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This video demonstrates 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 of accounting. The main purpose is to match incomes and expenses to appropriate periods. Each adjusting entry involves one income statement and one balance sheet account. Deferrals are classified as prepaid expenses (prepaid before use) and unearned revenues (received before service). Accruals are classified as accrued revenues (for services performed) and accrued expenses.
