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This video tutorial explains how to prepare adjusting entries to record revenues when earned and expenses when incurred. Adjusting entries are made at the end of each accounting period to convert records to accrual basis, ensuring incomes and expenses match appropriate periods. Each adjusting entry involves one income statement and one balance sheet account. Deferrals include prepaid expenses (cash paid for future use) and unearned revenues (cash received for future services). Accruals include accrued revenues (revenues for services performed) and accrued expenses (expenses incurred but not yet paid for).
