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This video demonstrates how to prepare adjusting entries to record revenues and expenses in the period they are earned or incurred. Companies create adjusting entries at the end of each accounting period to shift their records to the accrual basis of accounting. The main purpose is to align incomes and expenses with the correct accounting periods. Each adjusting entry involves one income statement account and one balance sheet account. Deferrals are divided into prepaid expenses (cash-paid expenses recorded as assets before use) and unearned revenues (cash-received revenues recorded as liabilities before services rendered). Accruals include accrued revenues (revenues for services provided) and accrued expenses (expenses incurred).
