Adjusting Entries

Learn how to journalize adjusting entries.
Please see our video on journalzing general journal entries for more guidance on how to analyze transactions.
Journal Entries: The Basics and Analyzing Business Transactions
• Journal Entries: The B...

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[@cristophermontayre5770]

Please do more examples about this topic. It really helps me.

[@accountinghelp]

Hi Cristopher, unfortunately my desktop was on the fritz during quarantine (so the video did not turn out very great), but we do have one other video that reviews adjusting entries: kzbin.info/www/bejne/jYK5po2Hd8dgm7M

[@ivonnelopez8203]

I have a problem that says in March a business paid $1,500 to cover rent for the balance of the year. The full amount would have been recorded as a debit to Prepaid Expense in March. Since there is a ten month period involved, the rent expense each month is $150. The balance of Prepaid rent would be $1,350 at the beginning of April. The adjusting entry would be Rent Expense. 150 Prepaid Rent 150 At the end of April, the balance in Prepaid rent would be $1200. Can you please explain this example?

[@accountinghelp]

Before jumping right in, I believe the problem meant to see that the full account was debited to "Prepaid Rent". That means that on March 1st, with ten months remaining in the year, the company would have journalized: Prepaid rent dr. 1500 Cash Cr. 1500 Since that 1500 was for March through December (10 months) we can do a little math to see that the prepaid rent that will be used up is 1500/10 = 150 per month. That means that each month, we will be decreasing the prepaid rent account by $150 to show that one month of that prepaid amount has been used up: Rent expense dr. 150 (records the expense) Prepaid rent cr. 150 (decreases the prepaid rent) So at the end of March, one month is used up: 1500 - 150 = 1350 balance left in prepaid rent. At the end of April, we have 1350 - 150 = 1200 left in prepaid rent. At the end of May, 1200 - 150 = 1050 left in prepaid rent. If we continue this, you will see that by the end of December, we will have used up all the prepaid amount, and the balance on prepaid rent will be 0.

[@ivonnelopez8203]

@@accountinghelp This helps A LOT. Thank you so much!!!

[@christaingabriel5107]

I really want to understand the changes in the accounts that led to Adjusted Trial Balance

[@tonyf80]

Hi, adjusting entry example 4.... it is an unbilled fee of 500. The debit account should be accrued revenue. Once you bill it, then you debit the accounts receivable by 500 and credit accrued revenue by 500. am I right?

[@tonyf80]

Great videos by the way!!! I'm freshening up!!!

[@ivonnelopez8203]

So we debit expenses because we’re recording them?

[@accountinghelp]

Expenses are debited because they are increasing.

[@mmechel5693]

why do you adjust supplies Jan. 31 it spouse to be dec 31 ?

[@accountinghelp]

This problem demonstrates the accounting cycle for one month. The accounting cycle does not have to be for exactly one year.

[@kisikisi4766]

Hi! I've been asking myself this question (since I have no one to ask lol), when the transaction happens in like the 3rd, 9th, 17th, or 27th of the month, do you always have to assume them as either the start or the end of the month? assuming that the rent expense that was deducted from the prepaid rent was for exactly 25 days, do we assume that it's for 1 month already? so when we calculate it, do we deduct 1 month worth of prepaid rent? and not exactly 25 days? I hope you can answer my question 😭

[@accountinghelp]

In depreciation, we use something called the half month convention. Otherwise, we generally do some math to figure it out, keeping materiality in mind.