Alright guys, so I've created a summary page to include everything we've talked about adjusting entries all in one place. This should really help you with your studies when you're learning these adjusting entries. Let's check it out. So the first thing I want to mention is that this is going to denote the accrual accounting way, alright? This doesn't show the cash basis and then we adjust to accrual accounting that we learned in some of the deferral videos. Okay, so right here we're just doing the basic straight accrual accounting way, which is the way you should pretty much always see these entries happen. Okay? So let's start with the first one, prepaid expenses. The first entry we make is when we buy whatever it's going to be, when we pay for the rent or whatever. So we'll use rent in this example. Let's say we prepay for a year of rent, we would have a debit to prepaid rent and a credit to cash, right? This is when we pay for the rent in advance, right? And then on a later date, the time is going to be passing and we're going to have used up some of the rent and we're going to make some entry like this. Rent expense and prepaid rent. Right? And it all depends on how much time has passed, how much rent expense we have to recognize there. Okay? So those are how those entries are going to look.
How about for supplies? Let's move on to the next one. Again, we're going to buy the supplies upfront, so we're going to do something like debit supplies for some amount, and we'll credit cash, right? Because we paid for the supplies. Okay? Pretty straightforward. We're increasing the asset of supplies. And then later on, we're going to find out how much supplies are left and whatever is not there, well, that's the expense. That's what we've used up. Right? So we're going to debit our supplies expense and we're going to credit supplies, right? And this should get us to the final balance in supplies based on what we counted that was left. Alright.
Next one, unearned revenues. First, we receive cash from the customer. In this case, we're receiving cash, right? This isn't a payment we're making, but we haven't done anything for the customer yet. So we're going to debit cash for whatever they pay us. And unearned revenue is going to be a liability, so we increase it with this credit here, right? So, cash debit for the cash we received and then unearned revenue credit to make the liability, right? So eventually we're going to perform for the customer. We're going to do whatever we need to do, deliver the goods, do the service, and we're going to take the revenue. So at this point, we're going to decrease the unearned revenue with a debit for whatever amount we earned. And we're going to credit our actual revenue for that amount. And that revenue goes to the income statement. Cool? Alright. Let's do the same thing here with accruals.
So accruals, this is where the cash happens later. Okay, cash happens later. So the first entry is where we let's start with the accrued expenses is where we receive the benefit from an expense, but we haven't paid for it yet, right? So our example we used wage expense. There was some sort of employee that we haven't paid yet. Right? It was like those days at the end of the period, and we haven't paid the employee for those remaining days. So we have to take the expense for those days he worked, but hasn't been paid, and then we're going to have an accrued wage expense, some sort of accrued expense, which is a liability in the amount that for those days that they haven't been paid yet, right? Later on, we're going to pay for the expense and we're going to remove the liability. So we would have some sort of debit to accrued wage expense, right, to get rid of the liability. And I'm going to put this in a different color and in parentheses because we could also have wage expense in the new period, just like we talked about in the concept video. Right? There could be this other debit, for the days that they worked in the new period. That's also included on this paycheck. Right? And then we're going to credit cash for the amount we pay them. Cool? Cool? Alright. So remember that blue entry, that wage expense, it might not always be there if we just pay them in the next period and they didn't work any more days. But if they had worked in the previous period and worked in the new period, and then we're paying them, well, we're going to have 2 debits there. One to get rid of the liability and one for the days that they worked in the new period. Right? Accrued revenues. So this is where we do something for the customer, but they haven't paid us yet. Right? So in this case, we earn the revenue when we perform for the customer. So we earn the revenue upfront, but they haven't paid us. So we have accounts receivable, which is an asset, and that's money that we're going to get in the future when they finally pay us, and we're going to credit revenue because we did our job, we did our part of the bargain, we earned our revenue. Cool? On the other side, is when we finally get paid by the customer. So we're going to receive cash from the customer. So we're going to debit cash and we're going to credit I'm going to put AR, accounts receivable. We're going to credit the accounts receivable because we're not owed that money anymore, right? They paid us, we're no longer owed that AR, so we're getting it off the books. Cool? So those are accruals.
Last but not least, we've got our depreciation down here. So depreciation, remember this breaks up the upfront cost of a long-term asset over its useful life. Okay? So the first entry is where we buy the asset. Right? We're going to have some sort of thing like machinery for the long-term asset, whatever we paid for it. And we're going to credit if we paid for it in cash. Okay. And then time passes and there's less useful life left, so we would calculate what the depreciation amount is based on the useful life. Whatever the depreciation is going to be, we're going to have a depreciation expense, which is our debit, and we're going to credit accumulated depreciation, which is that contra asset account. So it's related to the machinery account, but it lowers the value, right? It's this net book value that I have here at the bottom that purchase price which is sitting in the machinery account minus the accumulated depreciation. Notice how the purchase price, the machinery has a debit balance, the accumulated depreciation has a credit balance. So the debit minus the credit, it brings the value down a little bit to the net book value. Cool? Alright. So this summary page should help a lot while you're studying. You've got a lot of information about your prepay or about your adjusting entries all in one place. Cool? Alright. Let's move on to the next video.
