
    before the lecture and workshop
  • Not Synced
    so you can go through them as well.
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    Ok, good.
    Excellent Natalia, thank you.
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    Now we can go to the second one.
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    The second says an electricity bill
    for 1200 has not been recorded
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    and will not be paid until next month,
    so what does this description mean?
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    If the company receives an electricity
    bill for 1200,
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    it means that they used,
    they consumed electricity for this amount.
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    It is already consumed therefore
    it is an expense,
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    but has not been recorded.
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    So the only thing,
    this is a simple adjusting entry,
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    the only thing that we need to do
    is to record the expense,
  • Not Synced
    so we will have electricity expense, 1200,
    but because it was not paid this month,
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    next month will be paid,
    so we will credit a liability
  • Not Synced
    which is electricity payable,
    and that is what you have here.
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    So in this adjusting entry
    we will record
  • Not Synced
    debit electricity expense 1200,
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    credit electricity payable 1200.
    Yes Natalia?
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    Stella, Stella. I need to put you
    as a caption here...
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    Stella.
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    Give me a second because I need
    to put the caption here of Stella
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    but I don't find you in the list,
    we have a big list of students.
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    Near the top, ok?
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    Ah, there it is. T
    Ok, thank you Stella
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    Ok, yes Jade.
    You have a question?
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    JADE: I do, yes.
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    I put there instead of electricity payable
    I put accounts payable.
  • Not Synced
    would that be okay or is that a problem?
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    HERMAN: It is ok.
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    If we are very strict in that
  • Not Synced
    which is not the case because accounts
    payable is reasonable to use this.
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    When we talk about accounts payable,
    It's the accounts payable to suppliers,
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    so we always link accounts payable
    for the amount that we owe to suppliers.
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    That's why it's better,
    I would not consider it wrong
  • Not Synced
    but it's better to put this explicitly
    electricity payable because this is...
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    These are utilities that the company
    received,
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    so electricity or water
    or that type of thing.
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    So I would prefer to put separated
    from accounts payable
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    just because the concept of accounts
    payable is linked to suppliers of produce.
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    Ok? But it's not wrong.
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    Ok, any other question for the second...
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    for the second adjusting entry?
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    So we'll go through the third
    adjusting entry.
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    Insurance policy, here you can see
    one statement that didn't say anything,
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    and you cannot do anything unless
    you go to the data
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    that is in the unadjusted trial balance.
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    The statement says the insurance policy
    is for a year commencing 1st May 2019.
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    Well, this is all what you need to
    prepare the adjusting entries,
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    because you have the unadjusted
    trial balance.
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    The only information here is that the
    insurance policy is for one year,
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    12 months, and starts on 1st May 2019,
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    so we will see what is the information
    we have in the unadjusted trial balance.
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    First, this company started
    on 1st May 2019
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    which is the same day
    of the insurance policy, ok?
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    Insurance policy is added 1st May 2019.
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    And the trial balance is at June 30.
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    What is the prepaid insurance?
    9600.
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    9600, this is for 12 months,
    so how much is per month?
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    It is 800, so this is equal, ok,
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    800.
    800 per month.
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    800 per month.
    Sorry for my numbers, I'm not very good.
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    So 800 is the insurance expense
    that how much we use
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    or consume of this policy per month.
    800 per month.
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    Now how many months between
    1st May until 30th June?
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    Two months, exactly.
    Two months.
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    So what will be the expense
    that we have to recognize
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    or to record on the 30th of June?
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    The expense for two months,
    that means 1600.
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    That should be a debit
    in insurance expense,
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    and a credit to prepaid insurance
    to reduce this 9600
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    because we already consumed 1600
    of insurance.
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    So the journal entry,
    the adjusting entry for this will be
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    debit insurance expense 1600,
    credit prepaid insurance 1600.
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    Ok, any question on this?
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    Ok, so we can have a look at the...
    Thank you Jade.
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    We can have a look at the next one.
    Salaries, sorry, not salaries.
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    That is the next one.
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    Number four, services were
    performed during the period
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    in relation to $3000
    of revenue in advance.
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    What does this description tell us?
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    First the description is telling us that
    we received revenue in advance,
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    that mean we received a payment
    in advance
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    and now in this period we provide services
    for 3000 of that payment.
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    We need to link this with how much
    we have in revenue received in advance
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    in the unadjusted trial balance
    so we will have a look.
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    The unadjusted trial balance, state this
    revenue received in advance, 4800.
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    Debit because we received this amount
    and we didn't provide the services
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    so we have an obligation to provide them
    and therefore it is a liability, ok?
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    Now we provide services for 3000
    of this 4800,
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    so we need to record a decrease in service
    revenue received in advance,
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    that means we debit 3000 in this account
    and we will have the current balance
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    of all these accounts,
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    so we debit 3000 in service revenue
    received in advance
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    and we will have a credit in service
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    because we earned already this revenue.
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    We provided the service.
    Yes Jade?
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    JADE: Is this classified as an adjustment
    or is it just as a mistransaction?
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    HERMAN: It's an adjustment because
    the original transaction
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    that we already recorded, it is here
    in the unadjusted trial balance.
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    What was the original transaction?
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    When this happens, the service revenue
    received in advance I will write here, ok?
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    We have debit cash because
    we received the payment, ok?
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    That was in the previous period.
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    We record cash for 4800.
    Sorry for the numbers.
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    So 4800. We debit cash,
    and we credit, ok?
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    This revenue received in advance,
    I will put it just like that.
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    Revenue received in advance
    we credit 4800.
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    This is the normal journal entry.
    This is the normal transaction
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    that we recorded in the last period,
    and that's why when you look at this entry
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    and we post the accounts in the ledger,
    this is what we have there, ok?
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    That is the original transaction.
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    What happens now is that
    we just provide services.
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    Of course we didn't receive more money
    because already we were paid in advance
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    but we provide the service
    so we need to decrease this
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    obligation or liability
    for the 3000 already provided.
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    Well, George, it says because the concept
    of revenue received in advance,
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    the concept of that account
    is that we received cash in advance.
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    That is what we received in advance,
    cash, the payment,
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    so if you look at the description,
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    services were performed
    during the period
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    in relation to.
    In relation to what?
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    To revenue received in advance.
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    If you look at this description,
    revenue received in advance,
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    what it means is that the company
    received cash in advance
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    to provide the services.
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    The customer paid before we provide
    the service to the customer.
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    Ok, so cash was involved
    in the original transaction
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    and that is the transaction that
    I showed you that I prepared,
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    so how was it recorded the cash received?
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    We debit cash and we credit revenue
    received in advance from 4800,
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    that was the original transaction,
    it's not for this period,
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    that was before the 30th of June
    and that's why we have in the balance,
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    on 30th June we have that amount.
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    Now in this period the adjusting entry
    at the end of the period,
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    we need to include how much
    we provide of services.
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    And we provide 3000 of this 4800.
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    So because we provide services,
    now we can record the service revenue,
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    it's a credit service revenue,
    and we decrease the obligation.
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    To put the things in context,
    here we are in the month of June.
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    So in June the unadjusted trial balance
    is for June.
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    I will go through the depreciation
    but do not change them...
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    I will go through them,
    but here... Ok.
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    This is the unadjusted...
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    I am clear now, excellent Ann.
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    This is the unadjusted trial balance
    at 30th June.
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    Here means that before 30th June
    we received the cash.
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    Now in the adjusting entry it means that
    also during this period before 30th June
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    we provide 3000 of this 4800,
    services provided, ok?
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    Does this answer your question George?
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    Ok, excellent, good.
    So we can go through the next one.
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    I am here...
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    The next one is quite simple because
    salaries, 6400 are owed on 30th June.
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    What does this mean?
    Salaries owed means that
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    the employees worked,
    so we already consumed these results.
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    The work of our employees and therefore
    we should record a salaries expense.
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    But they are owed,
    that means we have not paid them,
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    and that's why we did not record this as a
    transaction like you learned last week.
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    We need to prepare the adjusting entry,
    so we need to record the pays,
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    salaries expense 6400 debit,
    and a salaries payable
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    because it's owed at the end of the month
    so it will be salaries expense
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    and salaries payable.
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    Here you have debit salaries
    expense 6400
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    credits salaries payable 6400, ok?
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    That I think is simple.
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    Then we have the number six.
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    Office equipment has a five year life
    with no resale value,
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    and is being depreciated at
    $1440 per month for 60 months.
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    In this description they are telling you
    how much is the expense, ok?
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    But if it is not, if it is only they said
    the office equipment has a five year life
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    with no resale value depreciated using
    the straight line method,
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    you will learn this in another lecture
    the depreciation for 60 months.
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    If we do not have the amounts, you can
    just go to the unadjusted trial balance
  • Not Synced
    look at the office equipment account,
    86400.
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    If you divide this by 60,
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    you will have exactly 1440 per month, ok?
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    So that is the depreciation expense.
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    Yes, a couple of work, I will not go in
    deep in this topic
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    because there is a whole topic
    about depreciation.
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    Yeah, I will go why credit and...
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    Ok, you let me finish this part
    and I will answer the question
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    of the previous one.
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    So we had this depreciation,
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    what does depreciation mean?
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    When we purchase an equipment like this,
    office equipment,
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    and we pay a big amount of money,
    in this case how much we paid
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    for this office equipment,
    it was 86400, ok?
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    Do you think we can put as an expense
    86400 in the first month?
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    Well, of course not because we will use
    this equipment during 60 months,
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    and remember an expense
    is when we use
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    or consume resources.
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    This resource that is 86400,
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    it will be consumed or used
    during 60 months
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    so we need to calculate how much of this
    we use in one month,
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    or in two months in this case.
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    In two months because it's from
    1st of May till 30th June.
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    How much we use of this in two months,
    ok? Two months.
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    So we divide this by 60,
    we multiply by two,
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    and that will be 2880
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    because per month is 1440
    when you divide by 60,
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    you multiply by two because
    it's two months
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    and now we can record the expense.
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    The name of this expense
    is depreciation expense,
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    so we record debit depreciation expense.
    What is the other account?
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    Well the other account will be to decrease
    this account,
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    office equipment,
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    so you can say well,
    we credit office equipment.
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    That would be the case that we are doing
    in all of these accounts,
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    but in the case of non-current assets
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    we use what we call a contra asset account
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    that means we keep separated
    the decrease of this account
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    and the name of that account
    is accumulated depreciation.
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    The effect is the same as you reduce
    directly office equipment,
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    you credit office equipment
    but in non-current assets like this,
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    this is a topic that we will explore
    in detail,
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    we use another account and the name is
    the accumulated depreciation.
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    It's an asset account
    but with a credit entry.
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    So the adjusting entry for this
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    will be depreciation expense
    debit 2880
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    and we credit accumulated depreciation
    office equipment, ok, 2880.
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    Any question on this?
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    Ok, the last one.
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    The last one is number seven,
    invoices representing
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    Ah, Tablynn...
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    Ah, ok. Before we go to the seven
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    there is a question about the salaries
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    who asked me that question
    about the salaries?
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    Omar who did, in the adjusted trial, ok.
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    I will try to answer the two questions.
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    First, Trina has a question, why
    to credit 6400 in the transaction five?
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    Why to credit?
    Isn't it debit when they pay 6400?
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    Well, remember Trina that we, in any
    journal entry and also adjusting entry,
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    we have a debit side and a credit side.
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    The total debit should be always equal
    to total credit.
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    So what is the debit and what is
    the credit in the 6400 that you have here
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    in transaction five?
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    Salaries of 6400 are owed at that time,
    30th June.
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    So we have an expense,
    and the expense is a debit entry, ok?
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    The salaries expense it will be debit.
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    And we have a salaries payable because
    they were not paid,
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    they are owed at 30th June.
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    So the salaries payable, the liability
    will be the credit entry.
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    So your question is why credit?
    Well, we credit the liability account,
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    that means salaries payable,
    but we debit the salaries.
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    What happens when we pay them in
    the next period?
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    When we pay the salaries we will
    debit the salaries payable,
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    so we decrease this liability,
    and we will credit cash, ok?
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    That is what happened in
    the following period,
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    not in this one.
    And Tablynn...
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    Tablynn you asked a question
    about the depreciation?
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    Yes, depreciation, well,
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    this is the concept that
    we will have in detail,
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    there is a whole lecture about
    depreciation
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    with different methods of depreciation
    but for now,
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    we only need to think in the concept
    of depreciation, the general concept.
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    When we purchase an equipment
    that lasts more than one accounting period
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    we cannot record as an expense
    the cost of the equipment
  • Not Synced
    because we will use the equipment
    for a number of periods,
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    so we need to divide the cost of
    the equipment
  • Not Synced
    into the number of periods.
  • Not Synced
    So we will have just one part of the cost
    in each period,
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    and the easier way is just divide the cost
    by the number of periods.
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    So in this case the total amount
    divided by 60 months that we will use
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    this equipment, office equipment,
    means that we will have an expense
  • Not Synced
    of 1440 per month, and we call that,
    that expense,
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    we call that depreciation expense, ok?
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    That is the name of this account,
    depreciation expense.
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    What does that mean?
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    It means that that is
    the part of the equipment
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    that has been used
    or consumed in one period.
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    And that's why we record that
    as a debit for each month,
  • Not Synced
    but here we have two months, ok?
    Because from 1st May until 30th June
  • Not Synced
    which is the time for this exercise,
    two months,
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    it will be two multiplied by 1440,
    which is 2880.
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    So we will record depreciation expense,
    debit 2880.
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    What is the other account?
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    I mentioned that there is another account
    but the name is accumulated depreciation,
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    so we will record a credit
    in that account.
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    Ok, I'd asked how much would you deduct
    from depreciation expense
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    in the adjusted...
    Excellent Tablynn, thank you.
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    How much would you deduct in the
    adjusted trial balance?
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    I will go through that Adash
    because we started with
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    the unadjusted trial balance.
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    We are doing the adjustments, and then
    I will explain how we will adjust these
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    to the adjusted trial balance.
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    How we transform the unadjusted to the
    adjusted trial balance.
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    Ok, yes Trina.
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    TRINA: Hello, with the salaries,
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    we already had 6400,
    it means that expense increased,
  • Not Synced
    that's why expense is debit 6400,
    but with the liabilities,
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    it means that we decrease
    the liabilities, is that right?
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    HERMAN: Yes when (INAUDIBLE)
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    TRINA: So if we decrease the...
    (CROSSTALK)
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    Sorry, if we decrease the liabilities,
    it means it debits liabilities,
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    is that right?
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    HERMAN: Yes, when we pay that is
    another transaction,
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    it's not the adjusting entry.
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    When we pay for the liability,
    we will credit the liability
  • Not Synced
    so we decrease the liability,
    and we will debit cash.
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    So we decrease cash because we are paying
    for that liability.
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    But that is another (CROSSTALK)
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    TRINA: yeah, I'm a bit confused because
    we decrease the liabilities,
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    but well you put it credit 6400.
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    HERMAN: Yeah, well, that is the point.
    Trina it's good that you asked
  • Not Synced
    because we should not confuse two
    different journal entries, ok?
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    The journal entry that we're talking
    in number five here,
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    is an adjusting entry.
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    We have not paid anything
    in this journal entry.
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    In this transaction, we only recognize
    that the employees worked
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    during the months,
    how much we owe them for this work, 6400.
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    We didn't pay anything.
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    In the transaction here it doesn't say
    that we paid for that.
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    We owe this amount at 30th June.
    So what do we record?
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    We record the expense,
    that means debit salaries expense, 6400,
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    and we record the liability because
    we owe them this amount,
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    so we credit salaries payable, 6400
    and that's all.
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    That's all the adjusting entries.
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    Now in another day, next month,
    we will pay for that.
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    In the payment that is another
    journal entry, not this one,
  • Not Synced
    when we pay for that what will we do?
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    We will debit the liability,
    so we decrease the liability.
  • Not Synced
    We will debit 6400, and we will pay,
    that means we will credit cash.
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    When we credit cash we decrease
    the cash account
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    because we are paying that amount
    and that is another journal entry
  • Not Synced
    for the next period.
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    Does this clarify the point Trina?
    Good, excellent.
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    Ok, we are in the number seven,
    the last one.
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    Invoices representing $8000 of services
    performed during the month
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    have not been recorded as of 30th June,
    so what does this mean?
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    We have provided services because
    it says invoices representing
  • Not Synced
    $8000 of services performed during that,
    so we performed this service,
  • Not Synced
    and we provided the services
    for $8000
  • Not Synced
    but they have not been recorded
    so we need to record them.
  • Not Synced
    So we need to record
    an accounts receivable
  • Not Synced
    because it doesn't say anything there
    that we received the money,
  • Not Synced
    therefore it is an account receivable,
    we will debit...
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    (CLEARS THROAT)
    Sorry.
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    We will debit the account receivable
    for $8000,
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    and we will credit the service revenue
  • Not Synced
    because we earned from that service,
  • Not Synced
    we already provided the service,
    so we will credit service revenue.
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    So what we will have...
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    I will do that.
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    What we will have is the
    last adjusting entry.
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    $8000 account receivable debit,
    and credit $8000 service revenue.
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    So we've completed
    all the adjusting entries.
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    Before we go to how we prepare the
    adjusted trial balance,
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    any questions about the adjusting entries?
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    All good? Ok.
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    Excellent Jade, very good.
    That's my purpose.
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    How we prepare the adjusted trial balance?
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    Before we prepare that,
    remember these are journal entries,
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    so the name is adjusted journal entries,
    they are journal entries,
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    so after you prepare the adjusting entries
    what is the next step?
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    You need to post these entries
    to the ledger.
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    The same as we did last week,
    exactly Joshua,
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    we need to post them to the ledger,
    all of them to adjust the balance
  • Not Synced
    of each of these accounts.
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    We will not do that, ok?
    You already learnt last week
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    how to post transactions from the journal
    to the ledger,
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    and it's a very repetitive process
    and it's the same in this case
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    so we will not go again through that part
    we will assume that we already did that,
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    Ok, we post all of these
    to the ledger accounts,
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    so the ledger accounts are updated.
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    But I will show you how to prepare
    the adjusted trial balance,
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    using the worksheet, ok?
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    Using a worksheet, it has the advantage
    that you can see
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    what is the unadjusted trial balance,
    you can see the adjustments
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    and how to prepare the
    adjusted trial balance,
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    how you can explain the difference
    between the adjusted
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    and the unadjusted trial balance.
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    So here you have this worksheet.
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    In the worksheet what we do
    is you copy here in this part, ok?
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    You copy the unadjusted trial balance.
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    Of course, total debit should
    be equal to total credit.
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    You just copy that and then you go
    through all the adjusting entries
  • Not Synced
    and you put in the adjustment column,
    this, I will do just the first two, ok?
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    Only the first two.
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    So in the first one,
    what do we have here?
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    We debit 6400 in the supplies
    expense account
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    and we credit 6400
    in the supplies account,
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    so we look at this supplies
    expense account.
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    This is the supplies expense account,
    we debit 6400, so we just copy there
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    And the we go to the supplies account
    this is the supplies account,
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    you debit this account, ok?
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    You just copy here in these two columns
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    what you have done
    in the adjusting entries.
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    The second, we will do just the first two.
    The second, what do we have?
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    1200 debit in electricity expense account
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    1200 credit electricity payable account.
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    So you copy that electricity
    expense account,
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    1200 debit, you copy there
    and then you look for electricity payable.
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    Electricity payable credit 1200,
    and you continue with all of this.
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    The only thing that you need to be careful
    is that sometimes,
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    one account appears more than one time
    in the adjusting entries.
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    So if you look at the adjusting entries,
    there is one account
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    that appears two times,
    so service revenue.
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    You have here service revenue,
    credit 3000,
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    and then you have here service revenue,
    8000.
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    So the total amount that we will add
    to service revenue is 11000.
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    That's why here service revenue
    in the credit is 11000,
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    so its the sum of 3000+8000.
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    That you need to be careful because
    we need to add the total amounts,
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    that increase the credit
    of this account.
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    Ok, so we complete these,
    the adjustments.
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    We just copy all the adjusting entries,
    debit or credit
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    in the corresponding accounts.
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    Well, it's a really (INAUDIBLE)
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    because very few accounts
    you will have more than one entry.
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    In this case we have only service revenue
    but you know the to not make a mistake
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    and I did that in the next exercise,
    is this things.
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    Do not make a mistake, I will give you
    a clue to not make a mistake.
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    Instead I've put here the total.
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    Every time you have an amount there
    just put how much,
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    so you put here the 3000,
    I will put in thousands
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    and then you simply add 8,
    so every time you put the number there.
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    Then you know that it's 11000.
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    In this way you will not skip anything.
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    Ok, that is just a way to do
    to not make that mistake.
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    How we prepare now the
    adjusted trial balance.
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    The adjusted trial balance is the same
    as the unadjusted trial balance
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    with all the adjustments.
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    So you can see for the cash accounts,
    there are no adjustments.
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    Ok, no adjustments, so the adjusted
    trial balance is the same
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    as the unadjusted trial balance.
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    Accounts receivable, the unadjusted
    is 23 and 40.
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    The ajustment is debit 8000
    so it directly increases the debit
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    so the adjusted will be the sum
    of all of them.
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    Prepaid insurance we have a debit,
    9600.
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    The adjustment is a credit of 1600,
    a credit decreases a debit,
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    it's the opposite, ok?
    So it will be the difference
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    and there we adjusted this 8000.
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    The same for supplies,
    we have 13600,
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    the adjustment is a credit,
    therefore the credit decreases debit,
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    that will be 7200, ok?
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    And so on.
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    Office equipment there is no adjustment
    accumulated depreciation
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    of office equipment,
    there is nothing here,
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    because this is an account that was
    in zero but we have an adjustment
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    2880, so the adjusted trial balance
    will be a credit 2880.
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    So you can see to prepare the adjusted
    trial balance is simple.
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    If we're working with the worksheet,
    we just add or subtract the adjustment
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    depending on whether they are
    on the same side or the opposite side.
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    If they are on the same side,
    a debit increases a debit,
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    a credit increases a credit,
    but in the opposite side
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    a credit will decrease a debit
    or a debit will decrease a credit.
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    Any question?
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    So once you have this worksheet...
    Excellent Joshua,
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    Once you have the worksheet,
    the adjusted trial balance
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    you can just copy.
    You have the list of...
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    You have the list of all this, ok?
    The list of the accounts,
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    you have the balance,
    the debit balance or the credit balance
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    of all of these accounts,
    and you can just copy them
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    to have the adjusted trial balance
    so if this is the adjusted trial balance
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    the list of the accounts,
    what accounts have a debit balance
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    after the adjustments,
    or credit balance, all of these accounts.
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    That's the complete exercise and
    the adjusted trial balance.
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    Any question?
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    I think maybe we will use again
    the four hours
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    because we still do not finish
    the lecture,
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    we have the second exercise
    of the lecture
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    and then we have the exercise
    of the workshop
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    so definitely we are using
    the consultation time of the
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    four hour to complete,
    but at this point,
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    we are already one hour 40 minutes.
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    It's good for you to have a break
    so you can just prepare your coffee.
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    No Natalia, I will answer that.
    You prepare your coffee,
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    you're suffering, take a rest,
    and we will meet in 10 minutes.
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    Before I go I will just answer
    the question to Natalia.
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    Still accountants do this step manually?
    No, Natalia, no.
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    I will talk about this when we come back
    after 10 minutes
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    because I will talk about the assignment.
    That will answer your question.
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    And Tablynn, can you explain profit thing?
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    Yes I will do that in the next exercise,
    need more exercise,
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    we will do four Abdul, today.
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    If we aren't late, pm,
    no problem for me,
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    but if you have the strength
    to still be there,
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    we'll be good...
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    We will...
    We will do many exercises today,
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    but for now take a rest, relax.
    I need to grab my coffee as well,
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    and 10 minutes, so it's 2.40.
    At 2.50 we continue.
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    I will disconnect the microphone,
    2.50 we continue, ok?
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    Ok, here we are again, more relaxed
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    and ready for another one
    and a half hours.
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    Before starting with the next exercise
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    I will just give you some information
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    about your first assignment.
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    The assignment that you will have
    is a very practical assignment
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    and this will address one of the questions
    about Natalia,
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    Natalia asked, still accountant do
    these steps manually?
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    Well, accountants do not do this manually
    but of course the need to understand
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    what the system does because if not,
    the possibility of errors
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    could be very big.
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    When you enter a journal entry
    you need to understand
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    what continues after that,
    even the system is doing that
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    but you need to know how your ledger
    is updated,
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    how the trial balance is prepared,
    it's very important to do that.
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    That's why you learn to do this manually
    even though then
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    the system will do this for you.
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    OK, but you need to be able to check
    whether the system is doing well or not.
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    In this course you will have
    the opportunity to deal with
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    one of the most commonly used
    Accounting software,
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    it's a cloud accounting because
    everything is in the cloud
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    and not in the computer of
    the organization,
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    and that is Xero.
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    Xero is used by many small
    and medium companies.
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    Not the very big ones because they
    have their own systems,
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    but many small and medium companies
    use Xero.
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    Accounting Pod is an organization
    that facilitates
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    the learning of this software.
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    Griffith University has an arrangement
    with Accounting Pod
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    to provide this facilitation,
    for learning Xero,
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    and we have set up the assignment
    that you will have in this,
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    using this software.
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    So next Monday, 3rd August,
    the module,
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    the practice module of Accounting Pod
    will be open for you.
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    And it will be open practically
    the whole month of August,
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    until the 27th of August,
    that will be closed at 5.00 pm.
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    So what is the idea is that you do this.
    You follow step by step
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    all the processes and you will learn
    how to use this software,
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    so you will do what accountants do
    in the practice, ok?
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    And this assessment, the assignment
    we have two parts,
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    we have the practice module
    that it's called,
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    that will be open next Monday,
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    and then after it is closed,
    that means the 27th of August.
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    On the 1st of September we will open
    the second part of this assessment
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    which is the Xero assessment.
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    That will be opened on the
    1st of September,
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    and it will be closed on the 23rd
    of September, 5.00 pm,
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    so at that point you need to finish
    the second part.
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    Your marks will be based on what you do
    in this task.
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    The marks are allocated...
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    The marks are allocated to the task
    that you are doing.
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    Now, in the question by Jade,
    what learning modules
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    will the practice on Xero cover?
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    What you need to know is just the basics
    of the accounting cycle,
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    so to understand what is a journal entry,
    what are the ledger accounts.
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    But the training that you will do,
    you will see it's very...
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    Totally different to what we are doing
    in the accounting period,
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    because you will do tasks related
    to a software.
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    I will explain in a bit of detail
    but next week, on Tuesday of next week,
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    you will do a task related to a software.
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    I will in a bit of detail, but next week,
    on Tuesday next week
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    I will dedicate more time to explain
    to you in more detail
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    what you have to do because at that point
    you will have this already open, ok?
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    Now it's not there,
    you cannot see this software yet.
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    There are three modules in each
    assessment task,
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    the practice and the assessment.
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    Your marks for the assignment
    will be the average of all these,
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    ok, the practice and the assessment.
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    You will have a rubric for this
    so you will know exactly how
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    your marks will be allocated.
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    The system marks you, so it's not that
    I will mark this.
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    For each task completed,
    the system will mark you,
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    and you will have the marks
    according to the task.
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    I will give you some guidelines
    next week on that.
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    But in the first part, the practice set,
    there are three modules, actually four,
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    but the important models
    are modules two and three.
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    The module one is just a welcome for you
    to have a welcome to the system,
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    there are no marks allocated there.
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    Module two is the basics,
    and there are 20 marks allocated there.
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    There are very simple tasks that will
    tell you how to work in Xero.
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    One of the tasks is for example to set up
    an authentication in door,
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    so it's not related to accounting at all,
    but is related to working with this...
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    with the system.
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    My suggestion would be to always
    look at the question that you have
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    for each task and the possible answer,
    and then look at the content.
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    Try to not answer the question immediately
    but go through the content.
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    You will learn through the content,
    not just answering the questions.
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    Try not to do what is...
    You look at the question, possible answer,
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    and then you try to find the answer
    in the content,
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    because you will not learn a lot.
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    The idea is that you learn how
    to use Xero, this system, ok?
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    And to learn that it's good that you
    go through the content
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    trying to learn what is this about?
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    And the next module,
    the module three that is Xero,
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    in that module you will work in Xero.
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    So module two is just to prepare,
    you will be prepared to work with Xero
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    but it's not yet the working withing Xero.
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    Module three yes,
    you will have a number of tasks
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    following the instructions that
    Accounting Pod will give you
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    to complete this task
    and provide the answers.
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    So then the module four is just to wrap up
    a couple of questions,
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    but not really important.
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    Module two and three are
    the most important.
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    Now when you finish one module,
    then you will have access to the next one
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    and so on,
    so you need to go step by step.
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    In this sense, this is,
    even though you need some knowledge
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    in accounting that you already have,
    you don't need more than that
  • Not Synced
    because it's different to learn how to
    work with a software in accounting
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    than how to do accounting,
    that is what you are doing now.
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    Then the assessment part is just the
    application of all what you have learned
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    in the practice part,
    and in a different case scenario.
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    So that is in general what you will
    from next week,
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    there is time,
    don't wait till the last two days.
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    For example, it opens 2nd August,
    it will be closed 27th of August,
  • Not Synced
    do not wait until the 25th of August
    for all the task,
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    because you need time for that.
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    You need time to reflect on what
    you're learning,
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    you need time to properly do the task
    and go just a little bit
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    during the time this will be open.
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    It will not take a long time, ok?
    it will not take a very long time,
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    probably you can do this in three
    or four days, if you dedicate full time,
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    but that is not the best way to learn.
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    Yes, you will have marks Cecilia
    in the practice part
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    and actually the total marks
    that you will have is the average
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    weighted average of the practice part
    and the assessment part.
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    I also considered to give marks
    for the practice part
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    because in the practice part,
    it will be easier for you,
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    but the intention is that you learn
    how to use the software
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    and how to use this software
    is in the practice part.
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    In the assessment part
    you will apply all of this,
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    so there are marks allocated
    in the practice part as well, yeah.
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    So this is just some information that
    i want to give you in advance
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    and next week with this open,
    I will show you the screens
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    and I can share screens
    for you to do this.
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    Cecilia, is there any way we can practice
    using the system without getting marks?
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    Yes, because you don't need to submit
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    but now you will see
    it's very straightforward,
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    the system will tell you
    exactly what to do,
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    so if you do well, you don't need
    to do it again,
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    but try to do well.
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    Now there is some not in the practice part
    but in the assessment part
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    there is feedback that you can receive
    and also you can ask questions.
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    Now the specific question of the software
    please do not ask me that way
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    but to the system, there is a box
    that you will see next week,
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    that says 'leave us a message'.
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    You leave all the questions there
    and they will answer you immediately.
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    If you have a problem with this,
    of course you contact me
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    and I will deal with them, but they
    answer quite quick all your questions.
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    Ok, now I have another message,
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    and this is another caption.
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    Who sent me a message about captioning?
    They'll need the captioning.
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    Cassandra is that you?
    Ok, I've added you.
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    Ok, so now we can continue
    with the next exercise.
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    And we are still in the lecture
    so definitely will end a bit late
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    but I prefer to clarify anything you need
    it's important for you.
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    Ok, so...
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    I guess we don't need to put this...
    Ok.
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    Here you have the next question.
    This is...
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    I do not know if you can see well
    in your screen
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    because this uses the whole one
    in my screen.
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    Can you see we're on this table?
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    Yes, ok, excellent.
    Excellent, thank you.
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    So this exercise starts as well
    from the unadjusted trial balance,
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    the same as this one.
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    And they open for business
    on 1st of April 2018
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    and the trial balance is on 30th of June,
    so how many months do we have?
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    This is important because we will need
    this to calculate the adjusting entries,
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    how many months since we started?
    Three months.
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    So remember that from 1st of April
    until the date,
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    very good Natalia, three months,
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    until the date of these financial
    statements, three months,
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    that is what we will consider.
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    So what we have here in this,
    this is the worksheet.
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    You can see we add more columns.
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    What we have at the beginning is the
    unadjusted trial balance,
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    that I am showing you there,
    unadjusted trial balance.
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    Then we put in the adjustments,
    all the adjusting entries,
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    we will do that in this exercise as well,
    and from this we prepare what is called
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    the adjusted trial balance.
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    But now we will add the last part
    for today which is the closing entries
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    so you can see we have now
    three types of entries.
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    Just the general entries, or journal
    entries that come from transactions
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    that we did last week.
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    We have the adjusting entries
    that we prepared in the first part,
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    and we have the closing entries and we
    will see what are the closing entries.
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    After the closing entries we prepare
    another trial balance
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    which is the post-closing trial balance.
  • Not Synced
    And with this we complete,
    almost complete the accounting cycle.
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    After this we only need to prepare
    the financial statements.
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    So we have the list of accounts,
    here you have all the list of accounts
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    that we will use in this and we have the
    ending balance of each of these accounts
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    in the unadjusted trial balance,
    that means before adjustment,
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    these are the balances
    of all of these accounts, ok?
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    Here we continue with different
    types of accounts,
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    we will go in detail with all of them.
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    And of course,
    the unadjusted trial balance
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    the total debits should be equal
    to total credit.
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    That's in all the trial balances,
    total debit equals total credit.
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    So here we have the additional data.
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    The additional data as you already know
    is the data that we need
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    to prepare the adjusting entries,
    so we will go through these six entries,
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    six additional data to prepare
    the adjusting entries.
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    We will journalize the adjusting entries
    so we will record them,
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    what is the debit, what is the credit
    of each of this adjusting entries.
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    And then with this adjusting entries,
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    we will complete the adjusted trial
    balance in the worksheet.
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    Then from the adjusted trial balance
    in the worksheet,
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    we will prepare the closing entries.
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    And using the information
    of the closing entries,
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    we will prepare the post-closing entries
    trial balance.
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    So this is a very complete exercise,
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    the starting with the unadjusted
    trial balance
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    until the post-closing entries
    trial balance.
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    So we will start with
    the adjusting entries.
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    The first one, insurance expires
    at a rate of $900 per month
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    and is an annual premium commencing
    1st April 2019.
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    So what might this description
    be telling us?
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    It says that three months, so it's already
    calculated the total policy divided by 12,
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    it should be 900 per month,
    that is the insurance expense per month
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    when this started on 1st of April,
    at the beginning of this period
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    and we have already three months
    if you remember.
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    So in three months by $900
    is 2700.
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    We need to record the debit,
    the insurance expense clearly,
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    then prepaid insurance.
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    So we look at our journal entries,
    insurance expense, and prepaid insurance.
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    Here you have debit 2700
    insurance expense,
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    credit 2700 prepaid expense,
    and that is the first one, ok?
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    I will go a bit quicker in this
    but please stop me at any time
  • Not Synced
    and ask me if there is something that
    you would like to clarify.
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    Of course I will explain well but because
    we've gone through this already
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    they are similar.
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    If it is clear just..
    Just (INAUDIBLE).
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    Ok, sorry.
    What was the question?
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    Here is it prepaid insurance?
    Yes it is prepaid insurance.
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    Ok, ok. So to answer that question we
    need to look at from where comes this.
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    Insurance expires at the rate of $900
    per month.
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    From where does this come?
    This comes from a prepaid insurance
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    so that means the company paid in advance
    it's a prepayment,
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    the insurance for the next 12 months
    on 1st April.
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    1st April the company paid the whole year,
    that means 12 months insurance.
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    What amount?
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    To know that you need to look
    at the account prepaid insurance,
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    here you have, ok,
    prepaid insurance debit 10800.
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    If you divide this by 12 it's 900.
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    That means every month you need
    to record an insurance expense
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    because you will consume this policy
    in 12 months.
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    So every month you need to record
    an insurance expense of 900 every month
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    and we have three months so it will be
    the total of 2700 as insurance expense
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    and we decrease the prepaid insurance,
    very good, excellent.
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    Ok, the second one,
    and inventory of supplies shows 7200
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    of unused supplies on 30th June.
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    So we still have 7200 supplies
    in the inventory.
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    How much do we have in the
    unadjusted trial balance?
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    Supplies, 11400,
    and we have 7200 at the end of June
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    so we have use the difference.
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    What is the difference between 11400
    and 7200? It's 4200.
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    So we have a supplies expense debit 4200
    and we credit this account supplies
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    to reduce 4200 from here.
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    So the journal entry, the adjusting entry,
    it will be supplies expense 4200 debit
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    and we credit supplies 4200.
    With this we decrease the supplies account
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    and now we will have the balance
    that we calculate here.
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    That we count, we count the items,
    we value the items
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    and what we have
    at the end of June is 7200, ok?
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    So that is the second adjustment.
    The third one.
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    The depreciation for the year
    ended 30 is 5400 on the building
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    and 4500 on furniture.
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    Here you have two items.
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    The two of them are what we call
    the non-current assets,
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    so they're assets that last for more than
    one accounting period.
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    We have buildings and furniture
    and this description is telling us
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    that depreciation expense
    for the year 30th June 2019,
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    that is the ending...
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    That is the date of the unadjusted
    trial balance.
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    The deprecieation expense is 5400
    on the building, 4500 on furniture.
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    No we need to think in the accounts.
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    Depreciation expense is one account
    so it doesn't matter how many items
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    we are depreciating
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    we need to add them and we will have
    the depreciation expense,
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    the total depreciation expense.
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    If you add these two amounts,
    5400 and 4500 it will be 9900
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    so we will have a debit of depreciation
    expense, 9900.
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    What is the other account?
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    The other account is accumulated
    depreciation
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    but we have one accumulated depreciation
    account for each item
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    of the non-current asset.
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    How many items do we have here?
    Two.
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    So we have building,
    we have furniture.
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    So two different accounts, one account
    will be accumulated depreciation,
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    building, the other account will be
    accumulated depreciation furniture
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    We need to distinguish them
    and to record them separately.
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    So we will have a depreciation expense
    9900, one account,
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    and then we will have accumulated
    depreciation of building, 5400.
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    Accumulated depreciation
    of furniture, 4500.
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    and the journal entry, the adjusting
    entry will be this one.
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    Here you can see 9900 depreciation
    expense, one account.
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    All the depreciation expense together.
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    But then we have two different
    accounts,
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    so accumulated depreciation
    of the building, 5400,
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    accumulated depreciation
    of furniture, 4500.
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    The sum of course is 9900 so...
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    it would be okay Jade that if you
    separated depreciation expense
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    but we need to think that depreciation
    expense is just one account.
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    It will not cause any problem
    because at the end we will have two.
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    It's like we separate these
    in two adjusting entries.
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    It is possible, it's ok,
    it's not wrong,
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    but because we have one
    depreciation expense,
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    we record them together.
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    Now this is a journal entry for adjusting
    entries in which you have three entries.
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    Ok, I mentioned to you that most of
    the you have two entries,
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    one debit, one credit,
    there could be more.
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    this is the case.
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    In this case you have one debit
    and you have two credits.
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    The important thing is any journal entry
    or adjusting entry,
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    the total debit should be equal to
    total credits which is the case here.
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    Ok, next one.
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    The mortgage interest rate is 6%.
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    The mortgage was taken out
    on 1st April.
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    This is the only data that is given in the
    additional data for adjusting entries,
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    so we need to look at the data in the
    unadjusted trial balance to calculate this
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    so here we know 6% is the interest rate.
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    Always when it's given like this,
    it's annual interest rate, ok?
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    Annual interest rate.
    Always this is the annual,
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    that is the normal period for
    the interest rate of a mortgage.
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    So we will need to see what is the total
    of the mortgage
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    so we go to our...
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    And here you have mortgage payable.
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    This is the unadjusted trial balance,
    mortgage payable 210000.
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    210000.
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    If you multiply 210000 by 6%
    how much is that?
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    12600, very well Jade,
    12600.
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    That is the interest for the year, ok?
  • Not Synced
    But we need the interest for three months
    so we divide this by 12
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    and we will have the interest
    per month.
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    We multiply by 3, ok,
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    and that is the interest for
    the three months
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    and for the three months
    we will multiply that by three, Jade,
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    monthly it will be 3150, ok?
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    So 3150 is the interest expense
    that we need to record here.
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    Good Jade.
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    Ok, so interest expense 3150.
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    Interest expense for the three months
    and we have an interest payable
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    because we have not paid that.
  • Not Synced
    So interest payable, 3150.
    This is the adjusting entry.
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    Next one.
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    9000 of rent revenue paid in advance
    pertains to June.
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    The remainder pertains to July,
    so what does this mean?
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    The tenant paid in advance
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    for the rent until July,
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    but until June the tenant already used
    $9000 of this payment
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    because they used the office
    or the rent.
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    George, the previous one,
    sorry, you're talking about the mortgage?
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    The mortgage interest?
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    It's that one?
    Ok.
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    Ok, yeah, I will go through that George
    as soon as I finish this that I started
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    so here we have the revenue
    received in advance.
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    9000, that pertains to June,
    that means the tenant already used this.
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    We have provided this credit to the tenant
    until June for 9000.
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    So we need to record this income
    because this is revenue
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    and we will credit rent revenue for 9000
    and we will debit
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    the rent revenue received in advance
    which is a liability
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    when the tenant pays in advance
    the amount.
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    So this will be...
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    Debit rent revenue received in advance
    we decrease the liability
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    because the tenant already used
    this building until 30th June
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    and we record now the
    rent revenue, ok?
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    So that is the number five.
    I will go with the interest,
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    the interest of the number four.
    I will go again with this.
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    The mortgage interest rate is 6%.
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    Please remember, always the interest
    is per year,
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    so we need to know how much
    is the interest per month.
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    How do we calculate that?
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    Well, 6% of what?
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    That is the thing that we need
    to calculate.
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    6% of the total mortgage interest...
    Sorry.
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    6% of the total mortgage that we have
    for this loan that we have
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    so here you have,
    this is our trial balance.
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    Remember this is our unadjusted
    trial balance.
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    If we go down through the accounts
    we will have this mortgage payable.
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    Credit because it's a loan,
    it's a loan payable, it's a liability.
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    This is the total amount we borrow,
    210000.
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    How much is the interest per year?
    6% of this.
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    If you calculate your 6% of 210000,
    then that is 12600,
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    but that is per year.
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    How many months is the period of time
    here from 1st April to 30th June?
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    It's three months.
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    So 210000 divided by 12,
    sorry.
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    210000 multiplied by 6% is 12600.
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    12600 divided by 12,
    that will be for months,
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    and then we multiply by three,
    that will be three months.
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    The amount is 3150.
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    So we record that interest expense, 3150
    because it's an interest already accrued
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    in this specific time, until 30th June,
    three months.
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    And the interest payable because
    we had not paid that
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    s the same amount,
    3150.
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    We have this liability for
    the interest payable
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    and we have the interest expense,
    that clarified the point George?
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    Ok, excellent.
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    Now the last adjusting entry
    is salaries.
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    This is a simple one.
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    Salaries of 1800 are unpaid at 30th June.
    So what does this mean?
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    That means that the employees
    already work for this amount,
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    1800 but the company didn't pay them.
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    So we owe that salary,
    so we will record the expense,
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    salaries expense 1800,
    and we have to record the liability
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    because we owe the salaries,
    that means salaries payable,
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    that is the liability.
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    So debit salaries expense, 1800
    credit salaries payable, ok?
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    1800. So there you have
    the last adjusting entry.
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    So we've finished the adjusting
    entries,
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    and now we can put all of these
    adjusting entries
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    to the spreadsheet.
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    So if we put them
    to the spreadsheet,
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    you have here all the adjustments.
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    There is a number that you can see
    in this column after adjustment,
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    this is just a column
    that can help you to know
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    which are the transactions that the...
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    the adjustment that we are recording
    in the adjustment.
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    I will look at that,
    I will go through the first one
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    just for you to have the reference
    because we did this already.
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    We don't need to go through all of the.
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    In the first, this is the number one,
    the first adjusting entry.
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    We record debit 2700 insurance expense,
    credit 2700 prepaid insurance.
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    So prepaid insurance is a credit...
    there you have the number one
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    for you to have as a reference.
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    This is the adjusting one.
    Credit 2700
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    and we have a debit in insurance expense,
    insurance expense a debit,
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    and here you can see the number one
    again as a reference.
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    So all of them have a reference
    to what transaction it is.
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    So we can complete this table
    just copying all the adjustments,
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    the debit and the credit in the
    corresponding account
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    and we will complete the adjustment.
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    Then we can prepare
    the adjusted trial balance
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    the same as I explained
    in the previous exercise.
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    Cash for example, 15000 debit,
    there are no adjustments,
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    so the adjusted trial balance
    is 15000 debit cash.
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    Prepaid insurance we have it there 10800
    in the unadjusted balance,
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    the adjustment is credit,
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    so credit decreases the debit
    we need to strike this,
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    so the adjusted trial balance
    is 8100.
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    And we continue with all the adjustments
    until we have really
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    the adjusted trial balance.
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    So we can copy all the amounts here,
    in the adjusted trial balance
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    and this is our adjusted trial balance.
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    So in the first exercise we finished
    in this part,
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    but now we will continue
    with the second part
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    which is the closing entries.
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    What are closing entries,
    what are the closing entries?
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    So now I will explain a bit conceptually
    what are closing entries
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    and then we will apply them
    in this exercise.
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    I mentioned last week that there
    are permanent accounts
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    from all the accounts of the company.
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    There are permanent accounts
    and there are temporary accounts.
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    What is the difference between
    the permanent accounts
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    and the temporary accounts?
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    The permanent accounts are accounts
    that the ending balance of any period
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    is the beginning balance
    of the following period.
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    So we carry forward the balance
    of the accounts to the following period
  • Not Synced
    and we continue for all the
    life of the company with this.
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    Ending balance becomes the opening balance
    of the following period.
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    If you remember when we balanced
    the accounts last week
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    we ended each of the ledger accounts
    with what is the opening balance
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    for the following period which was
    ending balance for the current period.
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    So these are the permanent accounts.
    But we have also temporary accounts.
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    What are temporary accounts?
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    Temporary accounts are accounts
    that must be closed
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    at the end of the accounting period.
  • Not Synced
    Why do we have to close them?
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    Because we want to start
    the following period
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    with zero balance in each
    of these accounts, zero balance.
  • Not Synced
    So we need to keep these accounts
    with zero balance.
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    How can we do this?
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    Well, we need to transfer the
    balance of these accounts
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    to a permanent account.
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    Then we can leave the account
    in zero balance.
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    This is very important for,
    very good Joshua, to retain earnings.
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    This is very important particularly for
    all the accounts of the income statement
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    because we want to start
    each accounting period
  • Not Synced
    with zero balances in the income
    statement accounts,
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    that means all the revenues
    and expenses account
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    should be zero, why?
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    Because we want to mention
    the profit for the period.
  • Not Synced
    If we do not start from a zero balance
    we will not have the profit of the period
  • Not Synced
    we will have a mix of profit
    of the periods and the current period, ok?
  • Not Synced
    So to know the profit of the period
    we have to start with zero balance
  • Not Synced
    in all of these accounts.
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    So what are the temporary accounts?
    All the income statement accounts.
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    That means all the revenues accounts
    or any other income
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    and all the expenses accounts.
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    All of them are temporary accounts.
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    In addition there is one account
    that we add of written ending
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    or the equity account
    which is dividends.
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    Dividends is also very good Tamara,
    dividends is also a temporary account
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    and we need to close dividends
    at the end of the accounting period.
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    So how do we close them?
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    Well, to know that,
    we can start from here,
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    the adjusted trial balance.
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    Now what type of account do we have here?
    And we always put these in this order.
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    First we have the asset account,
    so you have cash here, ok?
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    Prepaid insurance, supplies, land,
    building,
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    accumulated depreciation is an asset
    account even though it's a credit,
  • Not Synced
    but I already explained that and we will
    go in more detail with this account
  • Not Synced
    in another topic.
    That is an asset account,
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    same to accumulated
    depreciation of credit.
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    All of these are asset accounts.
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    After the asset account we record
    the liabilities account.
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    So here you have accounts payable,
    rent revenue received in advance,
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    salaries payable, interest payable,
    mortgage payable, ok?
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    All of these are liabilities accounts.
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    After the liabilities accounts
    we have the equity accounts,
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    so we have check capital and rent revenue.
  • Not Synced
    These two are the equity accounts,
    sorry, only check capital,
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    and retail earnings.
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    Check capital and retail earnings,
    that's what I mean.
  • Not Synced
    Check capital and retail earnings
    are equity accounts.
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    In this case in this company
    we don't have retail earnings.
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    Why don't we have retail earnings?
    Because this company just started, ok?
  • Not Synced
    It started on 1st April,
    so this is the first period,
  • Not Synced
    30th June 2017.
  • Not Synced
    And because it's the first period we
    don't have yet retail earnings account.
  • Not Synced
    So check capital and retail earnings
    are equity accounts.
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    Then we have the income
    statement accounts.
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    The first account that we have
    all the revenues.
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    Rent revenue in this case,
    it may be service revenue,
  • Not Synced
    it may be sales revenue,
    fees revenue, interest revenues,
  • Not Synced
    all the revenues accounts,
    they will be in this part.
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    And then all the expenses accounts,
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    so we have advertisement expense,
    depreciation expense,
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    electricity expense, insurance, interest,
    salaries, supplies expenses,
  • Not Synced
    all the expense accounts.
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    So this is the adjusted trial balance.
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    What are the accounts that
    we need to close?
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    In this case we don not have dividends,
    we have revenue, rent revenue,
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    and we have all of these expenses.
  • Not Synced
    These are the accounts that
    we need to bring.
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    How will we close this?
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    There are two steps to close the accounts.
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    The first step we will close
    all the expenses and then the revenues
  • Not Synced
    to another temporary account
    that we will create
  • Not Synced
    that the name is the income
    summary account.
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    Income summary account is the name of
    another temporary account
  • Not Synced
    and the purpose is to gross
    all the expenses
  • Not Synced
    and the revenues to this account.
  • Not Synced
    So how do we close the expense?
    here you have advertisement expenses,
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    (INAUDIBLE) 3000,
    depreciation expense the balance
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    is debit 9900 so we have
    a number of expenses.
  • Not Synced
    We add all of them and we will debit the
    income summary accounts for the sum
  • Not Synced
    and we will credit each of them
    one by one
  • Not Synced
    we cannot credit the total of them,
  • Not Synced
    we need to close each account one by one
    so we need to credit advertisement expense
  • Not Synced
    credit 3000,
    depreciation expense credit 9900.
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    Electricity expense we credit 6000
    and so on
  • Not Synced
    because if you credit advertisement
    expense by 3000,
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    what is the balance of advertising expense
    after that? Zero.
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    If you credit depreciation expense by 9900
    what is the balance after that? Zero.
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    We're leaving each account at zero
    that's why we need to do one by one.
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    But for the sum of all of this credit
    we will have one debit which is
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    the income summary account,
    or profit and loss summary account.
  • Not Synced
    It could be any of these.
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    With revenue we do the same.
  • Not Synced
    So to close these revenue accounts,
    what we should do?
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    We need to debit by 64200.
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    We debt rent revenue by 64200,
    what is the balance after this? Zero.
  • Not Synced
    And what we credit?
    Income summary account again.
  • Not Synced
    So income summary account will be
    the same account that we use for expenses
  • Not Synced
    but in this case we credit the
    income summary account.
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    So you can see what we have done
    at this point is to transfer
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    the amount of all the expenses
    and revenues to this temporary account
  • Not Synced
    which is income summary account.
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    Here you have the closing entries.
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    We credit all of the expense accounts,
    remember the normal balance is a debit
  • Not Synced
    so to close them we credit.
    This is a journal entry.
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    You can see this is a journal entry
    in which we debit income summary,
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    the sum of all the expenses.
  • Not Synced
    We debit income summary and
    we credit each of these accounts.
  • Not Synced
    How many entries has this journal entry?
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    You can see it has eight entries.
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    We have one debit, and seven credits.
  • Not Synced
    So this is one journal entry,
    with this journal entry we close
  • Not Synced
    all the expense accounts.
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    That means these are closing entries.
  • Not Synced
    We transfer the expenses
    to the income summary accounts.
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    For debt revenue, the same.
  • Not Synced
    In this case we need to debit
    the revenue account
  • Not Synced
    because the balance is credit
    so when we credit,
  • Not Synced
    we leave this account in zero,
    and we debit the rent revenue
  • Not Synced
    and we credit the income
    summary account.
  • Not Synced
    This is another journal entry,
    a closing entry.
  • Not Synced
    What is next?
  • Not Synced
    Then we need to close
    the income summary account.
  • Not Synced
    What is the balance of the
    income summary account?
  • Not Synced
    The income summary account
    is the difference
  • Not Synced
    between the credit and the debit .
  • Not Synced
    What is the balance of the income
    summary account?
  • Not Synced
    The income summary account is the
    difference between the credit
  • Not Synced
    and the debit,
    what is higher?
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    Well, we have 64200 credit
    and 48750 debit.
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    so that difference is 15450 credit, ok?
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    That is the balance of the income
    summary account at this point.
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    To close that, we need to debit,
    it is the third closing entry.
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    We debit 15450 from the
    income summary account
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    and we credit retained earnings.
    This is a permanent account.
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    So we transfer this balance to
    the retained earnings account.
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    Now the income summary account is closed.
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    You can verify this if you were
    at all debit,
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    48750 + 15450
    will be equal to 64200.
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    Income summary account is closed
    the ending balance in this case is zero
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    and all the balance is transferred
    to retained profit.
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    You can see what we have done
    is to transfer the profit
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    of the accounting period through
    the journal entries
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    that are the closing entries.
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    We transfer the profit to
    the retained earnings
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    an that is what we do every period
    at the end of each period we do this.
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    So what is retained earnings?
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    It's the accumulation of all profits
    and all losses since the company started
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    because we do this at the end
    of this period.
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    So we are accumulating the profits
    in this written profit account.
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    What about dividends?
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    Dividends is another temporary account
    we will see another exercise
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    in which dividends is included
    in the workshop exercise
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    in which dividends is also closed
    to retained earnings,
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    so retained earnings are
    decreased by dividends.
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    Now, one last word in relation
    to closing entries.
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    Closing entries you can see
    is very simple.
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    It's just to close each of the expense
    and revenues accounts
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    and also dividends,
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    and leaving the accounts
    with zero balance.
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    The normal mistake that the students do
    in this part even is simple
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    is the confusion between the debit
    or the credit to close the account.
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    So because students know that
    expenses are debit,
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    they close all expense accounts
    with the debit here.
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    Put the debit and put the income
    summary account as the credit.
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    But that, what is the effect of that?
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    With that, the effect that will be
    will be that you double
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    the balance of each account.
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    If you debit advertisement expenses
    by 300 and you have a balance of 3000
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    what is the ending balance of
    the advertisement expenses? 6000.
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    Ok, you double the balance on the account
    you are not closing the account.
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    To close the account should
    be the opposite side,
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    it should be you credit 3000 because
    the account has a balance of debit, 3000.
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    So be careful with that, I have seen
    so many times the same mistake.
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    Remember that taking out on these
    so do not make this type of mistake.
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    Any question about closing entries?
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    The whole point Natalia,
    or the last part?
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    The last part?
    Excellent, yes.
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    Ok, excellent.
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    For one second I thought
    it was the whole point.
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    Excellent.
    Thank you Natalia.
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    A common mistake,
    what is the common mistake?
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    Here we are closing the account
    to ...
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    Remember two things,
    to close has a meaning.
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    What is the meaning to close?
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    To close means leave with zero balance
    that is the meaning, ok.
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    Close means leave this account
    with zero balance.
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    So if we close advertisement expense
    it means leave this with zero balance
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    at the end of the period.
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    After closing entries we want
    advertising expense equals zero balance
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    so that means we transfer
    the balance to another account.
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    We're transferring here to income summary
    in this first step.
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    So what about if we have instead of,
    I will write over here,
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    instead of credit 3000,
    we put 3000 here, we debit.
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    And we do the same with
    all the other accounts.
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    That means that this, the income
    summary will not be a debit of 48000
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    but will be a credit of 48750, ok?
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    So what will be the effect of this?
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    And we put here the 9900,
    the 6000, the 2000...
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    All of them in debit.
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    What is the balance of all of these
    accounts if you do that?
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    What is the balance after closing entries
    if you debit this account?
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    What will be the balance
    of advertisement expense?
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    It will be 6000 because the balance
    before closing entries is debit 3000.
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    If you debit in the closing entry by 3000
    the debit increases the debit
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    so a debit of 3000 will be added
    to the debit of 3000,
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    that means now the balance is 6000.
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    You're not closing the account,
    you double the balance of the account.
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    So that's why you need to be very careful
    that the closing entry
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    should be the opposite side of the
    accounts that we are closing.
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    All the expense accounts,
    they have a debt balance.
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    What is the opposite side?
    Credit.
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    So we need to credit all the
    expense accounts.
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    The revenues accounts,
    what is the normal balance? Credit.
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    To close we need to debit,
    the opposite side.
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    That is the important thing
    so be careful with that,
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    so do not make a mistake on this.
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    Ok, Yes, Zijing, only need to close
    the temporary account.
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    The permanent account we will
    carry forward the balance.
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    The ending balance at
    the end of the period
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    will be the beginning balance
    of the next period.
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    We do not start with a zero balance.
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    We start with the ending balance
    of the previous period
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    so we only close temporary accounts.
    What are the temporary accounts?
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    All the income statement accounts
    plus dividends, ok?
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    So we finish with this and here
    you have all the closing entries
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    and that's the last part of this
    exercise I think, yes.
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    Yes, that was the last question
    to prepare the closing entries.
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    So we finish,
    just we finish the lecture,
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    and it is time to (INAUDIBLE)
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    We need still to go through
    the workshop.
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    Yes I did here profit and loss,
    there are different names for this,
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    and over time the name has changed
    in the accounting standards,
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    but when we talk about income statements
    it's the same as profit and loss statement
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    it's the same.
    And we talk, there is another name,
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    it's not very used now,
    but you can see in some books
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    that there's the statement
    of financial performance.
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    That is also called the income statement.
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    And the balance sheet has another name,
    it's the statement of financial position.
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    But for the names that we're using
    is normally income statement
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    or statement of profit or loss.
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    And then we have,
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    retained profit will always credit, right?
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    Good question Zigian.
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    Retained profit normally should be
    and has to be in the credit side
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    except if the company has a lot of loss
    and then retained profit
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    will go to the other side,
    we'll have a debit balance.
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    That is a company that has
    accumulated losses,
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    and they don't have profit.
    it's not the normal situation
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    and it will be very bad for the company.
    Normally it should be on the credit side.
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    It is possible the debit side,
    but not usual, and not good.
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    Ok, so now we can go
    through the workshop.
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    So we need to plan a bit at this point
    because 3.50.
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    The normal time from 1.00-4.00
    is the workshop and the lecture,
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    and then 4.00-5.00
    I have the consultation
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    but what I am doing is just to answer
    all the questions
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    while I am explaining the exercise,
    so I go through the questions immediately.
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    That I think is better because we
    don't need to go back
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    but we solve anything that you have,
    any question you have immediately.
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    But because we have not gone
    through the workshop,
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    I will use the consultation time
    for the workshop.
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    Now I understand if any of you
    cannot stay for the workshop,
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    for the consultation which is 4.00-5.00,
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    it's ok, so feel free to go,
    no problem.
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    Remember the lecture and the workshop
    will be recorded
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    and will be uploaded
    on the ECOS 360 tab,
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    so you will have the complete record,
    yes and there's no problem.
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    You will have the complete record
    of the lecture and the workshop.
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    So I will explain this as part
    of the consultation,
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    the exercise of the workshop, ok?
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    And then if you have more questions
    yes, please feel free to ask
  • Not Synced
    any question you may have.
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    Ok, so we go through the second one.
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    The workshop, the scheme that we have used
    is similar to the lecture,
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    we start with four multiple choice
    questions to revise some concepts
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    and then we go through the exercise.
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    And in the exercise we will do the same,
    we will practice with adjusting entries,
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    we will practice with closing entries
    and that is the topic for today,
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    so a lot of practice in this.
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    So we will start with this.
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    I will have a look at the first question
    which is similar to the first question
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    of the lecture.
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    Ok, have a look at this,
    I will update the poll.
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    Ok, so furniture factory employees
    work overtime to finish an order
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    that was sold on 28th February.
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    The office sent a statement
    to the customer in early March
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    and the payment is received
    by mid March.
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    The overtime expenses should be
    expressed in which period?
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    Ok, good practically most of you
    have the right answer,
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    in February.
    Why in February?
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    Because they said that when
    it's sold this order?
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    On 28th February, so it's February,
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    the month is February and
    the employees work during February.
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    So the resource,
    that means the work of the employees
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    was used on February,
    that means the right answer is that one,
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    February, A.
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    A is the right answer, ok?
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    Number two, have a look,
    I will update the poll.
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    The company purchased office supplies
    costing $4000 and debit office supplies
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    for the full amount.
    At the end of the accounting period,
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    a critical count of supplies reveal 1600
    is still on hand.
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    What is the appropriate journal entry?
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    We have done already two weeks
    aside for this,
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    so if you understood well,
    please apply the same as we have done
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    in the first two exercises.
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    Ok, most of you correct,
    what is the...
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    The right answer is C.
    Ok, why?
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    if the company purchases office supplies
    costing 4000, debit all these supplies,
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    so what is the balance of these accounts?
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    The unadjusted balance is office supplies
    or simply supplies, debit $4000,
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    that is the unadjusted balance
    but at the end of the accounting period
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    the physical count revealed 1600.
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    So that is what we have
    in the supplies account.
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    The rest were consumed,
    what's due,
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    so we need to record a
    debit supplies expense
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    by the difference, 2400,
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    that is the difference between
    4000 and 1600.
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    And we credit office supplies so we
    reduced the balance of office supplies
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    by 2400 and now what is the balance
    after adjustment? 1600, ok?
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    This is the normal way that you will see
    always what happened
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    with the supplies account,
    but there is another way
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    that I will explain,
    I will explain it now.
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    What about if this company purchased
    office supplies that cost 4000 dollars,
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    but debit the supplies expense,
    the office supplies expense.
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    So we debit, ok?
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    And that is the journal entry
    that they record
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    because they thought that they would
    consume all of this
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    in this accounting period.
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    So they debit supplies 4000.
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    They debit supplies 4000,
    and then credit.
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    If they paid cash, 4000.
    That is the original entry, ok?
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    Supplies expense.
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    So they debit an expense account.
    Why do they do this?
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    Because they think that they will consume
    all of these supplies in the month.
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    But at the end of the month they realize
    that they still have 1600 on hand.
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    What will be the adjusting entry
    in this case?
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    Think a bit.
  • Not Synced
    And think what would be the
    adjusting entry in this case
  • Not Synced
    because we need to adjust this,
    the expense was not 4000.
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    It was less than 4000 because we
    still have 1600.
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    We need to adjust that.
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    What will be the adjusting entry
    in this case if we record everything?
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    Debit office supplies,
    and credit supplies expenses, very good.
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    For what amount?
    For 1600.
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    So we will debit office supplies 1600
    so now we have this, ok?
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    1600 debit, now we have the balance,
    and we need to credit the expense
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    because the expense was not 4000.
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    The expense was the difference,
    so we will credit the expense by 1600.
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    This is a different way to look at
    the supplies expenses account.
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    It is possible, it's not frequent but it
    is possible that this is what may happen.
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    A full reversal is if it is...
    if it is given.
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    It's not a reversal actually,
    it depends on how the data is presented.
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    For example if the data is presented
    as I did in this exercise
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    or all the previous ones,
    you only need to adjust as we have done
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    but if the data is presented in this way
    that all the expenses,
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    all the supplies purchased are recorded
    as an expense,
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    then the other adjustment
    should be reversed.
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    What will give you the clue is
    how we record the purchase of this.
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    We record as supplies,
    or we record as supplies expense.
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    That will make the difference.
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    Ok, it's good to clarify this,
    because I have seen an exercise
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    in which they use the other way.
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    We have two possibilities and
    I will put this in here.
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    First, all purchases are recorded as supplies.
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    Ok, all purchases are recorded as supplies.
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    Now this you want....
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    All purchases are recorded as supplies.
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    What we should do when all purchases
    are recorded as supplies,
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    we do what you have learnt in
    the two previous exercises
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    in the lecture and in this...
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    in this multiple choice question.
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    We adjust the ending balance
    of supplies, ok?
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    But what about all purchases are
    recorded as expenses?
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    That is the other situation,
    all purchases are recorded as supplies
  • Not Synced
    first situation we have worked with that,
    the second situation,
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    all purchases are recorded as expenses
    and we purchased $4000 of supplies
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    and because we think that we will use
    all of them in this accounting period
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    we record the 4000 as supplies expense
    when we purchase them.
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    At the end of the month we have
    1600 on hand,
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    so we didn't spend all of them.
    We still have supplies
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    and we need to prepare an adjusting
    entry to reflect this.
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    So how we will reflect in this case, we
    will record in this case a debit supplies
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    1600, ok?
    We record 1600 supplies
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    and we credit supplies expense,
    1600.
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    That will be the adjusting entry.
    What do we do with this adjusting entry?
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    We put in supplies which is
    an asset account,
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    we put the amount that we have on hand
    at the end of the period, 1600.
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    And we reduce the supplies
    expense by 1600
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    because we didn't consume
    all of them, ok?
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    This is the situation when purchases
    are recorded as expenses.
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    It's another situation,
    it's not the most common situation
  • Not Synced
    but it's good that you know that
    adjustment is to reflect
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    what we have at the
    end of the period, ok?
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    It's clear now?
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    What are the questions?
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    Ok, Tablynn,
    Tablynn please clarify the point.
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    We go to the next one, number 3.
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    I will update the poll,
    thank you Tablynn.
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    Ok, this company purchased a computer
    for 3000 on 1st December.
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    It is estimated the annual depreciation
    of the computer is $600,
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    the annual depreciation.
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    A financial statement had to be prepared
    on 31st December.
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    The company should make
    he following adjustment.
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    So it's not very difficult,
    what is the adjusting entry in this case?
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    Have a look at the alternatives
    and choose one of them.
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    Ok, are you ready?
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    We have most of you answered correctly
    but we have a distribution
  • Not Synced
    in the answer as well.
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    The correct answer is B.
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    What is the, I would not say tricky,
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    but what is the thing that you
    need to be careful of
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    with the data provided?
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    It is important and this is a good practice
    for you for the final exam
  • Not Synced
    because in the final exam you will have
    multiple choice questions
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    and you will have exercises.
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    And the multiple choice questions
    what is essential?
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    In the multiple question it is to read
    carefully everything in the question
  • Not Synced
    before you choose one of the answers
    because here I can see
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    why there are some errors.
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    It says this is the amount
    of the computer, $3000.
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    It is estimated annual depreciation
    is $600, annual depreciation.
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    Financial statements are to be prepared
    on 31st December.
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    What is the period of time for
    this accounting period?
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    It's from the 1st of December
    to the 31st of December,
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    that's one month.
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    So were talking about an accounting
    period of one month, exactly Joshua.
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    One month, and here we have the
    depreciation of a whole year,
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    so to calculate the depreciation
    for one month
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    you need to divide this by 12.
  • Not Synced
    If you divide by 12 it's 50
  • Not Synced
    so that immediately leaves out A and E
    and also the answer,
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    so we're not only between B and C, ok?
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    Now to record the depreciation expense
    debit always,
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    always debit depreciation expense
    always it's a debit,
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    and credit the accumulated depreciation.
  • Not Synced
    That's why this is the right answer, ok?
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    So this is a good opportunity I can use
    to explain to you how to avoid
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    some common errors when you do this
    in an exam,
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    and only, maybe you know the answer,
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    but because you didn't read
    very carefully the data
  • Not Synced
    then you can make a mistake.
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    So be careful with these types of things
    when you answer these questions.
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    Ok, now the last multiple choice question,
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    is this one,
    I will update the poll.
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    An entity failed to adjust the revenue
    received in advance account
  • Not Synced
    for rent that has been earned.
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    What effect will this have
    on the financial statements?
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    (COUGHS)
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    Ok, most of you again are correct,
    but there are different answers as well.
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    But the right answer is E,
    ok? That is the right answer.
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    I will explain how to solve this
    type of questions,
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    because there are many similar questions,
    but the question is,
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    what is the effect on the
    financial statement
  • Not Synced
    if an adjustment entry is not prepared?
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    Ok, so how we answer
    this type of question?
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    The best way is to go step by step.
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    It says the entity failed to adjust
    revenue received in advance account
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    for rent that has bee earned.
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    So what happens when we have
    a revenue received in advance?
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    Yes, it is a liability.
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    Revenue received in advance is
    a liability account,
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    and what happens when we earn the rent
    and we do not adjust this liability?
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    The adjustment means a decrease
    of the liability.
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    If we do not decrease the liability,
    revenue received in advance,
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    these liabilities will be overstated.
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    How many of the answers,
    and that is the way that you can see
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    when you are answering this type
    of question in an exam,
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    how many of the answers have that,
    that the liabilities will be overstated?
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    Well, we have D and E only,
    only two, so you can discard already three.
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    So you are going step by step
    answering the question,
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    and even you don't know the second part
    but now your choice is only between two
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    so a better probability
    to have the correct answer.
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    These are just some tricks that you
    can apply when you answer
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    these types of questions, ok?
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    So first, liabilities will be overstated
    and what else?
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    The difference is in revenue.
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    What happens in revenue
    if we do not record this?
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    If we do not record this it means
    we do not record revenue already earned,
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    so the revenue account will be understated
    because we miss to record this revenue.
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    So this will be the second part,
    understated,
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    and that's why the right answer is E.
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    Any questions? Any conceptual questions?
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    Because with these four questions
    we finished up the conceptual part.
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    Excellent Jade, we finished all the
    conceptual part about adjusting entries
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    but now we will apply them again
    in a couple of exercises.
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    So we go through the first exercise
    which is this.
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    This company began operations
    1st February 2019
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    and the rial balance is at 30th June.
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    So how many months is
    this accounting period?
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    The accounting period is five months,
    very good.
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    We need to keep that in mind,
    five months is the accounting period
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    to calculate the revenues, expenses
    or anything that we will need.
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    What we have here is the
    trial balance again,
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    the unadjusted trial balance.
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    We have all the debit accounts,
    all the credit accounts.
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    They are not all the accounts because
    there are other accounts here,
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    you can see other accounts that have
    zero balance at this moment
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    but they are accounts of the company
    that we will use.
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    And then we have the transactions,
    not transactions, sorry.
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    Not transactions,
    the data for the adjustments.
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    The first again we have supplies,
    so these are similar,
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    so I will go a bit quick,
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    but please stop me if there's anything
    that you don't follow well.
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    So supplies on hand, 490,
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    how much we have in the
    unadjusted trial balance?
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    supplies, 2350, so 2350 less 490
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    that will be 1860.
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    Less 490 that will be 1860, so we record
    supplies expense and supplies.
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    We'll record expense for the
    supplies consumed
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    and we decrease the balance
    of the supplies accounts.
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    Ok, second, electricity bill 110
    has not been recorded,
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    and will not be paid until next month.
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    Quite similar to what we have done,
    we need to record the expense,
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    electricity expense debit 110,
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    and electricity payable credit 110.
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    So here you have electricity expense 110,
    electricity payable 110.
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    The insurance policy is for the year
    commencing 1st February 2019.
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    This is the day that the company started
    for the year,
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    so we need to see here how much is...
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    prepaid insurance in total for
    a year is 2520,
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    so if we divide this by 12
    and we have five months in this period
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    we will need to multiply by 5,
    so dividing this by 12, multiplied by five
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    the insurance expense will be 1050
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    so we have insurance expense debit 1050
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    credit prepaid insurance will decrease
    the amount that we have
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    in prepaid insurance, 1050.
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    Services were performed during the period
    in relation to 800 of revenue
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    received in advance.
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    So we have a revenue received in advance
    and we need to decrease that 800
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    to record the service revenue.
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    We will debit revenue received
    in advance by 800,
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    we will credit service revenue
    by the same amount.
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    So we debit the service revenue
    received in advance, 800
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    and we credit service revenue.
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    Next one.
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    Ok, yes.
    Yeah, that's good.
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    Services were perfomed during the period
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    in relation to 800 of revenue
    received in advance
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    What does that mean?
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    That means that previously
    we have received cash
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    for services that we have not provided,
    we received in advance,
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    so we record this as a liability.
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    The liability, the name of the account
    is service revenue received in advance
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    and we can confirm this
    in the trial balance.
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    The liability here you can see
    service revenue received in advance.
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    We have received cash for 1500
    for services we have not provided, ok?
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    Now in this data it says services were
    performed during the period
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    for 800 of this 1500 that we received cash
    we provide service for 800,
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    so we will have this revenue credit
    and we need to decrease
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    the liability that we have
    by the same amount, by 800.
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    Ok, so the journal entry will be service
    revenue received in advance we credit
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    so we decrease that 1500 that we have
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    we decrease for the services
    already performed.
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    And we record the service revenue credit.
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    Now it's better George?
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    Shouldn't we be deduct?
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    (INAUDIBLE)
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    Actually we are deducting 800
    from the 1500 we have with this
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    in the debit entry because we debit.
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    We are reducing the balance of service
    revenue received in advance
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    that has a credit balance of 1500.
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    We debit 800 because we performed
    services for 800,
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    so we deduct that.
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    With the debit entry we are reducing
    an account that has a credit balance.
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    Excellent, very good.
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    You're welcom.
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    Ok, so the next one, salaries.
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    Salaries of 770 are owed
    at 30th June,
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    we have done something similar.
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    So what are the accounts to record
    the expense, salaries expense 770
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    and because we have not paid
    these salaries,
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    they will be liability
    salaries payable, 770.
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    Here you have salaries
    expense 770 debit,
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    salaries payable liability 770.
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    The next one, office equipment has
    a five year life with no resale value
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    and is being depreciated at $375
    per month for 60 months.
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    Ok, this is the amount per month,
    depreciation expense per month.
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    But how many months do we have?
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    So we need to multiply 375 by five,
    that is 1875
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    so we record depreciation expense
    here is the adjusting entry,
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    depreciation expense 1875 debit
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    and we credit the accumulated
    depreciation of this equipment 1875.
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    And the last.
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    Invoices representing 1500
    of services performed during the month
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    have not been recorded.
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    So we provide services, we send
    the invoice but we have not recorded
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    so we need to record, simply record
    that we have not received cash
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    so we record a debit to
    accounts receivable
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    and a credit to service revenue.
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    And here you have 1500
    debit account receivable,
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    credit service revenue.
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    So we went a bit more faster through
    the adjusting entry
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    because you have seen they're
    very similar,
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    so if you become accustomed with this
    you will do well in any adjusting entries
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    that you may face in any exercise.
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    They're similar once you become accustomed
    to how to record adjusting entries,
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    it will be easier for you to do this.
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    Invoices...
    sorry, what was the question reading?
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    Invoices we did combine them.
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    You mean in the last transaction
    the number seven?
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    The number seven when it says
    invoices representing 1500 of services,
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    yes, it could be one, it could be two,
    it could be more than one,
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    but here we put all together
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    because all of them are
    for the same period
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    so we can add them and in total
    it's 1500.
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    We do not record invoice by invoice
    unless they're from different dates
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    and we're preparing
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    each day by day as we did last week,
    that is day by day,
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    in that case we need to record each time
    but we're preparing adjusting entries.
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    Adjusting entries is for the whole month
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    so we need to include all the invoices
    of the month, ok?
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    Because the one point in time
    that we're doing this
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    is the last day of the
    accounting period
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    so we add all the invoices for the month.
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    Just because we have only one
    salaries revenue account,
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    we have one salaries revenue account
    and therefore we add them.
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    If you remember the ledger last week,
    we have one service revenue account
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    or sales revenue account.
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    Now if we have two different accounts
    for example
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    we have invoices for services
    that we provided
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    and we have invoices for products
    that we deliver
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    and we have one service account
    and we have one sales revenue account,
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    two different accounts,
    one for services one for products,
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    in that case we need to add
    all the services invoices
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    and to put them in the service
    revenue account
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    and all the sales of products
    and we put them in the other account
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    in that case we need to
    keep them separated.
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    But if it is only one account
    that we are using
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    this is the adjusting entry,
    we add all of them.
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    Ok, accounts receivable debit
    and services performed credit
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    for the seventh transaction.
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    Ok, well yes.
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    The seventh transaction we have
    a number of invoices
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    but the total is 1500.
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    Services performed.
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    Invoices for services performed
    means service revenue,
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    we've earned this revenue because
    we provided the services
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    so we have a credit in the account
    of service revenue, 1500.
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    But we have not received the cash
    for this.
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    It doesn't say here that we
    buy services for cash
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    so therefore it is an account receivable.
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    We need to debit the
    accounts receivable
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    Ok, so once we have this,
    all the adjusting entries recorded
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    we can go to our worksheet
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    and here in the worksheet,
    the same as we have done,
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    we have the unadjusted trial balance.
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    We copy all the adjtustments here and
    we prepare the unadjusted trial balance.
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    Ok, I will not repeat this part
    because it's very simple.
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    You know for example if you
    have account receivable
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    this is the unadjusted trial balance
    3150, ok, in here.
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    Debit and in the adjustment
    you have another debit.
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    You need to add the two of them
    to have the adjusted trial balance.
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    If you have the prepaid insurance debit
    and the adjustment is a credit,
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    you need to subtract this and
    to calculate the adjusted trial balance.
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    So it's exactly the same as
    we have done before.
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    The important thing, all of them,
    the unadjusted trial balance,
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    total debit equals total credit.
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    The adjustment, this is the sum
    of all the adjusting entries,
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    total debit again equals total credit.
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    The adjusted trial balance again,
    total debit again equals total credit.
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    So always in the trial balance,
    total debit equals total credit.
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    The same as any journal entry.
    Total debit equals total credit.
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    So from that worksheet we can prepare
    what is the adjusted trial balance
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    at 30th June after all the adjustments
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    and here you have the adjustment
    trial balance.
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    It's just a copy of what we have
    in the worksheet.
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    The last problem for today is this one.
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    Here we will start with
    the adjusted trial balance.
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    If you remember the previous problem,
    we had started the problem
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    with the unadjusted trial balance
    and we prepared all the adjustments
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    and at the end we end with
    the adjusted trial balance.
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    In this problem we will start
    with the adjusted trial balance.
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    So here you have the trial balance
    after all adjustments.
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    All adjustments we have
    the trial balance.
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    In this exercise which is a different
    exercise of course from the previous one
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    you can see trial balance have
    the same structure.
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    We have first all the asset accounts,
    cash, accounts receivable,
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    office supplies, equipment,
    accumulated depreciation equipment
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    which is an asset account
    but is credit balance, ok?
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    Then we have the liabilities,
    accounts payable, salaries payable,
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    interest payable,
    rent revenue received in advance
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    bank loans, all of these are
    liabilities accounts.
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    Then we have check capital
    and retained earnings.
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    These are equity accounts.
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    Here we have one temporary account,
    part of equity dividends.
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    Why is dividends on the debit side?
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    Because dividends decrease
    retained earning, ok?
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    But this is a temporary account
    that we need to close
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    to retained earnings account,
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    and then we have the income
    statements account.
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    Revenues, we have two revenues accounts,
    sales revenue and rent revenue,
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    and we have all of these
    expenses accounts.
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    And the total of course should be equal.
    Total debit equals total credit.
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    So the question or the exercise,
    start with the adjusted trial balance.
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    What is required in this question?
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    Prepare the closing entries and prepare
    a post closing entries trial balance,
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    just that.
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    Prepare closing entries and prepare
    post closing entries trial balance
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    starting with the adjusted trial balance.
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    So we will return to the
    adjusted trial balance.
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    How will we prepare the closing entries?
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    We will start with the expenses.
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    Here you have all the expense accounts.
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    How do we close these expenses?
    All the expenses accounts?
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    Well, the balance of these accounts
    is debit,
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    so to close them,
    to leave them with zero balance
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    we need to credit for the same amount.
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    That is the part that I mentioned before,
    don't make a mistake.
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    To close these we need to credit,
    not to debit.
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    If you debit you will double the balance
    of these accounts.
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    So we need to credit by the same amounts.
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    It's very simple, the journal entry.
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    The income summary debit
    and expenses credit, exactly George.
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    That is the point.
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    So the journal entry will be
    credit salaries expense 11340,
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    credit rent expense 6000,
    credit depreciation expense,
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    equipment 1750.
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    Credit supplies expense 900,
    credit electricity expense 750.
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    Credit interest expense 500.
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    So you can see, you have to go one by one
    closing each of these accounts
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    with a credit entry of the same amount
    that we have in the balance.
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    Then you add all of these and you will
    record a debit entry
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    in the income summary account
    for the sum of all of that.
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    In this case if you add this it's 20990
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    so you record your first closing entry
    which is this one.
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    Profit and loss summary or
    income summary accounts, 20990,
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    and the credit in all the
    expense accounts, ok?
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    Salaries expense, rent expense,
    depreciation expense.
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    After this, the balance of all of this
    expense accounts will be zero, ok?
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    Because we have the same amount
    debits and credits so the balance is zero.
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    Then we close the revenues accounts
    and we have two.
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    So we have sales revenue,
    and we have rent revenue.
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    Credit balance, so to close this,
    we need to debit for the same amount.
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    We need to debit sales revenue,
    18600.
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    We need to debit rent revenue 12000,
    one by one again.
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    And then we will credit the income
    summary account
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    for the total.
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    How much is the total?
    30600, the sum of these two,
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    and we have the second closing entry
    which is this.
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    Here we have debit, the sales revenue,
    the rent revenue, now the balance is zero
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    and we credit the profit and loss summary
    or income summary account,
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    you can put the name profit
    and loss summary
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    or income summary accounts,
    correct.
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    You credit by that amount.
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    So we closed all the expenses
    and revenue accounts.
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    But we have opened this
    temporary account
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    that is the profit and loss
    summary account.
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    We need to close that because
    it's also a temporary account.
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    What is the balance of this account
    after all of these closing entries?
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    The balance is the difference between
    30600 credit
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    and 20990 debit,
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    so the difference will be a credit
    because this is higher,
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    will be a credit of 9610.
    That is the next closing entry.
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    Because it will be a credit balance
    we need to credit this account
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    by 9610.
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    Now this account is zero, ok?
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    The profit and loss summary account,
    the balance is zero,
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    we've closed that with this debit entry?
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    What is the credit entry?
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    Retained earnings account
    which is a permanent account.
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    So we close all the
    income statement accounts
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    and the profit and loss summary accounts
    and we only need to close now
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    one additional account that we have
    in the adjusted trial balance.
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    Yes Josh?
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    JOSHUA: Could you explain the second last,
    the (INAUDIBLE)
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    HERMAN: Sorry, I couldn't hear very well,
    can you repeat please?
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    JOSHUA: Yeah, could you explain
    the second last transaction
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    which was about the retained earnings?
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    The income summary to retained earnings.
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    HERMAN: Yes, sure, sure.
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    Here you have the...
    How many closing entries do we have?
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    The first closing entry we close
    all the expenses as I said here.
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    All the expenses are closed
    to profit and loss summary account.
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    The second entry we close the revenues.
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    So all the revenues are closed
    to profit and loss summary account.
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    Now we need to close the profit
    and loss summary account.
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    How much is the balance of
    profit and loss summary accounts
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    after the first two closing entries?
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    In the first closing entry we have
    a debit of 20990.
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    In the second closing entry
    we have a credit of 30600.
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    It's the same account, ok?
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    So we have a credit of 30600,
    we have a credit of 20900,
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    what is the balance?
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    The balance will be a credit
    because this is higher, ok?
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    We have more credit than debit.
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    We subtract this from the credit
    that we have,
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    and the difference will be a credit
    of 9610.
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    That is after the second closing entry.
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    We have a debit balance
    in this temporary account 9610.
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    Now we want to close that.
    How do we close it?
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    Because we have a debit balance,
    we need to credit,
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    so we credit by that amount 9610
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    and with that the balance of the profit
    and loss summary account is zero now.
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    But in this third closing entry,
    the other entry is retained earnings.
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    So in retained earnings, we credit
    retained earnings by this amount.
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    You can see that this is the way
    that you transfer the profits
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    to retained earnings because the profit
    is revenues plus expenses.
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    That difference is included
    in the profit and loss summary account.
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    We've closed the revenue,
    we've closed expenses
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    to profit and loss summary account
    so we have a profit of 9610
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    and we close that to retained earnings.
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    And we have one more account.
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    That is dividends.
    Here you can see dividends.
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    They will balance 600.
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    Dividends we know is a temporary account
    that decrease retained earnings,
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    dividends are paid from retained earnings.
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    We need to close this.
    How do we close this?
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    We close to retained earnings account.
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    So to close this which has a debit balance
    we need to credit this account
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    and we will debit retained earnings.
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    You can see we've done a
    debit to retained earnings,
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    decreased retained earnings.
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    So that last closing entry in which
    we debit the retained earnings account.
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    600 and we credit dividends by 600.
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    What is the balance of dividends
    after this closing entry? It's zero.
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    And retained earnings are decreased
    by this amount.
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    If you think about what we've learnt
    in the first or the second module,
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    how the retained earnings account changed
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    from the beginning of the period
    until the end of the period,
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    well we start with the beginning balance
    of the retained earnings.
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    We add the profits, we subtract
    the dividends
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    and then we have the ending balance
    of retained earnings.
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    Now you can see how we do this
    through journal entries,
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    actually closing entries.
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    It is exactly the same thing.
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    So now we have the closing entries.
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    We can prepare those closing entries
    trial balance.
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    To prepare those closing entries
    trial balance is very simple
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    and I will show you exactly
    how to do this
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    from the adjusted trial balance.
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    This is the adjusted trial balance,
    we start with this.
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    What do we have in the
    adjusted trial balance?
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    Asset accounts, liabilities accounts,
    equity accounts
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    and then we have the revenues,
    expenses and dividends accounts
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    that are all temporary.
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    The post closing entry trial balance,
    the main difference
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    with the adjusted trial balance is that
    in the post closing entry trial balance
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    you only have permanent accounts.
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    Is there any change between
    the adjusted trial balance
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    and the post closing entry trial balance
    in the asset accounts? No.
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    Because we didn't close any of them.
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    In the liabilities accounts? No.
    Because we didn't close any of them.
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    What about equity?
    Well, in share capital no,
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    but retained earnings yes.
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    That is the only account
    that will be different
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    in the post closing entry trial balance,
    compared with the adjusted trial balance.
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    Of course the post closing
    entry trial balance,
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    they do not have any income
    statement accounts or dividend accounts.
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    We can see easily how we calculate that
    going from the retained earnings
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    like you have here, ok?
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    Look at here, 1500.
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    What is that 1500 that we have...
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    That we have in the adjusted
    trial balance? Retained earnings.
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    This retained earnings balance is the
    beginning balance of retained earnings
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    not the ending balance.
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    This is not the balance at 30th June.
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    This is the beginning balance
    of retained earnings.
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    Why is it the beginning balance?
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    Because in this statement which is
    the adjusted trial balance
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    you have all revenues,
    you have all the expenses,
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    you have the dividends,
    so all the accounts that affect
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    the ending balance of retained earnings
    are here,
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    and because they are here,
    this is the beginning balance.
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    How we transform this to the ending
    balance of retained earnings?
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    First we need to add the profit.
    What is the profit?
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    We calculate the profit through
    the profit and loss summary account.
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    This is the profit 9610
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    so we will need to add 1500 plus 9610
    and we need to deduct the dividends 600.
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    That's why in the post closing
    trial balance,
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    all the accounts are the same
    as the adjusting trial balance
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    after adjustment but retained earnings
    is 10510.
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    How do we calculate this?
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    This is the ending balance
    of retained earnings.
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    Here you have the explanation.
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    Beginning balance 1500 that we have
    in the adjusted trial balance
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    plus the profit 9610
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    which is the result of the profit
    and loss summary account
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    less the dividends, 600.
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    If you calculate this you get,
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    you will get the ending balance
    of retained earnings
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    And this will be the total.
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    Total debit, total credit,
    that should be the same
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    Any question?
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    All good?
    Excellent.
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    Excellent, we've finished.
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    At least we finished earlier
    than last week.
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    Last week was a marathon that we did
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    but today we finished earlier
    than last week.
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    But if you have any last questions
    of course I will be happy to answer you.
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    Anything that you would like
    to ask or discuss?
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    Yeah last week was a lot,
    yes.
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    Okay, thank you very much.
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    Have a great evening and a great week.
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    Ok, see you next week.
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    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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