1. Prepaid Expenses

2. Simple balance day adjustments

3. Prepaid expenses
What are they? - give me an example?

5. Prepaid Expenses EXAMPLES: Insurance Registration Trade membership
Subscriptions

6. Balance Day Adjustments: Prepayments
Prepayments represent the apportioning of amounts already in the ledger to different accounting periods- this is different to accruals because they are not already in the ledger.
Prepaid Expenses
Are expenses that have been paid and recorded in the current accounting period but will not be incurred until a future accounting period.
Prepaid expenses are amounts owing to the business and are therefore assets.

8. Complete the following:
Rent expense has been prepaid by one month at $200 per month
b) Insurance has been prepaid for seven months at $500 per month

9. a) b)

10. Prepayment example
Membership subscription to the Institute of Chartered of Australia of $817 was paid on 25th June 2012 for the period 1 July 2012 to 30 June 2013
The original journal entry on 25 June 2012 would have been:
Subscription Expense Dr $817
Bank Cr $817

11. Balance Day Adjustment
IT IS NOW 30 JUNE 2012, DERIVE THE CORRECT BALANCE DAY ADJUSTMENT!
Prepaid expenses (Asset) Dr $817
Subscriptions (Expense) Cr $817
(Balance-day adjustment)

12. BALANCE DAY ADJUSTMENTS 30 JUNE 2012
DERIVE THE JOURNAL REQUIRED:
$2600 of vehicle registrations was prepaid for the next accounting period
Prepaid expenses (Asset) Dr ,600
Registration (Expense) Cr ’600
(Balance-day adjustment)

13. BALANCE DAY ADJUSTMENTS 30 JUNE 2012
DERIVE THE JOURNAL REQUIRED:
$1200 insurance expenses has been paid, of which $900 has been paid in advance
Prepaid expenses (Asset) Dr
Insurance (Expense) Cr
(Balance-day adjustment)

14. Balance Day Adjustments
Balance day adjustments are general journal entries made as at balance day in order to compare the revenues and expenses accurately so that the profit (loss) can be determined.

15. AND WHY DO WE MAKE BALANCE DAY ADJUSTMENTS ?

16. A nice holiday rental by the ocean?

18. Key types of Balance Day Adjustments
Prepaid expenses
Accrued expenses
Unearned revenues
Accrued revenues

19. Is it prepaid expense. Prepaid expenses (Asset) Dr $ ………
Is it prepaid expense? Prepaid expenses (Asset) Dr $ ………..... (Expense) Cr $ Is it accrued expenses? ……………….. (Expense) Dr $ Accrued expenses (Liability) Cr $ Is it accrued revenues? Accrued Revenues (Asset) Dr $ ……………... (Revenue) Cr $ Is it unearned revenues? …………………(Revenue) Dr $ Unearned Revenue (Liability) Cr $

20. Prepayments
Complete activity 4.7 on page 112.

21. Prepayments
activity 4.7 on page 112.

22. 1500
1500

24. You have the tools! Now solve the puzzles!

25. Balance day adjustments 30 June 2012
Wages unpaid as at 30 June is $6000
Prepaid insurance expense is $200
Rent revenue received in advance is $317
Rent expense of $200 is prepaid
Commission revenue of $2600 has been earned but not yet received
Telephone expense of $350 has been prepaid

26. HOME WORK :Balance day adjustments 30 June 2012
Rent earned but not yet received is $230
Commission received in advance is $230
Wages unpaid are $2300
$210 of the electricity bill is prepaid
Rent of $1200 was received on 1 May 2012 for the following 4 months
Weekly wages of $5000 are paid for a 5 day working week. Three days are owed as at 30 June 2012