HomeExpense

|

Certain expenses like insurance premium,rent rates etc, are often paid in advance.In this case a part of the amount paid during a given period relates to a subsequent period .For example the debit in the following expense account shows the premium cost of two-year fire insurance policy.

insurance-account

In this case,We paid 12 months insurance premium, out of this 12 months, premium of three months( 5000/12 x 3 = 1250) are related to current year that is for Financial Year 2015-16 and remaining 9 months premium (5000/12 x 9=3750) is related to up coming Financial Year,That is  2016-17.

Before the books are closed at the end of 2015, the unexpired premium should be taken out of the expense account and transferred to a prepaid expense or asset account.This is accomplished by the following journal entry.

journal-for-prepaid-expense

After this entry is posted,the two accounts affected will appear as follows.

insurance-account-after-posting-prepaid-insurance

The balance in this account now shows the insurance expenses for 2015 and is debited to the profit and loss account.

prepaid-insurance-account

Prepaid Insurance account is an asset account;it represents the cost of a valuable right to collect from an insurance company in the event of a fire loss during 2016.So 3750 will be shown on the asset side of the balance sheet as on 31-03-2015.

Prepaid asset will be charged to the expense of the next year. In above case the prepaid insurance will charge to the Insurance A/c as expense and the prepaid Insurance A/c which was carried forward from last Financial year will be cancelled.

pre-paid-insurance

Comments (0)

Leave a Reply

Your email address will not be published. Required fields are marked *

shares
error: Content is protected !!

Related pages


tax slab for fy 2014-15accrued expense journal entry examplesundry creditors definition accountingicici bank draft chargestally erp 9 add ons free downloadtally adjustment entrieswho is sundry debtorspro form invoicebook overdrafttds deducted on salaryvoucher defineshort cut key of exceltds exemption limitfree accounting software like tallyadjusting entries problems and solutionsunpaid salary journal entrycarriage inwardincome tax slab for ay 2014 15 for femalequestions on journal ledger and trial balanceaccounting adjusting entries tutorialaccounting groups and ledgersstylish quotationscash book accounting examplesales ledger meaningbank pdcbank overdraft examplemonth end closing journal entries examplesmeaning of sundry expensesforex journaljournal entry for cash received in advancebank reconciliation statement youtubeaccounting bank reconciliation practice problemshow to calculate bank reconciliation statementcheque post datedcorrecting journal entrieslpo purchasecheque receipt formattally software purchasetally 9.0 software free downloadsales and purchase ledger templatetax proformadaybook in excelaccounting entries for salesmoa formattally program downloadtally study materialledger folio numbercredit voucher definitionlpo format samplesuspense account journal entriesjournal entries in tallyaccounting debit and credit rulessingle entry and double entry bookkeepingdefine petty cash voucherlpo meaning purchase orderdebit note to supplierhow to learn tally 9.0what is tds tax deducted at sourcedefine debit note and credit noteaccounting general journal examplessubsidiary ledger accountswhats a fixed assetdefinition of sundry creditorswhat is tds taxdebit and credit entries in trial balancetally erp notestypes of vouchers in tally54 usd to inrledger entries examplesfixed assets accounting entriescommision receivedreceived cash from customers on account journal entrytele accounting softwarebad debts entry in balance sheetdebenture shares definitionsales quotationsdefinition of a debit notebank occ means