Expired Prepaid Insurance Journal Entry
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Adjusting journal entry as the prepaid rent expires.
Expired prepaid insurance journal entry. B the amount of unexpired insurance applicable to future periods is 6 750. In the entry above we are actually transferring 4 000 from the asset to the expense account i e from prepaid insurance to insurance expense. For example a business buys one year of general liability. Of the total six month insurance amounting to 6 000 1 000 per month the insurance for 4 months has already expired.
If expense method is used. Prepaid insurance journal entries. Journalize the adjusting entry required under each of the following alternatives for determining the amount of the adjustment. The company has paid 10 000 of an insurance premium for the whole year at the beginning of quarter one.
The company will pass this adjusting journal entry every month for the next 12 months to prepare and present the correct monthly financial statement of the company after which the balance of prepaid rent and insurance account will become nil. Below is the journal entry for prepaid expenses. If blue sky uses expense method the whole amount of 1 800 will be recorded as expense by making the following journal entry on october 1 2016. Thus the amount charged to expense in an accounting period is only the amount of the prepaid insurance asset ratably assigned to that period.
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. Adjusting the entry suppose you buy 1 500 in errors and omissions insurance that is good for the next 12 months. Companies use two sets of journal entries to record the insurance related transactions involving both prepaid insurance and expired insurance. The journal entries for prepaid rent are as follows.
A the amount of insurance expired during the year is 20 250. The perks of such expenses are yet to be utilised in a future period. Let s say xyz company who needs to pay its employee liability insurance for the whole of a fiscal year ending 31 december 2018 amounted 10 000. Prepaid insurance is insurance paid in advance and that has not yet expired on the date of the balance sheet balance sheet the balance sheet is one of the three fundamental financial statements.
On december 31 2016 the expired portion of prepaid insurance 1 800 3 12 450 will be converted into expense by making the following adjusting entry. When the asset is charged to expense the journal entry is to debit the insurance expense account and credit the prepaid insurance account. On december 31 2018 company y ltd paid the salaries for january 2019 amounting to 10 000 in advance to the employees of the company. The balance in the prepaid insurance account before adjustment at the end of the year is 27 000.
Journal entry for prepaid expenses prepaid expenses are those expenses which are paid in advance for a benefit yet to be received.
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