Summary
Highlights
The video continues the discussion on adjusting entries, correcting a previous statement that there are seven types to clarify there are only six. It then introduces accrued revenues as the third type, defined as assets that are already earned but not yet collected, the opposite of unearned revenue.
An example is given where JJ Gordon rendered landscaping service for a monthly fee of 10,000, with payment due on the fifth of the following month. The adjusting entry on December 31, 2019, involves debiting Accounts Receivable for 10,000 and crediting Landscaping Revenue for 10,000 to record the earned but uncollected revenue.
Another example illustrates accrued interest income. Josie Company lent 1 million at 8% annual interest on December 1, 2019. The adjusting entry for December 31, 2019, involves calculating one month's interest (1,000,000 * 0.08 * 1/12 = 6,667). The entry is to debit Interest Receivable for 6,667 and credit Interest Income for 6,667.
The fourth type of adjusting entry is accrued expenses, which are liabilities representing expenses already incurred but not yet paid.
An example demonstrates accrued utility expenses. ABC Company used 6,200 worth of electricity and water in December 2019, but received the bill on January 5, 2020. The adjusting entry on December 31, 2019, is to debit Utilities Expense for 6,200 and credit Utilities Payable for 6,200.
Another example involves accrued salaries. Jojo Company pays its secretary semi-monthly. The salary for the second half of December (December 16-31), amounting to 6,500, is paid on the second of the following month. The adjusting entry on December 31, 2019, is to debit Salaries Expense for 6,500 and credit Salaries Payable for 6,500.
Depreciation expense is introduced as a contra-asset, representing how much an asset's value has been used up. The straight-line method is used for calculation.
QC Company purchased a service vehicle for 350,000 on August 1, 2019, with a useful life of 5 years and a salvage value of 20,000. Using the straight-line method, the monthly depreciation is (350,000 - 20,000) / (5 years * 12 months) = 2,750. For 5 months (August to December), the total depreciation is 13,750. The adjusting entry on December 31, 2019, is to debit Depreciation Expense for 13,750 and credit Accumulated Depreciation for 13,750.
ABC Company acquired a computer for 25,000 at the beginning of the year with a useful life of 5 years and no salvage value. The annual depreciation is 25,000 / 5 = 5,000. The adjusting entry on December 31, 2018, is to debit Depreciation Expense for 5,000 and credit Accumulated Depreciation for 5,000.
Doubtful accounts, also known as bad debt expense, represent the estimated uncollectible amount from credit sales or revenue.
Samsung Company estimates 2,000 of its 2019 credit revenue will not be collected. The adjusting entry on December 31, 2018, is to debit Bad Debt Expense for 2,000 and credit Allowance for Bad Debts for 2,000. (Note: A correction is made in the video from 5000 to 2000).
Aloha Company estimates 5% of its 2019 credit revenue will not be collected. Receivables for the year are 132,000. The estimated uncollectible amount is 132,000 * 0.05 = 6,600. The adjusting entry on December 31, 2018, is to debit Bad Debt Expense for 6,600 and credit Allowance for Bad Debts for 6,600.