What is prepaid expense, Accounting Basics

Assignment Help:

Q. What is Prepaid expense?

A prepaid expense is an asset pending assignment to expense such as prepaid rent, prepaid insurance and supplies on hand. Note that the character of these three adjustments is the same. Prepaid insurance When a company pays an insurance policy premium in advance, the purchase creates the asset prepaid insurance. This go forward payment is an asset because the company will receive insurance coverage in the future. With the way of time but the asset gradually expires. The part that has expired becomes an expense. To exemplify this point recall that in section 2 Micro Train Company purchased for cash an insurance policy on its trucks for the period 2010 December 1 to 2011 November 30. The journal entry prepared on 2010 December 1 to record the purchase of the policy was

869_Prepaid expense.png

The two accounts recitations to insurance are Prepaid Insurance (an asset) and Insurance Expense (an expense). Subsequent to posting this entry the Prepaid Insurance account has a USD 2400 debit balance on 2010 December 1. The Insurance Expense account contains a zero balance on 2010 December 1 for the reason that no time has elapsed to use any of the policy's benefits.


Related Discussions:- What is prepaid expense

Inter company transaction in account receivable, How to define Inter compan...

How to define Inter company Transaction in Account Receivable? Ans) Intercompany transactions are those transactions that takes place among two or more entities of the similar g

Explain about delivery expense, Q. Explain about delivery expense? When...

Q. Explain about delivery expense? When shipping goods FOB destination freight prepaid the seller is accountable for and pays the freight bill. For the reason that the seller c

Illustrate periodic inventory procedure, Q. Illustrate Periodic inventory p...

Q. Illustrate Periodic inventory procedure? Companies by means of periodic inventory procedure make no entries to the Merchandise Inventory account nor do they maintain unit re

Contract Account, contractee account is it an assets account or expenses Ac...

contractee account is it an assets account or expenses Account

State the list of special journals, State the list of Special journals ...

State the list of Special journals Purchases - All credit purchases of merchandise Cash Payments - All payments of cash Sales - All credit sales of merchandise

Transactions affecting only the balance sheet, Q. Transactions affecting on...

Q. Transactions affecting only the balance sheet? Since every transaction affecting a business entity must be recorded in the accounting records analyzing a transaction before

What is consistency, Q. What is Consistency? Consistency in general req...

Q. What is Consistency? Consistency in general requires that a company use the same accounting principles and reporting practices through time. This concept disallows indiscrim

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd