If a company initially records prepaid expenses with debits to expense accounts, what type of account...
If a company initially records prepaid expenses with debits to expense accounts, what type of account is debited in the adjusting entries for those prepaid expenses?
Homework Answers
Answer
--If initially the expense account was DEBITED, then at the time of adjusting entry, that expense account will have to CREDITED and respective 'Prepaid expense' asset account will be debited.
--For example, on 1st Apr, Insurance of $ 24000 is paid for 12 months and entry recorded was:
| Date | Accounts title | Debit | Credit |
| 01-Apr-20 | Insurance expense | $24,000 | |
| Cash | $24,000 |
>Now, at the time of adjusting entry on 31 Dec 2020, insurance expense has to be adjusted for 9 months (From 1st Apr to 31 Dec) and 3 month insurance will be prepaid.
>Adjusting entry:
| Date | Accounts title | Debit | Credit |
| 01-Apr-20 | Prepaid Insurance ($ 24000 x 3/12) | $6,000 | |
| Insurance expense | $6,000 |
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