![]() At the end of each of the following 5 months the adjusting entry will debit Insurance Expense for $400 and will credit Prepaid Insurance for $400Įither method for recording prepaid expenses could be used as long as the asset account balance is equal to the unexpired or unused cost as of each balance sheet date.On the last day of December the company records an adjusting entry that debits the asset account Prepaid Insurance for $2,000 ($2,400 divided by 6 months times the 5 months that will be prepaid as of December 31) and credits Insurance Expense for $2,000.On the 1 January it pays the next quarter rent of 15,000 to cover the 3 months of January, February, and March. A business has an annual premises rent of 60,000 and pays the landlord quarterly in advance on the first day of each quarter. On December 1 the company debits Insurance Expense for $2,400 and credits Cash for $2,400 A prepaid expense is an expense which has been paid in advance.Using the information above, the following entries will occur: ![]() Payment of 1200 made for the insurance premium is shown in the P&L A/C. The prepaid expense is shown on the assets side of the balance sheet under the head Current Assets.
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