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Prepaid expense and income
If an insurance policy for 2 years was entirely expense in one year. How do I correct this error?
Ex: if policy for 2 years is 12,000 and it all expense in one year, the income would be understated by 6,000?:confused: The correct entry would be: Insurance expense 6,000 Prepaid insurance 6000 Retained Earning 12,000 |
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So the entry that you made in first year was
Insurance expense 6,000 Prepaid insurance 6000 Retained Earning 12,000 But it should have been Insurance Exp 12,000 Cash 12,000 Since you expensed the whole amount... I don't understand why are you going through the R/E method. Then the second year you should have got Prepaid Insurance 6,000 Insurance expense 6,000 Since you already paid. But it depends on the books and company. If the books were corrected before the year end as they have to report their taxes. You also have to watch whether the fiscal period end is as same as the year end date. |
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