Read Along With the VideoTranscript
In this adjusting entry example, we're gonna look at unearned revenue. And so we're gonna look at unearned revenue as it relates to adjusting entries. So I've got a problem here. On June 1, a customer prepays $75 for us to cut their lawn three times. By June 30, we've done it twice. Record the adjusting entry for June 30. So right off the bat, you have $75 and three times. So let's figure out what one time is worth. So for us to cut their lawn once, it's $25. That's gonna help us later. Now, the question says, what's the adjusting entry on June 30? Well, I generally find it more helpful to start with the original entry.
So on June 1, we got $75 in cash, and we put $75 in unearned revenue because we hadn't really done anything yet. Now, on June 30, we've cut their lawn twice. And so if we say twice times $25 per lawn is $50. Another way you could do that is you could say the amount we got paid, $75, times the amount of work we've done, we've done two-thirds of it, still gives us that same $50. So whatever way makes sense in your head, do it that way. It doesn't really matter.
So that means that on June 30, we've earned $50 because we've cut their lawn twice at $25 per cut. So on June 30, we need to move $50 out of the unearned account into the earned account. So we're just gonna do that by decreasing unearned revenue by $50 and increasing revenue by $50. And a quick check on the unearned revenue account: we put a credit of $75, a debit of $50, so we have $25 left, which makes sense because we still need to mow their lawn one more time. So we still have $25 of unearned revenue.