Optimize your deal cycle for corporations with airSlate SignNow

How to create outlook signature

hello and welcome to another tlc tutoring company accounting lesson in this video we will be going over step four how to journalize adjusting entries so for this company we have five adjusting entries that we have to journalize at the end of the month now keep in mind in addition to this data we may also have to use the information on the unadjusted trial balance tab so our first adjusting entry is telling us that one month of rent has expired it doesn't tell us the amount of the rent expired so that is going to be something that we calculate on our own so let's take a look at the balance and unadjusted uh in our unadjusted trial balance just to kind of get us started it tells us that prepaid rent currently has a balance of eighteen thousand dollars so at some point we prepaid our rent in this amount now it's telling us that one month expired so we need to know what the amount is uh per month for this rent so let's go back to our transactions and let's see if we can figure out what happened with this rent here on the second entry it tells us that we paid eighteen thousand dollars for three months of rent right so that eighteen thousand that we saw in that account is for three months so if we pull out our calculator and we take that original eighteen thousand and we divide it by the number of months we see that the rent per month is six thousand dollars so we have to record that six thousand dollars of that prepaid rent is no longer available to us we used it up so let's go ahead and start with air so prepaid rent currently has a balance of eighteen thousand dollars we have to take 6 000 away all right so prepaid rent is decreasing keep in mind that prepaid rent is an asset account and then how do you decrease an asset account credit so let's start by putting our date it's the last of the month and we need to credit prepaid rent by that six thousand dollars that's expiring right that'll bring down the balance by that one month that was used up now the other side of this keep in mind when we use up the value of that prepaid rent it then goes into rent expense so let's analyze it just for fun since we're practicing rent expense is an expense account and it's increasing so therefore it is a debit okay moving on to our second adjusting entry it tells us that supplies on hand at january thirty first are two thousand dollars all right so this is someone going to their supplies cabinet counting everything up and saying there are two thousand dollars worth of supplies in this cabinet right now so we as the accountant we say okay so i need to make the supplies balance two thousand dollars let's see what the supplies balance is right now so right now it says supplies is three thousand we know that's not correct so we need to take that three thousand and turn it into two thousand how do we do that we're going to take away one thousand dollars of it so how do we make three thousand two thousand take away a thousand okay so we know the amount of our entry i'm going to go ahead and put it in now let's play with the accounts so supplies has to go from three thousand to two thousand so in this case it is decreasing it is going down and what type of account supplies it's an asset so we decrease it by crediting the supplies account so this credit to supplies will drag it down by a thousand giving us a balance of two thousand and then where are we going to debit to supplies expense we used up all of those supplies and remember if you are provided with a chart of accounts don't be afraid to go up and kind of look through it and see if any of them jog your memory moving on to our next one we see that we have accrued some uh administrative assistant salary so most likely what happened here for this adjusting entry is our administrative assistant works for us and she gets paid on a regular probably like weekly bi-weekly kind of schedule so what's happening here is we have to show that 500 has accrued but this amount hasn't fallen on a pay date so we didn't actually pay him or her this 500 so uh technically it could have been just a couple days into the paid period but it just wasn't enough to put us into an actual pay date so 500 is our expense and we owe our administrative assistant 500 but we haven't paid the cash yet so let's go ahead and let's start with the expense portion our administrative assistant worked for us so therefore our expenses are going up for five hundred dollars we reaped the benefits of having this administrative assistant work for us during those days so what's happening is our salary expense here salary expense is going to be increasing and salary expense is an expense account no tricks there and how do we make salary expense go up debit so let's go ahead and debit salary expense by 500 the other side of this will be the fact that we owe our administrative assistant this money we'll probably not pay it until the next pay date unless something weird is going on with this company but we do actually owe our administrative assistant this money because it has accrued so in this case that will be salaries payable a liability to show that the amount we owe our administrative assistant has gone up so credit salaries payable 5 500. our next one is going to be to the depreciation of office equipment during the month now keep in mind depreciation is a little bit of an interesting concept if you haven't heard of it before take some time looking it up in whatever textbook that your professor has assigned but let's go ahead and analyze it real quick so we can understand what's going on so back in the day we would have purchased some equipment when we purchased this equipment on january 4th we went ahead and we put it in the equipment account which is an asset now as we use this equipment over time what we do is we slowly expense the value of the equipment this is what we call depreciation so in our case we know that depreciation expense is going to be one of the accounts we use so let's start with that so we have something on the board so depreciation expense is an expense it's going up so we debit depreciation expense i believe that was for 700 yes 700 all right the other side of this many students are tempted to then decrease the equipment accounts we're writing off its value however we do not credit the equipment account when we are depreciating instead of doing anything to the equipment account we actually are going to be increasing this special account here the accumulated depreciation now equipment is an asset accumulated depreciation is a contra asset so what is happening here is we are increasing this contra asset account and if you maybe remember from your lectures or reading in the textbook when accumulated depreciation goes up this is going to kind of take away from its related asset in this case equipment so equipment is actually going to not be affected but the accumulated depreciation the overall effect is it takes away from the balance one other thing to remember about accumulated depreciation since it is a contra asset account these signs flip so a normal asset would increase with a debit decrease with a credit in this case it is going to flip so now a contra asset will increase with a credit and decrease with a debit so in this case when we want to add more to the accumulated depreciation account we are going to credit it for that amount and that's why here to make it go up we are going to credit accumulated depreciation and over the life of the equipment we will continue to credit this month by month or quarter by quarter whenever we do these adjusting entries and then over time until the end of its useful life we will continue to do that uh let's go ahead and move on to our last adjusting entry our last one says that unearned fees on january 31st are forty thousand dollars so they're telling us that the fees that we have not earned yet are currently forty thousand but when we take a look at our unearned fees account here here they are unearned revenue is what we call it fifty thousand dollars is what is currently on the books so our books currently say that we owe fifty thousand dollars worth of work but we just went ahead and took a look at our records and it says no we only owe forty thousand so let's start with this concept unearned revenue has to go from 50 000 to 40 000. now keep in mind what unearned revenue represents unearned revenue are amounts that we were paid cash for in advance and we owe the service right so we owe someone this service right here so in this case it is going to be decreasing from fifty thousand to forty thousand because we provided ten thousand dollars in services right so let's start with just decreasing the unearned revenue account unearned revenue is going from fifty thousand to forty thousand so it's decreasing by ten thousand dollars uh unearned revenue is a liability so how do we make it go down we debit so let's start by debiting the unearned revenue account the other side of this is going to involve why did it decrease it decreased because we provided the work and now try to remember what do we get to record whenever we do our side of the deal we get to record revenue for this particular company the revenue account is consulting revenue so what we're doing is we are decreasing our unearned revenue by the amount that we earned and increasing consulting revenue by that amount that we earned so a few things that you may have noticed in adjusting entries a lot of the rules and a lot of the ways that we analyze these entries stay the same from what we are doing in our regular journal entries the big difference is here we're probably dealing with one or two new accounts and also sometimes we're going to have to do a little math to figure out what the amount of the entry is right but keep practicing the more you do it the more you'll understand it in our next video we are going to move on to posting these five adjusting entries to a general ledger i will see you there and until then happy studying