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    danigrace15's Avatar
    danigrace15 Posts: 3, Reputation: 1
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    #1

    Oct 8, 2009, 03:42 PM
    Prepaid Insurance Adjusting Entry
    I have another adjusting entry question!

    Statement:
    The prepaid insurance balance arose from the payment of an annual premiumo on January 1, 2004.

    How do I even do this?! :confused:

    The account balance is Pre-paid insurance $2,400

    HELP!

    Thanks
    -D
    MeAsk31's Avatar
    MeAsk31 Posts: 3, Reputation: 1
    New Member
     
    #2

    Oct 8, 2009, 06:57 PM
    The prepaid insurance balance means it's the insurance that you paid in advance on Jan. 1, 2004. When you first paid the insurance your entry was:

    Debit Prepaid Insurance 2,400
    Credit Insurance Expense 2,400

    Then, at the end of the month, you have to do the adusting entry to show the insurance portion that had been used up:

    Prepaid insurance of 2400 divided by 12 months = 200 will expire every month

    Debit Insurance Expense 200
    Credit Prepaid Insurance 200

    Now after entering this journal entry, the balance of your Prepaid Insurance will be 2,200

    Prepaid Insurance 2,400
    Less: Expired portion 200
    _____
    Balance 2,200


    At the end of every month, you will do this journal entry:

    Debit Insurance Expense 200
    Credit Prepaid Insurance 200

    And at the end of the year, your Prepaid Insurance balance will be zero
    danigrace15's Avatar
    danigrace15 Posts: 3, Reputation: 1
    New Member
     
    #3

    Oct 8, 2009, 07:43 PM

    Thank you so much!

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