HomeОбразованиеRelated VideosMore From: Notepirate

Adjusting Entries for Prepaid Expenses (Financial Accounting Tutorial #20)

196 ratings | 41904 views
75% OFF the Full Crash Course on Udemy: http://bit.ly/2oZIdcP 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! ** Notepirate is privately owned and exclusive to Notepirate.com. ** Website: http://www.notepirate.com Follow us on Facebook: https://www.facebook.com/pages/Note-Pirate/514933148520001 Follow us on Twitter: http://twitter.com/notepirate We appreciate all of the support you guys have given us. Be apart of the mission to help us reach more students by subscribing, thumbs upping and adding the videos to your favorites!
Html code for embedding videos on your blog
Text Comments (20)
Neil S (5 months ago)
why is the adjusting entry is just prepaid rent? or why is the journal entry is prepaid expense? shouldn't be the journal entry dr prepaid rent cr cash??
SepeZz (6 months ago)
these comments are dry now. I'm first comment in 2 years lmao. thanks tho
Sunny Sharma (2 years ago)
Why are prepaid expense and prepaid rent assets?
No Name (1 year ago)
Think about it this way: you've taken care of something ahead of time, so that helps you out. Assets are good; taking care of something ahead of time is good.
Leslie Anne Mujica (2 years ago)
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.
M.J. AKA: FedoraMan (2 years ago)
Thank you!
Nia L (2 years ago)
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 ?
Katherine Jiayin Zheng (3 years ago)
Best tutorials ever!!!! Thank you for making accounting so much fun and easier to understand.
Notepirate (3 years ago)
+Katherine Jiayin Zheng BEST VIEWER EVER. <3 - Dave
Simple Jack (3 years ago)
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 :)
Lil Rico (3 years ago)
+Simple Jack Loll nicee.
Simple Jack (3 years ago)
+Eric Lewis I got the very minimum passing grade haha but that's cause i also had to cram for business law
Lil Rico (3 years ago)
+Simple Jack Did you do well on your exam?
Nisha Malik (4 years ago)
you guys are awesome, I was just wondering why or when we do an entry (i'm not sure of its adjusting or not) for the remainder or remaining months?
Notepirate (4 years ago)
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. - Dave
Jaber Nahian (4 years ago)
what does understated or overstated mean ......??
Notepirate (4 years ago)
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).
LightersInc (4 years ago)
thank you so much for everything you have done :) helped me alot  i wish concepts would be tought this way instead of boring lectures and textbook reading!!
Notepirate (4 years ago)
+LightersInc Colorful, engaging and interactive. That's what we strive for. Sign up at NotePirate.com. THANKS FOR WATCHING :)- Dave

Would you like to comment?

Join YouTube for a free account, or sign in if you are already a member.