![]() Adjusting entries: Affect both income statement and balance sheet accounts. Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of: Items that require adjusting entries. Any unexpired portion remains in Prepaid Insurance and is reported on the balance sheet as an asset. Adjusting entries result in a better matching of revenues and expenses for the period. It won't ever be 100 but should get you close enough for your boss to be happy. Over time, the expiring portion of the insurance cost is removed from this asset account and reported in expenses on the income statement. Why are prepaid expenses considered assets Prepaid expenses are recorded as an asset on a businesss balance sheet because they signify a future benefit. Ok, the quickest way to do that: Current balance + expected receipts between now and close (inflows) - expected disbursements between now and close (outflows) - outstanding checks cash balance at close. To illustrate, when an insurance fee, called a premium, is paid in advance, the cost is typically recorded in the asset account titled Prepaid Insurance. When financial statements are prepared, prepaid accounts are adjusted so that (1) all expired and used prepaid accounts are recorded as expenses and (2) all unexpired and unused prepaid accounts are recorded as assets (reflecting future use in future periods). ![]() ![]() Prepaid accounts expire with the passage of time (such as with rent) or through use (such as with prepaid meal tickets). Common examples of prepaid accounts include prepaid insurance, prepaid rent, and prepaid services (such as club memberships). When the expenses are later incurred, the amounts in prepaid accounts are transferred to expense accounts. Advertising Costs: A category included in financial accounting to represent expenses associated with promoting an industry, entity, brand, product name, or specific products or services in order. Asset Prepaid accounts (also called prepaid expenses) are assets that represent prepayments of future expenses (expenses expected to be incurred in one or more future accounting periods).
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