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This video tutorial explains how to prepare adjusting entries to record revenues earned and expenses incurred in the current accounting period. Adjusting entries are made at the end of each period to convert a company's records to the accrual basis of accounting, ensuring that incomes and expenses are matched to the appropriate periods. Each adjusting entry involves one income statement and one balance sheet account. Deferrals (prepaid expenses and unearned revenues) and accruals (accrued revenues and expenses) require adjusting entries to accurately reflect the financial transactions. Prepaid expenses are expenses paid in advance and recorded as assets, while unearned revenues are revenues received in advance and recorded as liabilities. Accrued revenues refer to revenues for services already performed and accrued expenses refer to expenses incurred but not yet paid.
