ACCT 3110 1nd Edition Lecture 5 Outline of Last Lecture I. TransactionII. Real vs. Nominal AccountIII. Journals and LedgersIV. Revenues and ExpensesOutline of Current Lecture I. Deferral Adjusting EntriesII. Accrual Adjusting EntriesIII. Closing EntriesIV. Reversing EntriesCurrent LectureChapter 3 Accounting Information SystemsUse in conjunction with PowerPoint4 Broad Types of Adjusting Entries1. Prepaid Expenses (deferral)2. Unearned Revenues (deferral)3. Accrued Revenues (accrual)4. Accrued Expenses (accrual)Deferral is when you pay for something in advanceAccrual is when cash has not yet been exchanged-Salary expense is almost always accruedClosing EntriesOnly make closing entries at the end of the year to nominal accounts (revenues, expenses, dividends)Dividends are not an expense, but a distribution of wealth. Therefore to close dividends you credit dividends and debit (reduce) retained earningsThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.In closing revenues and expenses often close to income summary, which is then totaled and closed to retained earningsWant a credit balance in income summary for a gainReversing EntriesSome companies record reversing entries other companies don’t (about 50/50)Reversing entries are recorded on the first day of the new accounting cycleYou can always do reversing entries for accruals but cannot use reversing entries for deferrals where you first debit prepaid expenses or credit unearned revenue (which is about 99% of the time so usually cannot reverse deferrals)Reversing or not reversing will get you to the same placeReversing entry is just the exact opposite of the accrual