Review for AC202

Nsurance expense 2004 jan feb mar apr may jun jul aug

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Unformatted text preview: 31, 2007 Cash Advertising Supplies Prepaid Insurance Office Equipment Notes Payable Accounts Payable Unearned Service Revenue Common Stock Dividends Service Revenue Salaries Expense Rent Expense Debit Credit $15,200 2,500 600 5,000 $ 5,000 2,500 1,200 10,000 500 10,000 4,000 900 $28,700 $28,700 Prepaid Expenses Amount equals cost of goods or services used up or expired If not adjusted, expenses would be understated and assets overstated 125 Illustration 4-6 Supplies On October 5 the company paid $2,500 for advertising supplies. Cash Oct 5 2,500 Supplies Oct 5 2,500 GENERAL JOURNAL Oct 5 Supplies Cash Purchased advertising supplies Debit Credit 2,500 2,500 Illustration 4-6 Supplies An inventory on October 31 reveals that $1,000 of supplies remain on hand; therefore $1,500 of supplies have been used. ($2,500 ­ $1,000) =$ 1,500 Cash Supplies Oct 5 2,500 Oct 5 2,500 Oct 31 1,500 GENERAL JOURNAL Oct 31 Supplies Expense Supplies 1,500 To record advertising supplies consumed Supplies Expense Oct 31 1,500 Debit 1,500 Credit Supplies Expense Oct $1,500 Nov $1,800 Dec $1,410 Jan $1,425 Feb $1,601 Mar $1,435 Apr $1,510 May $1,592 June $1,652 July $1,621 Aug $1,427 Sept $1,555 Supplies expense is based on usage... so different amounts appear each month 128 Prepaid Expenses On October 1 the company paid $600 for a 1­year insurance policy. Coverage began October 1. Prepaid Insurance Cash Oct 1 600 Oct 1 Insurance Expense 600 GENERAL JOURNAL Debit Oct 1 600 Prepaid Insurance Cash Purchased one-year policy effective October 1 Credit 600 Insurance Policy Oct $50 Nov $50 Dec $50 Jan $50 Feb $50 Mar $50 Apr $50 May $50 June $50 July $50 Aug $50 Sept $50 1 Year $ 600 130 Prepaid Expenses On October 31st, $50 ($600/12 months) of the insurance was used­up or expired. Prepaid Insurance Cash Oct 1 600 Oct 1 600 Oct 31 50 Insurance Expense Oct 31 50 550 GENERAL JOURNAL Oct 31 Insurance Expense Prepaid Insurance 50 Record insurance expense for the month Debit 50 Credit Initial Recording of Insurance Cost IInitially, costs that benefit more than one nitially, costs that benefit more than one accounting period are recorded as assets.. accounting period are recorded as assets GENERAL JOURNAL Date Oct Account Titles and Explanation 1 Prepaid Insurance Cash P R Debit Credit 600 600 Purchase a one-year insurance policy. 132 Expensing the Cost Over the Period It Covered The costs are expensed as they are used to The costs are expensed as they are used to generate revenue. generate revenue. GENERAL JOURNAL Date Account Titles and Explanation Oct 31 Insurance Expense Prepaid Insurance Insurance expense for January. P R Debit Credit 50 50 133 Statements Balance Sheet Balance Sheet Income Statement Income Statement Cost of assets Cost of assets tthat benefit hat benefit ffuture periods. uture periods. Cost of assets Cost of assets used this period to used this period to generate revenue. generate revenue. Prepaid Insurance 10/1 600 10/31 50 Bal. 550 I nsurance Expense 10/31 50 Depreciation How do you apply the Mat...
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