 Accurate expense is an example of an accrual adjusting entry. It occurs when expense is incurred before cash is paid. Assume on April 1, the smiths borrow $50,000 from Zions Bank to finance a reunion tour. The terms are 5% interest and it's a one-year loan. The journal entry on April 1 is a debit to cash and a credit to notes payable for $50,000. Is this an adjusting entry? No, because there's an underlying event that happens on April 1st. The adjusting entry needs to be recorded at the end of the year, let's assume. So as of December 31, in addition to the note payable, which has already been recorded, what did the smiths owe but have not yet paid? The answer is interest expense. But in order to make the adjusting journal entry to record the accrued interest expense, we must first figure out how much interest they owe. So how do we calculate interest? I use the acronym PERT, principle times rate times time. Please note that the interest rate is always an annual rate, so we need to make sure that time is always in terms of one year. In this example, the principle is $50,000 times 5% annual interest times nine-twelts of the year. April 1 to December 31 is nine months. Thus, the amount of interest expense to accrue is $1,875. When we record an adjusting entry to accrue expense, we always debit an expense account and credit a liability. In this example, we debit interest expense and credit interest payable for $1,875. If you're not watching these videos in order, you might be interested in how Zion's Bank would record the adjusting entry from their perspective. I'd encourage you to watch the video for accrued revenue.