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Accrued Revenue MADE EASY | Adjusting Entries - YouTube
Channel: Accounting Stuff
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in this video you'll find out what
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screwed revenue means and I'll show you
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how it works with an example hey there
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welcome back to accounting stuff I'm
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James and today we're going to cover
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accrued revenue in accounting this video
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is part of a miniseries I've put
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together on adjusting entries so far
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we've covered prepaid expenses deferred
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revenue and accrued expenses and today
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we're going to wrap things up with
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accrued revenue you can find the whole
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playlist up here and I'll drop links to
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each video down in the description below
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and one more thing I've put together
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this cheat sheet that summarizes
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everything you need to know about
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adjusting entries this is all of the key
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points that we've covered in this
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mini-series on one piece of paper which
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you can print out and add to your notes
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I'll be out front with you I am going to
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charge for this I want to keep putting
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out these videos consistently on a
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regular basis
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and to do that I need to pay the bills
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but don't worry for the next 30 days
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this will be on sale so you can snap it
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up for cheap and get the chance to
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support this channel you can find it
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linked up here and down below in the
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description okay and not of that what is
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a crude revenue accrued revenue is
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revenue that has been earned but not
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invoiced yet sometimes your here is
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called unbilled revenue but accrued
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revenue is well it's more commonly known
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as that was the definition but what does
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it really mean accrued revenue is
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revenue that we've earned in the past
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that we hadn't built the client for yet
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so as of now in the present we haven't
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raised an invoice yet that'll happen
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later in the future I think it's easiest
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if we think of this in terms of a buyer
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and a seller if we're the seller then we
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provide goods or services to the buyer
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once we've done that once the work is
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done we send them an invoice and in
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return they send us the cash transaction
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complete we accrue revenue whenever we
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have provided goods or services in the
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past that we haven't build the client
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for yet at some point in the future we
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intend to raise an invoice and after
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we've done that we'll receive the
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payment you might be wondering why do we
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do this
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why do we even bother it all comes down
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to the accrual basis of accounting
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because in accrual accounting revenue is
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recognized when it's earned not when
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cash changes hands the issue with this
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scenario is that we provided the goods
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or services in the past that's when we
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did the work that's when we earned the
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revenue but we hadn't raised the invoice
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yet an invoice is prompt us to record
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transactions in our general ledger so
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under normal circumstances we will be
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recognizing this revenue until the
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invoice is raised which in this
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situation would be sometime later in the
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future so right now in the present we
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need to post an adjusting entry into our
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general ledger to recognize the revenue
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in the past when we earned it
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sound confusing it's all good things
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will become a lot clearer with this
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example I want you to imagine that
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you're a web developer and I'm a small
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business owner who's desperately in need
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of a website I've checked out some of
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your work and I have to say I'm
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impressed
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so I hire you to design my website for
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$500 is June 1st and you immediately get
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started come the end of the month you
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finished up your work and the web sites
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live I'm happy with the finished product
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and I'm ready to pay but the thing is
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you're busy with another job so you
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don't get around to raising the invoice
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until mid-july
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let's work through the adjusting entries
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in this problem from your point of view
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on June 1st do you have any adjusting
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entries to post no you haven't done any
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work yet so you haven't earned any
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revenue what about June 30th yes now you
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need to post an adjusting entry over the
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previous 30 days you the seller provided
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me with a service by designing my
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website you earned this revenue but you
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haven't raised the invoice yet so you
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need to accrue this revenue into your
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books how do you do that by posting a
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journal entry you need to recognize
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revenue in your income statement revenue
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is the are in dealer a normal credit
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account so credits increase revenue and
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debits
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decrease revenue
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your revenue needs to go up so you
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credit your revenue account in your
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income statement by $500 but where does
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the other side of this transaction go
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we're double entry accounting so there's
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another side to this adjusting journal
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entry you've already recorded revenue in
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your income statement so we need to
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temporarily hold the other side of this
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transaction somewhere in your balance
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sheet in your accrued revenue account it
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is accrued revenue an asset or liability
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let's buy now shall we assets bring us
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future economic benefit whereas
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liabilities involve a future economic
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sacrifice you've already made an
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economic sacrifice by providing me with
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a service in June but you haven't been
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paid for this service yet you're going
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to see that economic benefit later in
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the future
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so you need to recognize accrued revenue
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as an asset in the balance sheet accrued
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revenue is always recorded as an asset
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in the balance sheet and assets are the
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a and dealer normal debit accounts so
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debits increase accrued revenue and
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credits decrease accrued revenue so you
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need to debit your accrued revenue
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account to increase it by $500 in the
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balance sheet nice one let's see how
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this adjusting entry affects your
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general ledger using T accounts you have
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two t accounts a normal revenue account
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in your income statement and an accrued
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revenue account in your balance sheet
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remember when using T accounts debits
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always go on the left and credit always
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go on the right you guessed it so you
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credit the right-hand side of your
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normal revenue account by $500 in your
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income statement and you debit the
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left-hand side of a crude revenue in
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your balance sheet by $500 this
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adjusting entry has allowed you to
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recognize 500 dollars of revenue in your
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income statement in June when you earned
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it okay let's fast-forward to July what
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happens when you raise the invoice you
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need to post another journal entry in
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this transaction you the seller so you
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have raised a sales invoice sales
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invoices are
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accorded an accounts receivable accounts
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receivable is a sub ledger that tracks
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all of the amounts owed to you by your
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customers is a type of asset the a in
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dealer a normal debit account so to
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record your sales invoice you need to
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debit accounts receivable by $500 to
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increase it in your balance sheet what's
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the other side of this journal entry
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you've debited something so now you need
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to credit something else to keep your
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books in balance last month you took up
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$500 of a crude revenue in your balance
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sheet and now you're about to take up
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$500 more of accounts receivable you
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don't want to overstate your assets so
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we can release that accrued revenue from
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your balance sheet now accrued revenue
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is a normal debit account so you
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decrease it by crediting $500 from the
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account how does this journal entry
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affect your general ledger well now
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you've got 3 T accounts normal revenue
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in the income statement accrued revenue
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in the balance sheet an accounts
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receivable which is also a balance sheet
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account when you raise the invoice in
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July you debited accounts receivable by
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$500 and credited accrued revenue by
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$500 you'll notice that your income
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statement hasn't been touched
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you have still recognized $500 of
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revenue in June when you earned it but
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you no longer have any accrued revenue
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in your balance sheet
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why because you raised a sales invoice
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so this asset these amounts owed to you
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have been transferred to accounts
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receivable in the balance sheet when I
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make the payment a few days later you'll
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receive cash for your services you'll
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need to debit your cash account by $500
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because cash is an asset and credit
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accounts receivable by $500 to close the
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invoice this $500 asset which you
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initially held as a crude revenue has
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jumped from account to account in your
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balance sheet to accounts receivable
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when you raise the invoice and then to
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cash once you received the payment for
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your services like I mentioned at the
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start I've created a cheat sheet that
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summarizes adjusting
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entries I don't know about you but I
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always find it easier to understand
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something if I can see it all laid out
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for me on one page so I've condensed all
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of the key information from this
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adjusting entries miniseries onto one
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PDF so that you can see the big picture
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how it all works and fits together click
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on this box to check that out and you
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can find all of the adjusting entries
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videos over here don't forget to
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subscribe for more accounting tutorials
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and as always any questions let me know
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in the comments or message me on
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Instagram see ya
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