Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 138 views

    Adjustment Prepaid Expenses

    Uploaded by

    verawatidahlani
    This document discusses prepaid expenses and the differences between the cash and accrual methods of accounting. It provides examples of adjusting journal entries that a company would make at the end of an accounting period to allocate prepaid expenses, such as insurance and supplies, over the periods that they benefit. The conclusion is that, according to accounting standards, companies must use the accrual basis of accounting rather than cash basis for financial reporting, including how they account for prepaid expenses that expire over multiple periods.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd

    Adjustment Prepaid Expenses

    Uploaded by

    verawatidahlani
    138 views12 pages
    This document discusses prepaid expenses and the differences between the cash and accrual methods of accounting. It provides examples of adjusting journal entries that a company would make at the end of an accounting period to allocate prepaid expenses, such as insurance and supplies, over the periods that they benefit. The conclusion is that, according to accounting standards, companies must use the accrual basis of accounting rather than cash basis for financial reporting, including how they account for prepaid expenses that expire over multiple periods.

    Original Title

    17. Adjustment Prepaid Expenses

    Copyright

    © © All Rights Reserved

    Available Formats

    PPT, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses prepaid expenses and the differences between the cash and accrual methods of accounting. It provides examples of adjusting journal entries that a company would make at the end of an accounting period to allocate prepaid expenses, such as insurance and supplies, over the periods that they benefit. The conclusion is that, according to accounting standards, companies must use the accrual basis of accounting rather than cash basis for financial reporting, including how they account for prepaid expenses that expire over multiple periods.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    138 views12 pages

    Adjustment Prepaid Expenses

    Uploaded by

    verawatidahlani
    This document discusses prepaid expenses and the differences between the cash and accrual methods of accounting. It provides examples of adjusting journal entries that a company would make at the end of an accounting period to allocate prepaid expenses, such as insurance and supplies, over the periods that they benefit. The conclusion is that, according to accounting standards, companies must use the accrual basis of accounting rather than cash basis for financial reporting, including how they account for prepaid expenses that expire over multiple periods.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    You are on page 1of 12

    ADJUSTMENT FOR

    PREPAID EXPENSES
    17
    1
    DEFINITION
    Prepaid expenses is expenses paid in one accounting period
    but not yet used or spent completely until the next accounting
    period. (Ardiyos, S.E., Kamus Besar Akuntansi, page 723)

    2
    DEFINITION
    Prepaid expenses are costs that expire either with the passage
    of time (e.g., rent and insurance) or through use (e.g.,
    supplies). (Weygandt Kimmel Kieso, Financial Accounting,
    IFRS Edition, p. 101)

    3
    The cash method of accounting, records revenue when cash is
    received, and records expenses when cash is paid.
    The accrual method records income items when they are
    earned and records deductions when expenses are incurred.
    (http://en.wikipedia.org/wiki/Comparison_of_cash_and_accrual_methods_
    of_accounting)

    4
    WHAT IS DIFFERENCES BETWEEN CASH METHOD
    AND ACCRUAL METHOD ?
    BASIC RULES FOR ARRANGE
    FINANCIAL STATEMENT
    Entitas menyusun laporan keuangan atas dasar akrual, kecuali
    laporan arus kas. (PSAK No.1 Revisi 2009 tentang Penyajian
    Laporan Keuangan)

    5
    Example 1
    Gothe Agency paid Rp. 600.000,00 for a-one year
    insurance policy. Gothe Agency record this transaction at
    Prepaid Insurance, coverage began on October 1, 2010.
    This account shows a balance of Rp. 600.000,00 in the
    December 31 trial balance.
    6
    So, Gothe Agency make the following adjusting entry.

    Insurance Expense Rp. 150.000,00
    Prepaid Insurance Rp. 150.000,00

    Calculation :
    (October December = 3 months)
    3/12 X Rp.600.000,00 = Rp. 150.000,00

    7
    After Gothe posts the adjusting entry, the account show :
    Prepaid Insurance
    10/4 600.000 31/12 Adj 150.000
    31/12 Bal. 450.000


    Insurance Expense
    8
    31/12 Adj. 150.000
    31/12 Bal. 150.000
    Example 2
    In December 31, 2010 Gothe Agency has Rp. 1.000.000,00 of
    Supplies are still on hand. The cost of supplies used is Rp.
    200.000,00. Gothe makes the following adjusment.

    Supplies Expense Rp. 200.000,00
    Supplies Rp. 200.000,00

    After Gothe posts the adjusting entry, the account show :
    Supplies
    10/4 1.000.000 31/12 Adj 200.000
    31/12 Bal. 800.000


    Supplies Expense
    31/12Adj. 200.000
    31/12 Bal. 200.000
    CONCLUSION
    Base on PSAK No. 1 About Financial Report Statement,
    company has to use accrual method to record every single
    transaction, except for statement of cash flow.
    This is apply to record prepaid expenses. Prepaid expenses
    include rent expense, insurance expense, supplies, etc.

    THANK YOU

    You might also like