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In this financial accounting tutorial we cover adjusting entries for prepaid expenses like insurance policies or rent leases paid in advance. To create the adjustment we must figure out what amount one month of rent expense is and journalize it by debiting rent expense and crediting prepaid expense (an asset). Remember that adjusting entries do not involve cash and that the adjustment that the business will record will either be a revenue or expense adjusting entry!
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because they are something that the company still has. The company has paid for them but they haven't used them, or they have not expired. It's like having an icecream. You paid for it but its still something you have until you eat some of it, and then it shrinks.
Love this! Very clear and concise explanation. But what about when the Unadjusted Balance is not the entire prepayment for the year, but instead some of the prepayment already expired? For example, the unadjusted balance for Prepaid Insurance is 440, the remainder of a prepayment of 480, total amount for 1 year. How do I adjust this?
#notepirate: do you mind if i ask you a favor. I'm having an urgent problem with my individual assignment about adjusting entries. That is " The prepaid insurance is the annual premium for insurance commencing on 1 June 2015" and the data on the unadjusted trial balance as at 31 december 2015 of prepaid insurance is $1800 and insurance expense is $600.....i was wondering when calculating the insurance expense from 1 June to 31 December, is it essential to minus the insurance expense (600) available on the unadjusted trial balance ?
I have my financial accounting final in a few days and I haven't started studying this whole semester until this week. These videos have helped so much, and I'm confident that I'll do well on my exam. Thank you :)
Why? If we prepaid our rent for the year ($1200) it would show up as an asset right? Well after one month, if we didn't have adjusting entries, our prepaid rent would still be a $1200 asset. This is incorrect because it should now be $1100 (our asset would be overstated) since we used $100 up of the asset. We need adjusting entries to reflect the true financial position of the company and to have proper matching of revenue and expenses in their respective periods.
When? Adjusting entries are normally performed each month. Why not every 2 weeks? Every week? Each day? Well the cost of performing all of these adjusting entries would out weigh the benefit, even if the information is more relevant. This is conflicts with our cost-benefit principle.
Understated = The amount/entry is reported less than what it should be (If we had sales of $500 and reported $450 we would have an understatement of $50 by reporting $450 when the true/accurate/real figure is $500).
Overstated = The amount/entry is more than what it should be (If we had sales of $500 and reported $550 we would have an overstatement of $50 by reporting $550 when the true/accurate/real figure is $500).
The problem is not that Facebook and Google are the only advertising platforms. The problem is that they are considered mainstream media and without these two, the trend of cryptocurrencies gaining legitimacy is delayed. That is right, I said delayed not blocked or prevented.
The World Has Changed.
Five years ago, when bitcoin was unknown to most people, this might have been a fatal move. Today is a different story. I recently traveled to a remote mountain town in the interior of Mexico. Everyone I met had heard about Bitcoin and eyes lit up with excitement when I ask if I could pay for lunch with bitcoin.
Today are dozens of websites dedicated to cryptocurrencies, either holding them, exchanging them or just writing about them. Probably the most effective advertising remains on Google, it is called Google Search and it is free.
If someone wants to learn about owning bitcoin or any other currency, there is a ton of educational information.
The Flipside Is Being Ignored.
Not All Regulation Is Inherently Bad.
If we examine the full spectrum of regulation to this point on a global scale there is one common target most everywhere. That is the practice of exchanges. So far there has been little or not regulation, threatened or enacted, to protect investors from loss of funds due to security breaches.
Capitulation Is A Good Sign.