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Hello Sir John
First of all, excellent lectures. Very comprehensive and precise. I have a question in terms of the journal entries for the prepayment and accruals. I am mentioning them below. Would be great if you could advise if my understanding is correct and if the JE’s make sense and can be considered as the correct way of recording these transactions:
For Year ending Dec 2000
DEBIT Expense (Insurance) 1800
DEBIT Prepayment (Insurance) 1000
CREDIT Cash 2800
For Year ending Dec 2001
DEBIT Expense (Insurance) 1200
CREDIT Prepayment (Insurance) 1000
CREDIT Cash 1200
DEBIT Prepayment (Insurance) 1200
CREDIT Cash 1200
Also, can the year ending Dec 2001 entries be summarized as below:
DEBIT Expense (Insurance) 2200
DEBIT Prepayment (Insurance) 1000
CREDIT Cash 2400
This is not the subject in here, but I will show you one example of Journal Entry.
1 Jan 2000 to 31 December 2000
Cr Cash 2,800
Dr Insurance Expense 2,800
Dr Prepaid Insurance 1,000
Cr Insurance Expense 1,000
You need to learn double-entry bookkeeping.
I hope this answers your question.
Very Clear. Thank you sir. I aspire to be very versed as you one day.
Thank you for your comment 馃檪
Amazing, Thanks
why we took 1000 as previous prepayment from 1 jan to 31 jul instead of 1200?
From 1 Jan to 30 Jun, the prepayment was taken because it was paid for last year.
As for the 1200, that didn’t include the first 6 months. We paid 1200 for 1jul 2001 to 30 Jun 2002.
Dear Sir,
It is still confusing for me that why prepayment of last year is still added in this year?
If you prepaid last year it means that you paid already for part of this year. So the amount prepaid is part of this years expense.
How do we know that part of the insurance is prepayments at the end of the year if we only credit cash and debit insurance when the transaction happened?
Because always with insurance you will know what period you are paying for – it will be on the invoice!
I see, thanks a lot
oh, I’ve got that, thanks for this useful video
do we only have four adjustments before the preparation of financial statements?
There are the four ‘standard’ adjustments that always need to be made. In addition, of course, any errors discovered will be corrected, but that is a separate issue – a correction rather than an adjustment.
Really detailed.