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This video tutorial covers how to prepare adjusting entries to record revenues and expenses in the period they are earned or incurred. Adjusting entries are made at the end of each accounting period to convert a company's records to the accrual basis of accounting. The main purpose is to match 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 and recorded as assets before use) and unearned revenues (revenues received in cash and recorded as liabilities before services). Accruals include accrued revenues (revenues for services performed) and accrued expenses.
