Adjustment for Prepaid Expenses Example Exercise 3-3 Adjustment for Prepaid Expenses For this example exercise, we need to determine the amount of the adjusting journal entry for insurance expired during the current accounting period.

2 Example Exercise 3-3 Adjustment for Prepaid Expenses $6,750 $6,400 + $3,600 = $10,000 As you can see, the balance in the Prepaid Insurance account before adjustment is $10,000 [CLICK] which is the $6,400 beginning balance plus $3,600 for premiums paid during the year. The amount of unexpired insurance that relates to future periods is $3,250. Therefore, in order to determine the adjusting entry for insurance expense for the current period, we need to determine the amount used during the period. Since the current balance is $10,000 and the amount remaining to be used is $3,250, we can subtract the remaining balance of $3,250 from the beginning balance to get [CLICK] $6,750 of insurance expired during the current period.

Adjustment for Prepaid Expenses Example Exercise 3-3 Adjustment for Prepaid Expenses . – The adjusting entry includes a debit to Insurance Expense for $6,750 and a credit to Prepaid Insurance for $6,750 for the insurance expired during the period.

Adjustment for Prepaid Expenses Example Exercise 3-3 Adjustment for Prepaid Expenses After the adjusting journal entry is posted, the ending balance in the Prepaid Insurance account is $3,250 which represents the amount of the unexpired insurance at the end of the accounting period. The balance in this asset account will become an expense in future periods.

Assets = Liabilities + Owner’s Equity Example Exercise 3-3 Adjustment for Prepaid Expenses Assets = Liabilities + Owner’s Equity The Insurance Expense account has a debit balance of $6,750 which represents the insurance expired during the period and is an expense of the current period.

Example Exercise 3-3  For Practice: PE 3-3A, PE 3-3B Refer to Practice Exercise PE 3-3A and PE 3-3B for adjustments for prepaid expenses.  For Practice: PE 3-3A, PE 3-3B