1. 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. 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.

3. 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.

4. 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.

5. 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.

6. 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