Prepaid exp amortization query
Sandeep Sharma (Accounts executive) (552 Points)
25 February 2024Sandeep Sharma (Accounts executive) (552 Points)
25 February 2024
RAJA P M
("Do the Right Thing...!!!")
(128091 Points)
Replied 25 February 2024
Yasaswi Gomes new
(Finance )
(4517 Points)
Replied 25 February 2024
This is not a down payment, you made a delayed payment
Yasaswi Gomes new
(Finance )
(4517 Points)
Replied 25 February 2024
However insurance is a prepaid expense no matter when you pay for it.
Dr. PRepaid insurance
Cr. Bank
and
Dr. Insurance expense
Cr. Prepaid insurance
This is how complete amortisation happens. Upon renewal itd be an expense
Sandeep Sharma
(Accounts executive)
(552 Points)
Replied 25 February 2024
Yasaswi Gomes new
(Finance )
(4517 Points)
Replied 25 February 2024
Dr. Prepaid insurance
Cr. Bank
(Repeat this for the four instalments)
If expired insurance is 10k
Dr. Insurance expense 10k
Cr. Prepaid insurancce 10k
(Repeat this for the 2 years)
on redemption
Dr. Bank 25k
Cr. Insurance revenue 25k
Yasaswi Gomes new
(Finance )
(4517 Points)
Replied 25 February 2024
Besides its hard tell like Mr. Raja PM said without knowing contact terms. You can also recognise
Dr. Prepaid insurance 20k
Cr. Bank 5k
Cr. Payables 5k and rest of the tings will be same
RAJA P M
("Do the Right Thing...!!!")
(128091 Points)
Replied 25 February 2024
Yasaswi Gomes new
(Finance )
(4517 Points)
Replied 26 February 2024
Another thing is accruals need not be used all the time. It depends upon the benefits like if risks and rewards are transferred or not. Eg. you purchase machinery, risks and rewards are transferred to you. You purchase insurance, the contract might say only after paying full amount, you'll be eligible to make a claim in case of emergency. In that instance, when there is no benefit, you can just pass normal Dr. Prepaid insurance Cr. Bank entries x 4 times.
sabyasachi mukherjee
(27589 Points)
Replied 26 February 2024
Yasaswi Gomes new
(Finance )
(4517 Points)
Replied 26 February 2024
You got it wrong. Accruals deals with full recognition of assets and liabilities. This is the case with above as its recognized in full when there is no future economic benefit nor rewards if the contract mentions 4 instalments are mandatory. Rest is fine if that is not the contract.
Sandeep Sharma
(Accounts executive)
(552 Points)
Replied 26 February 2024
RAJA P M
("Do the Right Thing...!!!")
(128091 Points)
Replied 26 February 2024
Originally posted by : Sandeep Sharma | ||
It is clear now...thanku Raja and Yasawi |
You are welcome...
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