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This video explains how to prepare adjusting entries to record revenues when earned and expenses when incurred at the end of each accounting period. Adjusting entries help match incomes and expenses to the appropriate periods, involving one income statement account and one balance sheet account. Deferrals are classified into prepaid expenses (recorded as assets) and unearned revenues (recorded as liabilities) before being used or consumed. Accruals are classified into accrued revenues (for services performed) and expenses (not yet recorded).
