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  • Basic Accounting - Prepaid Expenses

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    Anj Hwan
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    On May 1, 2014, Juan Company paid P30,000 for a one-year insurance policy. Using the asset method, an entry was made to record the prepaid insurance and on December 31, 2014 an adjusting entry was made to expense P20,000 for the 8 months of expired coverage. Using the expense method, the full P30,000 was expensed on May 1 and on December 31 P10,000 was recorded as prepaid insurance for the remaining 4 months of unexpired coverage.

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    Exercises on the adjusting entries - Prepaid expenses

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    Basic accounting - Prepaid Expenses

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    On May 1, 2014, Juan Company paid P30,000 for a one-year insurance policy. Using the asset method, an entry was made to record the prepaid insurance and on December 31, 2014 an adjusting entry was made to expense P20,000 for the 8 months of expired coverage. Using the expense method, the full P30,000 was expensed on May 1 and on December 31 P10,000 was recorded as prepaid insurance for the remaining 4 months of unexpired coverage.

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    © All Rights Reserved
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    58 views1 page

    Basic Accounting - Prepaid Expenses

    Uploaded by

    Anj Hwan
    On May 1, 2014, Juan Company paid P30,000 for a one-year insurance policy. Using the asset method, an entry was made to record the prepaid insurance and on December 31, 2014 an adjusting entry was made to expense P20,000 for the 8 months of expired coverage. Using the expense method, the full P30,000 was expensed on May 1 and on December 31 P10,000 was recorded as prepaid insurance for the remaining 4 months of unexpired coverage.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    Basic accounting – Adjusting entries

    Exercise 1 – Prepaid Expense

    On May 1, 2014, Juan Company paid insurance premium of P30,000 covering a period of one year
    beginning on this date. The end of the reporting period is on December 31, 2014.

    Required: Record the journal entry on May 1 and the adjusting entries on December 31, 2014 using the:

    a. Asset method

    2014
    May 1 Prepaid Insurance 30,000
    Cash 30,000
    Dec 31 Insurance Expense 20,000
    Prepaid Insurance 20,000
    P30,000 x 8/12 = P 20,000
    The adjusting entry on December 31 represents the expired portion of the insurance premium for
    the period of 8 months.

    b. Expense method

    May 1 Insurance Expense 30,000


    Cash 30,000
    Dec 31 Prepaid Insurance 10,000
    Insurance Expense 10,000
    P30,000 x 4/12 = P10,000
    The adjusting entry on December 31 represents the unexpired portion of the insurance premium
    for the period of 4 months.

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