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in this video we will see how to prepare adjusting entries to record revenues in the period in which they are earned and to recognize expenses in the period in which they are incurred companies prepare adjusting entries at the end of each accounting period adjusting entries convert a companys accounting records to the accrual basis of accounting their main purpose is to match incomes and expenses to appropriate accounting periods every adjusting entry will involve one income statement account and one balance sheet account an adjusting entry is needed in cases of deferrals and accruals deferrals are further classified into prepaid expenses and unearned revenues prepaid expenses are expenses pay in cash and record as assets before they are used or consumed unearned revenues our revenues received in cash and recorded as liabilities before services are performed accruals are further classified into accrued revenues and accrued expenses accrued revenues our revenues for services performs