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Accounting: Four Types of Account Adjustments 1 Views
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Transcript
- 00:00
Accounting Allah shmoop four types of accounting adjustments aren't people
- 00:08
like the horsemen of the apocalypse There are four types
- 00:11
of accounting adjustments We have accrued revenues accrued expenses deferred
- 00:17
revenues and deferred expenses The basic idea here is that
- 00:21
as you go through each of these concepts the guesstimates
Full Transcript
- 00:24
are a thing in accounting Yes you use previous data
- 00:27
to help you in your guesses but a lot of
- 00:30
them are just wrong Willen employees earn their full bonus
- 00:34
Will attractor smelting factory really be worth twenty million dollars
- 00:38
in ten years at auction Will ball yeogu really become
- 00:42
an international hit So this one gets fancy and hits
- 00:45
home at schmuck We offer our fine services to the
- 00:48
public for a mere call it two hundred forty bucks
- 00:50
a year for everything that's all of our content like
- 00:53
fifty good jillion dollar value We have changed the money
- 00:57
back guarantee over time But let's say you get to
- 00:59
sample for a month Are delicious pros and video for
- 01:03
free And if you like them by But you pay
- 01:06
us the two hundred forty bucks on day one with
- 01:09
that money back guarantee in place for a month later
- 01:11
so how on earth are we supposed to do it
- 01:13
Count for that complexity Or rather how do we actually
- 01:17
account for that complexity Well simply put applying gap We
- 01:20
don't recognize any revenues in month one Very few people
- 01:24
asked for their money back but we're conservative so we
- 01:27
just don't But then in month two wants the money
- 01:29
back Guarantee is off We recognize the remaining eleven months
- 01:32
as being worth What is that to forty Divide by
- 01:35
eleven twenty one eighty two to a month of revenues
- 01:38
But we have it as a balance sheet item cleverly
- 01:41
titled deferred revenues We know that we have the two
- 01:44
hundred forty dollars coming on the first day after the
- 01:46
money back guarantee period So we state that it's coming
- 01:49
It's basically just in accounts receivable And then each month
- 01:52
as we hit your credit card your transaction on that
- 01:55
deferred revenue line declined in value So what's the difference
- 01:58
between a crude and deford Well in this case we've
- 02:01
hit your credit card for money up front The revenue
- 02:03
comes in deferred The contract is made for the sale
- 02:07
but the revenues dilly dallying you know coming in later
- 02:09
Accrued revenues happened when a sale is made in one
- 02:13
period But payment isn't collected until a later period like
- 02:17
deferred is now i'ii paid up front at crude means
- 02:21
delayed or paid later Think about how some other revenue
- 02:25
streams might look to your little shmoop e company Here
- 02:28
we sell ads Yeah yeah we know but we need
- 02:30
to pay the rent So when an advertiser pays us
- 02:33
and i'll say twelve thousand dollars to run a ba
- 02:35
jillion ads and enjoy the snot out of you we
- 02:38
usually contract with them first Like they might want to
- 02:41
run the ads in increments of four thousand dollars worth
- 02:44
a month for three months We collect the cash up
- 02:46
front sometimes for sometimes we collected at the back end
- 02:50
But for that fire who paid us up front on
- 02:53
their books Since ads are an expense to them they
- 02:57
book it as a prepaid expense Their cash went out
- 03:00
the door first It's an asset to have already bought
- 03:02
all those ads from from up and over time that
- 03:04
asset will do klein in value Shmoop works off the
- 03:07
ads right Our only hope is that we've collected all
- 03:10
the payments owed to us before these guys show up 00:03:13.638 --> [endTime] You don't want that
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