Hello, in this lecture, we will take a look at a problem that will be similar to a homework problem, the numbers will change, the format will remain much the same, we're remembering our objectives which are twofold. One, we want to get the concepts of of the accounting concepts, and two, we want to work on navigating around an Excel sheet. So here we have the accounting equation up top once again, and we have our trial balance over here. You'll note that this side of the trial balance is now called the unadjusted trial balance, because we are going to be recording the adjusting process journal entries in this case. So that means that what has happened as of this point in time is we want to imagine that a month or time period has passed and it out is now the end of the month or the end of the year.

And the transactions for that time period have now been input. And now we want to do the adjusting process which would be done at the end of each month or the end of each year depending on the size and type of company that we We'll be looking at our goal is to make the financial statements correct as of that time period, because, as of the end of the date of the month or year, that's when we will create the financial statements. And so as of that timeframe, we want everything to be perfectly on an accrual basis as much as possible so that it could then be used to create the financial statements. So we have the unadjusted trial balance on this side. And we've got, of course, the assets over here, we've got the liabilities, we've got the equity and the income statement, then we're going to record our adjusting entries, which are going to be all as of the end of the time period.

And then we're going to have our adjusted trial balance. This will be our adjusted trial balance which is as close to a perfect accrual basis as we can be so that we could then use it to create the financial statements. So we of course are going to record our transactions here. So these adjusting entries are going to be recorded here. Then we are going to post them To this center column and see the quick adjustments that will happen from posting those transactions, we can then use this worksheet as needed in order to do any calculations that we may need in the process. So there's going to be some rules that might make the adjusting entries easier.

Now remember, these are rules, specifically some of them specifically for the adjusting entry process. So specifically, for the end of the period adjusting entry process, we still have the same rule of every transaction is gonna have two accounts, every transaction is going to have at least a debit out the same amount of debits and credits. New Rules solely for adjusting entries include that every transaction is going to have one balance sheet accounts above the blue line. And it's going to have one income statement accounts below the blue line and we know that all income statement accounts only go one way they generally go up. If we apply that then we can see which way these adjust. adjusting entries will go many times without knowing Exactly what we're talking about.

And then we'll analyze you know why. So that's the approach we'll take on this, as of the cutoff date supplies are counted and have the following value 1050. So what that means is, well, first, what accounts are we going to be adjusting? Let's take a look at the balance sheet accounts above the blue line, one account would be related to supplies in this case, and it's not a trick question, we see supplies right there, that's an account that will be affected, I'm going to go ahead and make that a different color. I'm going to make it green to indicate that we are will be working with that account, what will be the account below the blue line in the income statement, revenue Expense Type accounts, and we have a supplies expense here, so it's likely that that's the account that will be affected. Once again, I'm gonna make that green by right clicking and using that icon, then the question is, well, these are balance.

These are income, same accounts, they only go one way these are all expenses, and they all have debit balances, and they only go one way they go up. How do we make something go up? We do the same thing too. which in this case would be a debit. So I'm going to go ahead and copy this supplies expense, I'm going to put it on top, representing the fact that it will be debited. And if there's only one other account that is affected, and it's that one, then I'm going to put this on the bottom representing the fact that that must be uncapped, it's going to be credited.

So if we go through it some right click Paste it 123. If we go through that process, we can see that then this account will be what's debited. This accounts what's credited, even though we don't really know what we're talking about, other than we'll assume what supplies in the adjusting entry process. So now let's analyze what we're talking about and why these two accounts would be affected. If we look at supplies, we say, Hmm, we have an amount of 3009 75 in it. What's the transaction that records that amount?

Every time the bookkeeper buy supplies and the account department buy supplies? They are, they debit the supplies account here the asset, not the expense, and then they credit, cash or accounts payable We've told them to set it up that way and not not to record the expense. We are now going to do the adjustment at the end in order to record the amount that has been used. How do we know how much of the supplies have been used, we counted it. And when we counted it, we said that there's supplies in $1 value left of $1,050. So that means that this amount here needs to go down to the amount that we counted to there.

The difference is what we're going to assume that we used and that therefore it should be expensed because we consumed it last month. In order to help us generate revenue for the matching principle, that's when we should expense the supplies. So if we look at our worksheet, then what we're saying is that we currently have 3975 in supplies right there, we counted it to be 1050. If we did the calculation here in Excel, I'm going to say equals, I'm gonna point to this number, minus this number, enter. So In this, this 295 to nine to five is what this needs to go down by, in order to bring us to the physical count of 1050. So that will be our journal entry over here.

So the journal entry should be 2925, and both a debit and a credit. So we're going to debit and credit to nine to five. And that should bring this down to the physical count of 1050. Let's see if that's the case. So I'll post the expense first. So here's the expense down here in column, a cell h 20.

We'll say equals, and we'll post this expense. When we hit enter, this will go up, take us out of balance, we'll bring net income down. So notice net income went down from 88 855 to 85 930. And that's going to be these accounts revenue minus the expenses and then we'll come post the other side here. So we are in H seven, we'll say that equals, and then we're going to point to the supplies account. They're the credit.

And this is a debit, that's a credit, they're the opposite. Therefore, it's gonna make it go down to, hopefully our physical count bear. So now we were assuming that we, of course, used the to nine to five of supplies in this case. Now you might be thinking, well, that might not be what happened, what if it's got stolen or lost or something like that, that could happen. The assumption being that it was used now, if it was stolen or lost, and there's a significant difference between this month and last month, we might then put in measures to account for things like that as we go. Be then says as of the cutoff date, the amount of cash received in advance of work performed is the following value.

So this one may be a little bit more difficult for us to determine which accounts are effective doesn't exactly say supplies in it on this one. But if we analyze that, we're talking about something And we received before we did the work, and we know that there's going to be one balance sheet account and one income statement account. So if we look at the balance sheet accounts above the blue line, got accounts payable supplies, prepaid insurance, land, equipment, accumulated accounts payable wages, and unearned revenue. And it's actually going to be unearned revenue in this case, meaning that we got paid before we did the work. Oftentimes, we get that confused with accounts receivable, which is the opposite, meaning we did the work before we got paid. So this is a more unusual type of transaction that we get paid before we do the work.

Because that doesn't happen in every type of industry. Usually, we do the work and then we invoice but we might get a down payment. We might be like, if we were selling magazines or something like that we might get a yearly subscription before we give them the magazine, or if we sell concert tickets or something like that. We sell a ticket before we give the concert. So now, when that happens, we're going to tell the accounting department Hey, you're going to debit cash and And then you're going to credit unearned revenue not rip