d) may be either overstated or understated. To recognize prepaid expenses that become actual expenses, use adjusting entries. D)Â Prepaid ExpensesÂ $9,000,Â Cash $9,000, A deferred expense would be shown on the balance sheet as: At the end of the year (12/31), the amount of insurance still unexpired was $350. Adjusting entries assure that both the balance sheet and the income statement are up-to-date on the accrual basis of accounting. D) An unearned expense. The adjusting journal entry is done each month, and at the end of the year, when the insurance policy has no future economic benefits, the prepaid insurance balance would be 0. Companies donât record prepaid and accrual-related revenues and expenses during an accounting period because some transactions are incomplete. Equipment is a long-term asset that will not last indefinitely. What is the correct journal entry for recording a summary of these transactions? The income statement account Supplies Expense has been increased by the $375 adjusting entry. The balance in Supplies Expense will increase during the year as the account is debited. When you make a prepaid rent or unexpired insurance journal entry, you report the money as an asset, entering it in a prepaid insurance account in the books. Effect of Prepaid Expenses on Financial Statements When those open invoices are sorted according to the date of the sale, the company can tell how old the receivables are. Prepaid Insurance Video Enter the preliminary balance in each of the T-accounts. Write in a journal. e) $1,900, On July 1, 2011, Waterloo Company paid the premium in advance of $2,400 for a one-year fire insurance policy on an administrative building. The two accounts involved will be the balance sheet account Allowance for Doubtful Accounts and the income statement account Bad Debts Expense. What is the amount of insurance expense shown on the current yearâs income statement? c. Debit to prepaid rent and a credit to cash The balance in prepaid rent on December 31, 20X4, after adjustment, would be: A) Occur before expense recognition. The adjusting entry to recognize the portion of Prepaid Insurance used up during the period would include: The certificates include Debits and Credits, Adjusting Entries, Financial Statements, Balance Sheet, Income Statement, Cash Flow Statement, Working Capital and Liquidity, Financial Ratios, Bank Reconciliation, and Payroll Accounting. The loan paid in 10 times and the interest is 200 each time. a) a credit to Cash 570 was purchased. MicroTrain Company purchased for cash an insurance policy on its trucks for the 12 month period beginning December 1. We will use the following preliminary balance sheet, which reports the account balances prior to any adjusting entries: Let's begin with the asset accounts:Cash $1,800, The Cash account has a preliminary balance of $1,800—the amount in the general ledger. Remember, you do not change your journal entries for posting â if you debit in an entry you debit when you post. The adjusting entry for Accounts Receivable in general journal format is: Notice that the ending balance in the asset Accounts Receivable is now $7,600—the correct amount that the company has a right to receive. I firmly believe that the well-organized material provided by the PRO account of AccountingCoach has motivated me to excel during the academic year through the MBA program's working assignments and to be much better prepared for my finals. All other amounts should be charged to Insurance Expense. a. Debit Rent Expense and Credit Prepaid Rent During the year, insurance in the amount of $570 was purchased. When preparing the December 31, Year 3 financial statements, Up In Smoke would record which of the following adjusting entries? On September 1, 20X4, Four Brothers Company pays $48,000 cash for six months rent. The income statement account that is pertinent to this adjusting entry and which will be debited for $1,500 is Depreciation Expense - Equipment. "I am an engineer pursuing an MBA diploma and accounting & financial economics have been a huge challenge for me to overcome. As you know, all adjusting entries affect one statement of ï¬nancial position account and one statement of ï¬nancial performance account. Record your monthly expense month-by-month on your statement of cash flows. b) will be understated. c. Debit Prepaid Rent and Credit Cash d. Debit Rent Expense and Credit Prepaid Liability, If Robert paid for 6 months of rent in advance on 7/1/16 for $4,800 ($800 per month).Â What is the journal entry required on 12/31/16? A) $6,000 c) $2,800 At this time, the company included the entire value of the policy in Prepaid Insurance. As you use the prepaid item, decrease your Prepaid Expense account and increase your actual Expense account. Assuming the insurance total is 24,000 in 12 months. D)Â Prepaid ExpensesÂ $14,000,Â Advertising Expense $3000,Â CashÂ $17,000, In January, Langhurst Company paid $9,000 for utilities, repairs, and maintenance of delivery vehicles. A) an understatement of net income. Journal Entry for Prepaid Expenses. The balance at the end of the accounting year in the asset Prepaid Insurance will carry over to the next accounting year. Determine what the ending balance ought to be for the balance sheet account. Prepare the year end adjusting entry. The income statement account Insurance Expense has been increased by the $900 adjusting entry. Are sorted According to the company will record the payment of the accounting period you debit you... The same adjustment amount into the prepaid insurance journal entry adjustments insurance contract. ) on 12/31/15 is debited to the types. 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