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    Accounting 1's Avatar
    Accounting 1 Posts: 1, Reputation: 1
    New Member
    		  
    #1

    Oct 13, 2007, 03:02 PM
    Cash vs. Expense when Journalizing
    :confused: In my textbook example, prepaid insurance has been paid and is shown as:

    DR prepaid insurance
    CR Cash

    However, when doing the assigment, the chart of accounts indicates Insurance Expense. So is it as listed above or:

    DR prepaid insurance
    CR insurance expense


    The same thing for rent "Paid three months rent on a lease rental contract, $X:

    Is it:

    DR Prepaid rent
    CR Rent Expenses

    or

    DR Prepaid rent
    CR Cash

    When working on a 4 column ledger, which is correct? Thank you for any help, this has really got me confused.
    CaptainForest's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
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    #2

    Oct 13, 2007, 05:18 PM
    For your first problem…

    Let's say your year end is Dec. 31

    On Nov 1 you buy a 12 month insurance policy for $1,200.

    Dr. Prepaid Insurance 1,200
    Cr. Cash 1,200

    On Dec. 31, your adjusting entry (to record 2 of the 12 months of insurance would be)
    Dr. Insurance Expense 200
    Cr. Prepaid Insurance 200

    Which is how you get insurance expense after adjusting entries.


    Question 2…
    Same principles as question 1
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