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Accounting: Adjusting entries
I am having trouble with this whole concept and problem, so if someone would walk me through it and explain it that would be great:
The prepaid insurance account had a balance of $5,400 at the beginning of the year. The account was debited for $6,000 for premiums on policies purchased during the year. Journalize the adjusting entry required at the end of year for each of the following situations: (a) the amount of unexpired insurance applicable to future periods is $1,000; (b) the amount of insurance expired during the year is $10,400. |
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That's what your textbook and teacher is for OR, click the link. Please do not double post!
Adjusting Entries | Explanation | AccountingCoach |
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The concept is called the Matching Principle which seeks to match the expenses applicable to a period of time to the revenues earned during that period.
The concept applied in this case is to leave only the unextinguished value of the premiums in the prepaid account at year end. The answers are self evident as implied by the question. The adjusting entry will be betweem the prepaid Insurance account and the insurance expense account reducing the balance of the prepaid insurance account to the "unexpired" balance |
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Originally Posted by ma0641
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Paraclete gave you info: "The concept applied in this case is to leave only the unextinguished value of the premiums in the prepaid account at year end. The answers are self evident as implied by the question".
Did you read the link I provided? It explains in detail exactly what and how it is done. Read the requirements for posting homework. Show us what you have done and we can go from there. Look at the numbers and note that they do make sense. What $$ did you start with-go from there. Your question and comments are telling as to why online courses are difficult. I assume you do have the accounting book for the course? |
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For situation a, you have to add the beginning amount and the amount of premiums purchased during the year to get your prepaid account balance. Your adjusting entry will be the difference between the prepaid account balance and the amount of unexpired insurance.
For situation b, the amount of the adjusting entry is given to you. It is the expired insurance amount. |
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