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    klk63's Avatar
    klk63 Posts: 3, Reputation: 1
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    #1

    Jul 2, 2006, 02:35 PM
    Recording Prepaid expenses and Unearned Revenues
    Hello- This is my first time taking Accounting and I'm having a few problems with some of my entries. If anyone could look at my first entry and help it would be greatly appreciated.

    I have to do the following:

    Prepare entries for the transactions under the method that records prepaid expenses as assets and records unearned revenues as liabilities. I also have to prepare adjusting entries at the end of the year.

    The for part 2 I have to prepare transactions under the method that records prepaid expenses as expenses and unearned revenues as revenues, and also prepare adjusting entries at the end of he year.

    The first transaction is:

    Nov.1 Paid 2,160 cash for 12 months if insurance throughout Oct. 31 of the next year

    This is how I worked it out for part 1:

    Nov.1 Insurance Expense... 2,160
    Prepaid Insurance... 2,160
    Adjusted: Insurance Expense... 1,800
    Prepaid Insurance... 1,800
    To adjust expired portion (2,160 X 10/12)

    Does that look somewhat right? If I'm close, I'm confused on what should part 2 look like.

    Thanks!
    CaptainForest's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
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    #2

    Jul 2, 2006, 03:28 PM
    Question: on Nov. 1, bought insurance for $2,160 for 1 year which therefore, expire Oct. 31 of the next year.

    Assumption: Year end is Dec. 31

    PART 1 record prepaid insurance as an asset and prepare adjusting entries at year end.

    Nov. 1
    DEBIT Prepaid Insurance 2,160
    CREDIT Cash 2,160

    because you used 2,160 in cash to put a prepaid asset



    Dec. 31 (you need to adjust to record some expense since you have used 2 months worth of that prepaid insurance asset (Nov 1 Dec 31)

    DEBIT Insurance Expense 360
    CREDIT Prepaid Insurance 360

    2,160 x 2 / 12 = 360

    Now, you have drawn down your Prepaid Insurance asset account.



    PART 2 record it all as an expense, then adjust it at the end of the year

    Nov. 1
    DEBIT Insurance Expense 2,160
    CREDIT Cash 2,160

    Dec. 31
    DEBT Prepaid Insurance 1,800
    CREDIT Insurance Expense 1,800

    2,160 x 10/12 = 1,800



    DIFFERENCE between the 2 methods:

    You are only allowed to claim Insurance Expense of 360 for the year. In the end, either method gives you that.

    Part 1 360
    Part 2 2,160 1,800 = 360

    Part 1, you make it an asset first, then expense it
    Part 2, you expense it all, then make the last 10 months an assets at year end adjustments.
    chachampoi's Avatar
    chachampoi Posts: 1, Reputation: 1
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    #3

    Jul 3, 2013, 05:22 PM
    The following are selected transactions of the ABC Trading during the year 2010:
    a.) On July 1, 2010, the company received P270,000 representing rental payments for the period of July 1, 2010 to December 31, 2011.

    b.) On October 1,2010, an insurance premium of P90,000 was paid covering a period of two years beginning on this date.

    Instructions:

    1. Transactions were originally recorded in asset and Liability Accounts.
    2. Transactions were originally recorded in expense and revenue accounts.

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