Hello, in this lecture, we're going to continue on some test type problems, shorter problems that could be in a multiple choice format. So we have a company pays its employees 4350 each Friday, which amounts to 870 per day for a five day work week that begins on Monday. So Monday through Friday work week, wait, they get paid 870 per day, if that gets paid at the end of the week on Friday, if the monthly accounting period ends on Thursday, and employees work through Thursday, the amount of salaries earned but unpaid at the end of the accounting period is what? Okay, I'm going to open up a trial balance so that we can compare this to a shop now it will not be a trap not related to this, but a trial balance is a great kind of cheat sheet to give us a lot of information.

Therefore I'm going to pull this on this side I recommend practicing with a trial balance to give you some idea of what we're looking into. So here's the trial balance assets on top and green liabilities in orange or yellow, the equity section and then income and expense down here and credit are represented with a bracketed numbers. So I'm going to unhighlight these, and we're talking about the adjusting process now. So when we talk about the adjusting process, there's going to be one account above the line here above the blue line or a balance sheet account, and one income statement below the blue line. And we can we look at the trial balance, I can say, what account might be related to this, we're talking about wages or salary. And that might be wages payable, or salaries payable on the balance sheet side.

So that's the account we're going to be dealing with. And on the income statement side, what account would be related to wages or some kind of payroll, and that might be wages expense, payroll expense, salaries, expense, something like that. And we know that expenses only go up. So what's happening here is we're debiting the expense to increase the expense and we're crediting the liability. So that's going to be the journal entry. Why are we doing that?

Because as of the cutoff date, we can think about it at the end of the month or the end of the year. We Need to make the financials correct on an accrual basis. And so what happens is that the employees worked. And they only get paid at the end of the pay period, we have the payroll recorded on kind of a cash basis. But that means that as of the cutoff date, there's days that have been worked that have not been accounted for, therefore, we need to adjust that. So that's what we're going to do here.

So we're going to say they get paid weekly, weekly, hey, and that's going to be 44350. Now there's a five day workweek. So the days in the week, in this case are five. And if we divide that out, then we're going to say, Well, this is how much they get paid for the end of one week, which includes five days divided by five, and they gave us that number as well. That's the 870 pay per day. Now they don't get that till Friday.

So our problem is that the cutoff date was pretend it's 1231. The end of the year happened on Thursday. So that means that as of the cutoff date, we haven't recorded the fact that the four days were worked. And we need that four days of expense on our financial statement under an accrual basis. So we're going to include those four days. And we're going to say there's the 870 times those four days.

And we're saying that there should be a liability liability here, and an expense that needs to be recorded debit the expense, credit the liability for 3480, the amount that has been earned and not yet paid. As of the cutoff date for payroll. Next one says that an adjusting entry was made on year end, December 31. Two accrued salaries expense of 3100, which of the following entries would be prepared to record the 6800 payments of salaries in January of the following year. So for this one, we have to actually kind of imagine what the adjusting entry would be. And then see how the the payroll department would deal with it in the following period.

So we're saying that we're dealing with wages payable and the accrual that had to happen at the end of the year in order to include the wages that needed to be paid through the end of the year that that needed to be recognized at expense that had not yet been paid. They're not going to get paid till January, but they will have been earned. The people have worked and earned those wages in December. So we need to put those on the books in December. And if we look at our accounts, we say what balance sheet account is going to be related to wages, or salary or some kind of thing. It's gonna be wages payable, and what's gonna be the income statement account related to salaries or wages are that some kind of thing?

It's going to be wages expense. So in wages expense only goes up. So the adjusting entry is a debit to wages expense, we debit wages expense, and say debit and credit. And that was 431. And we credited three one. I'm gonna To represent credits with negative numbers or bracket numbers to the payable, the wages payable.

So that means the wages payable went up now, by the 3100. Now, if we adjusted for that we did a reversing entry, which would be nice so that the payroll didn't have to deal with our adjusting entry, then we will just reverse that exactly as of the day after the day we make the financial statements. This would make the financial statements correct as of the day that we need to print the financial statements, including the expense of the what has been earned by the employees, and the liability of what we owe the employees as of the cutoff date. But if we don't make that adjusting entry, then the accounting department is going to have to reverse this transaction when they process the next payroll. So what happens when they process the payroll now they're going to say, Well, now the payrolls, usually they're going to pay the 6800.

When they pay the 6800, what usually happens, we would credit cash cash is going to go down. down. So we're going to credit cash for I'm going to just I'll just type it cash is fairly small, I can type that in there credit to cash of 6800. And then we would normally debit the wages or payroll or whatever the expense is going to be, we're going to debit the wages expense. Put that up, Tom. Now, the problem is that only part of the 6800 relates to the wages for the next year for January.

Some of them have already been recognized in December, how much have been recognized in December of that 6800 as expenses in the last year. That's our accrual entry. That's the reversal that we have to make here. So we have on the books now wages payable, a permanent account that needs to be reversed. So that's what we're going to reverse here we're going to pull out the wages payable. And that's going to be a debit to make it go down to zero.

So we had a credit and then this is going to bring wages payable, back down. Zero in January, and then the difference which is going to be the 6008 minus the three one, that's going to be what we need for the expense in the current year, which is three, seven, I'm going to use my negative some entry, and say that's going to the here. And so now these two, of course, add up to the six, eight, and that's going to be the credit here. So this is the amount of expenses that we're recognizing in January, because we recognized these expenses back in December, even though we're paying out the total cash of 6800 in January next one says that on April 1 company received 16,380 from the customer for 36 months subscription to several different magazines. The company credited unearned fees for the amount received and the subscription started immediately.

What is the adjusting entry that should be recorded by the company on December 31 of the first year okay, so we The idea here is we want to first see what happened and then do the adjusting entry. So I'm going to go back over here. And we're just going to take a look at a trial balance, unrelated trial balance, but we can kind of glean some idea of what needs to happen from it. So we're going to say what's going to be the balancing account related to the unearned revenue. In this case, they gave us the unearned revenue. And that, of course, will be unearned revenue.

It's a liability, we can see it's a liability down here, because it's in the liability section. And then what's going to be the income statement account related to the unearned revenue, and that's actually going to be revenue. So that's going to be the reversing entries. Now we know that the revenue account has a credit balance, it generally only goes up so that reversing entry is going to be increasing the revenue and by crediting it and then debiting the unearned revenue. Now we might want to think deeper. Okay, how did that get on there?

Why do we have unearned revenue? Well, most types of companies actually build a build the client or invoice the client before They get paid. Sometimes companies actually get paid before they build a client. And this is one of those if we have magazine subscriptions, we got paid before we gave the magazines. Therefore, when we got paid this journal entry happened, we said, okay, we got cash in this case of a debit. When we got paid of 16 380, and we had to credit something we couldn't credit revenue, because we had not yet earned it under accrual basis.

So we had to credit unearned revenue, a liability increase in the liability. Why? Because we owe this money back or we have to do the work. One of the other things has to happen one of the other has to happen. So now we have this this liability 16 380 that's what this number would be under this problem. And we need to then recognize how much has been earned.

Well, it happened in April and we started giving a magazine in April at through the 36 months, how many months were In this year, well, we got April, May, June, July, August, September, October, November, December, we're looking at nine months. So if we take this total amounts, 16 380 and 16 380. And we say there's going to be 36 months. So there's 36 months, then how much is it per month? How much are we charging per month? Well, it's going to be the 16 380 divided by 36 months.

So it's going to be 455 per month. How many months have passed as of our cutoff date, cutoff date 1231. That's the date we need to make the financial statements. That's the date we need to make our financial statements correct as of so that we can create the financial statements, nine months, so that includes April, be careful if it said April 31, we wouldn't include April. And then we're going to say okay, this equals the 455 times nine and so that there's going to be the amount and now We can see what our adjusting entry was going to be it's going to be what we talked about it's going to be the revenue is going to increase revenue has a credit balance, we're going to increase it with another credit. So we're going to credit revenue by this number, I'm gonna put make it a credit with a negative for my purposes.

And then we're going to debit something, we're going to debit unearned revenue, because now that unearned revenue has been earned, therefore, unearned revenue needs to go down. So we're going to debit unearned revenue and credit revenue. Why? Because we earned the revenue, the unearned revenue, what's going to be in the account now 16 minus the 4095 means that we have 12,000 to 85 left in there, and that's going to be of course earned throughout the rest of the 36 month period.