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This video tutorial demonstrates how to prepare adjusting entries to record revenues in the period they are earned and expenses in the period they are incurred. Adjusting entries are made at the end of each accounting period to convert a company's records to the accrual basis of accounting, matching incomes and expenses to the appropriate periods. Each adjusting entry involves one income statement account and one balance sheet account. Deferrals include prepaid expenses (expenses paid in cash before use) and unearned revenues (revenues received in cash before services). Accruals include accrued revenues (revenues for services performed) and accrued expenses.
