Adjusting Journal Entries (Prepayment type)

This video discusses the prepayment type of adjusting journal entries and illustrates the concept with multiple examples.
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[@walaalawami1432]

Can it be A/P instead of cash?

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[@minkirax]

@3:47 When we use some of our assets, it decreases. So shouldn't Insurance Expense or any other expense be considered as a credit? Thanks.

[@neilcarranza5230]

+minkirax Insurance Expense is an account that decreases the equity. Prepaid Insurance should be the one that is directly credited as time period passes.

[@misfit2022]

Assets are a debit as per the accounting equation whilst Insurance Expense is a P&L entry which as it is an expense would also be a debit. With regards to prepayment I think of it like this: Invoice goes on for a full 12 months £1200 so this is a Debit in the P&L. We come along and say that should only be one month so we take out 11 months as part of our adjusting entries so Credit Insurance P&L and Debit prepayments, an asset, 11 months or £100. A lot of examples presume when the invoice is posted it goes to Prepaid insurance but in the real world the default on the account will be P&L insurance and it is up to you as part of your month end check to adjust.

[@sdiptanil]

Hence Edspira, I guess the more elaborate equation will be : Asset = Liab + {Owner's Capital - Withdrawal + Revenue - Expense} And this expression {Owner's Capital - Withdrawal + Revenue - Expense} = Owner's Equity, am I correct ?

[@Edspira]

Diptanil, It looks like you are breaking-out the individual components of stockholders equity. You are correct in your equation. Typically it isn't written this way because it isn't all-inclusive. Some companies use different accounts and simply stating "stockholders equity" simplifies the equation. I like the way you are thinking, and great question!

[@chrisuren9811]

Does insurance expense affect equity or the income statement? Thanks!

[@Edspira]

expenses reduce net income (on the income statement) and stockholders' equity (on the balance sheet). The income statement and balance sheet are connected, because expenses reduce net income (income statement) and net income affects retained earnings (balance sheet)

[@albertojose1994]

Unearned Revenue=Accounts Receivable --> Unearned Revenue is considered an asset --> Increases with debit and decreases with credit --> 240 should be on the left and 30 on the right?

[@Edspira]

Unearned Revenue is a liability, which would increase with a credit. It is not the same as accounts receivable, which is an asset. Here's a video on unearned revenues: kzbin.info/www/bejne/hWq8oWuLq55mqtE Thanks!

[@roadheaven6475]

You have a different way to make accounting is easy .

[@keira7360]

Please let me know how to make JE for that $210 unearned revenue. Thanks so much

[@Edspira]

You would debit unearned revenue and credit revenue of $10 each month (or $30 per quarter) with an adjusting journal entry until the 2 year subscription is completed, and your unearned revenue is $0. We do this to match the revenue with the period in which it is earned. Thanks for watching!

[@NeostormXLMAX]

UH here is a problem im pretty sure prepayment type is supposed to be called DEFERRAL type of journal entries, man this confused me so much on a test. i guessed it afterwards that this must have supposed to have been the deffereal but im pretty sure you are not useing the universal term of defferal

[@attensecallaway9752]

2021 UPDATE: The "unearned revenue" is now "deferred revenue". Y.A.Y.

[@veronicasultan6901]

I wish i was paying you instead, thanks sr (y)