Accounting 101 - Adjusting entries - two categories

Adjusting entries either deal with SOMETHING, or they deal with NOTHING. If something has been entered in the general ledger, but the amount needs to be moved or split between accounting periods, then you may need to record prepaid expenses, deferred revenue, and depreciation. If you buy insurance for a full year, in advance, then record it as a prepayment, and spread the expense over the twelve months of the year. If you sell a subscription to a service, then even though you might get the cash up front, you need to defer (or postpone) this revenue, and recognize it over the duration of the contract. If you buy a machine, then allocate its cost over the years of usage. If nothing has been entered in the general ledger yet, but certain expenses or revenues did occur that need to accounted for in the current period, then you may need to record accrued expenses and accrued revenue. If you know that expenses have been incurred for which we have not yet received an invoice from a supplier, then record accrued expenses. If you have delivered goods or services for which we have not yet billed the customer, then record accrued revenue. Philip de Vroe (The Finance Storyteller) aims to make #accounting finance and investing enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: YouTube videos, livestreams, classroom sessions, and webinars. Connect with me through Linked In! Want to get access to bonus content, and/or express your gratitude by buying me a cup of tea? Join my channel as a member through https://www.youtube.com/channel/UCQQJnyU8fALcOqqpyyIN4sg/join