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    whiteboard1's Avatar
    whiteboard1 Posts: 1, Reputation: 1
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    #1

    Jan 20, 2009, 07:42 AM
    Prepaid expense timing
    Hello! Trying to determine the proper recording. If company year end is Dec 31st, and a prepaid contract is paid for on Dec 15th, but the contract is for Jan 1 - Dec 31st of the next year, do you still record as a prepaid expense, despite having no contract service till the next year? What else would you debit?
    pready's Avatar
    pready Posts: 3,197, Reputation: 207
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    Jan 20, 2009, 05:05 PM

    An example is Prepaid Insurance. You purchase insurance for a Year.

    the first journal entry to record the transaction is:
    Debit Prepaid Insurance for the amount paid.
    Credit Cash for the amount paid.

    to record the usage of the insurance the journal entry is:
    Debit Insurance Expense for the amount used. (Amount of insurance/12 = amount used per month)
    Credit PrePaid Insurance for the amount
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