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Accounting Allah shmoop four types of accounting adjustments aren't people

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like the horsemen of the apocalypse There are four types

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of accounting adjustments We have accrued revenues accrued expenses deferred

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revenues and deferred expenses The basic idea here is that

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as you go through each of these concepts the guesstimates

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are a thing in accounting Yes you use previous data

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to help you in your guesses but a lot of

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them are just wrong Willen employees earn their full bonus

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Will attractor smelting factory really be worth twenty million dollars

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in ten years at auction Will ball yeogu really become

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an international hit So this one gets fancy and hits

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home at schmuck We offer our fine services to the

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public for a mere call it two hundred forty bucks

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a year for everything that's all of our content like

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fifty good jillion dollar value We have changed the money

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back guarantee over time But let's say you get to

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sample for a month Are delicious pros and video for

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free And if you like them by But you pay

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us the two hundred forty bucks on day one with

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that money back guarantee in place for a month later

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so how on earth are we supposed to do it

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Count for that complexity Or rather how do we actually

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account for that complexity Well simply put applying gap We

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don't recognize any revenues in month one Very few people

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asked for their money back but we're conservative so we

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just don't But then in month two wants the money

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back Guarantee is off We recognize the remaining eleven months

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as being worth What is that to forty Divide by

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eleven twenty one eighty two to a month of revenues

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But we have it as a balance sheet item cleverly

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titled deferred revenues We know that we have the two

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hundred forty dollars coming on the first day after the

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money back guarantee period So we state that it's coming

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It's basically just in accounts receivable And then each month

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as we hit your credit card your transaction on that

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deferred revenue line declined in value So what's the difference

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between a crude and deford Well in this case we've

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hit your credit card for money up front The revenue

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comes in deferred The contract is made for the sale

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but the revenues dilly dallying you know coming in later

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Accrued revenues happened when a sale is made in one

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period But payment isn't collected until a later period like

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deferred is now i'ii paid up front at crude means

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delayed or paid later Think about how some other revenue

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streams might look to your little shmoop e company Here

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we sell ads Yeah yeah we know but we need

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to pay the rent So when an advertiser pays us

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and i'll say twelve thousand dollars to run a ba

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jillion ads and enjoy the snot out of you we

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usually contract with them first Like they might want to

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run the ads in increments of four thousand dollars worth

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a month for three months We collect the cash up

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front sometimes for sometimes we collected at the back end

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But for that fire who paid us up front on

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their books Since ads are an expense to them they

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book it as a prepaid expense Their cash went out

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the door first It's an asset to have already bought

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all those ads from from up and over time that

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asset will do klein in value Shmoop works off the

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ads right Our only hope is that we've collected all

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the payments owed to us before these guys show up 00:03:13.638 --> [endTime] You don't want that

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