00:01
In this question, we're talking about adjusting entries.
00:03
And for three different examples, you've asked me to follow the process of determining what the current balance should be, determining what the current balance is right now, and then doing the adjusting entry to get from step one to step two.
00:18
And you've given me three different scenarios.
00:20
The first says, assume that the current balance in prepaid insurance at the beginning of the year.
00:28
So i'll put beginning is $4 ,700 debit balance.
00:35
A review of the insurance policies show that at the end of the year, there is a $900 debit balance.
00:49
What adjusting entry is needed here? well, we can see pretty easily that the difference is $4 ,700 minus $900 or $3 ,800.
00:57
This is the amount that was expired or used.
01:03
So we need to do the adjusting entry for that amount.
01:07
You would debit insurance expense to show that we've incurred this cost and used this amount of our policy.
01:14
And credit prepaid insurance for that amount.
01:18
Crediting prepaid insurance lowers the current value of my asset, which is at $4 ,700, to the $900 debit balance.
01:28
Let's look at your second example.
01:30
The second example says that the prepaid insurance beginning balance was 5 ,890 debit.
01:41
Now this time, they don't tell you the ending amount.
01:45
They tell you how much was used or expired.
01:47
They said the amount expired or used is 1 ,040...