Question

Two Ways of Recording Prepaid Expenses Unearned Revenue 1. Assume a company pays a full year of property insurance in advance on September 1 in the amount of $4800. Prepare the TRANSACTION ENTRY on 9-1 and the ADJUSTING ENTRY on 12-31. Follow the regular approach first and the alternative way second. Regular Approach 9-1: DR: DR: CR: CR: 12-31: DR: DR: CR: CR: "T" Accounts: Prepaid Insurance Prepaid Insurance Insurance Expense Insurance Expense

Answer 1

Regular approach and Alternative approach to record the payment for Insurance is as shown below:

Date	Particulars	L.F	Amount ($)	Amount ($)
Sep-01	Prepaid Insurance		4,800
	Cash			4,800
	(for cash paid for insurance)
Dec-31	Insurance Expense		1,600
	Prepaid Insurance			1,600
	(for 4 month insurance expensed)

Insurance Expense
Particulars	Amount	Particulars	Amount
Opening Balance	0
Dec-31	1,600
Closing Balance	1,600
Prepaid Insurance
Particulars	Amount	Particulars	Amount
Opening Balance	0	Dec-31	1,600
Sep-01	4,800
	4,800		1,600
Closing Balance	3,200

Date	Particulars	L.F	Amount ($)	Amount ($)
Sep-01	Insurance Expense		4,800
	Cash			4,800
	(for cash paid for insurance)
Dec-31	Prepaid Insurance		3,200
	Insurance Expense			3,200
	(for 8-month insurance moved to prepaid)

Insurance Expense
Particulars	Amount	Particulars	Amount
Opening Balance	0	Dec-31	3,200
Sep-01	4,800
Prepaid Insurance
Particulars	Amount	Particulars	Amount
Opening Balance	0
Dec-31	3,200
	3,200		0
Closing Balance	3,200