馃攳
Prepaid Insurance | Journal Entries for Prepaid Insurance - YouTube
Channel: WallStreetMojo
[12]
welcome back to the channel of Wall
Streetmojo watch the video till the
[17]
end and if you're new to this channel
then you can subscribe us by clicking
[21]
the bell icon today we have a topic that
has Prepaid Insurance we'll try and
[26]
understand this in complete detailed
fashion see what is exactly Prapaid
[31]
insurance that's the first things that we're going is prepaid insurance
[37]
well Prepaid insurance refers to the
portion of the you know outstanding
[41]
insurance premium which is paid by the
company right in advance what we call as
[47]
in advance and is currently not used so
an insurance premium is the amount that
[52]
organization pay on behalf of the so
called employees and the other policies
[58]
that the business have rendered to
generally and just this the insurance
[63]
premium is paid on monthly you have
quarterly basis so the expense which is
[68]
an expensive Prapaid and is reported in
the books of accounts under the current
[72]
asset forms and the expenses for that
period is shown under profit and loss
[79]
statement so my question over here is
prepaid insurance is an asset see let us
[89]
take an example to understand this to
check if the prepaid insurance is an
[92]
asset like for let's say there is a
company called a fast track company and
[100]
they buy a 1 year insurance let's say
they buy a 1 year insurance for its
[106]
delivery of truck and you know they pay
let's say closely $1200 for the
[110]
same on 1st December 2017 now that you
have prepared for the insurance prepare
[115]
you have your prepaid for services to be
used it is classified over here as your
[120]
asset now in this case the prepaid
insurance will be classified as your
[123]
current assets on the balance sheet so
it will it will look something like this
[128]
in the fast-track movers and Packers Inc
how things will look like on the asset
[135]
side you will have what we call cash
prepaid insurance and vehicles just as a
[143]
part of the
$4,800 $1,200 and $14,000
[148]
so on the current asset side
prepaid insurance will be visible this
[151]
means that you know insurance expense
each amounting to $1,200 now
[156]
this $1,200 and it will be dividing by 12
okay that will by that will get 100
[161]
now for a period of 1 month between
31st December form 1st December to
[165]
31st December or $100 for a
period of 1 month that is $100
[168]
worth of insurance is used up so let us
look at the prepaid insurance expense
[172]
that is classified as an asset at the
end of the 1 month of 31st December
[180]
2017 now what do you need to note that
you know reporting the amount of prepaid
[184]
insurance on the balance sheet will be
something like this is equal to $1200
[188]
less $100 to be 1100 that will be reported on the
[193]
balance sheet side of current assets the
insurance that is used you know for the
[197]
month of December will be reported as an
insurance expense on December income
[203]
statement and this is shown in the P&L
when you when you when you draw down the
[208]
P&L you will get the insurance expense
as a part of it let's understand the
[212]
journal entry part of insurance expense
the journal entry for this will go
[222]
something like this
see let's take an example of prepaid
[226]
insurance or journal entry let's say
there is a company called XYZ and who
[230]
needs to pay his employee liability
insurance for the whole of the fiscally
[233]
and in 31st Dec 2018 amounting let's say went
[236]
$10,000 and the company has
paid 10,000 of the insurance
[240]
premium for the whole year at the
beginning of the quarter one so the Prepaid
[244]
insurance journal entry will be
passed and will be reflected in the
[247]
books of accounts of XYZ and it will
look something like this prepaid expense
[251]
what they prepared insurance in the Account that will be debited
[254]
$10,000 to a bank or cash that will
be 10,000 now the prepaid
[264]
insurance you know if you see is debited
which indicates the creation of an asset
[269]
in the balance sheet where is the bank
or the cash has been with with an equal
[274]
amount which is the balance rule of
accounting has been credited right
[278]
it is going out now journal entries what
about the journal entries when prepaid
[287]
insurance is due see when insurance is
due for each quarter that is let's say
[295]
2,000 will be subtracted from the
prepaid account and is shown as an
[298]
expense in the income statement so
insurance expense account that will be
[303]
debited to the extent of 2002 prepaid
insurance that will be 2000 right so the
[309]
income statement for the quarter ending
will show an expense of $2000 under the
[314]
item of the insurance expense and in the
balance sheet of the XYZ company the
[319]
closing balance of the current account
prepaid account will be shown and shown
[324]
a balance of 8,000 that is 10000 - 2000
for the quarter ending as amount due
[330]
for the quarter has been expense for
that particular period and second the
[334]
amount you an expense this quarter is
also known as your period cost here as
[342]
it is the cost of incurred in this
period and third the process of
[345]
reduction from the account periodically
is often known as the amortization now
[350]
there will be an adjustment entry for
prepaid expense see passing the
[356]
adjustment entries to balance the books
of accounts are often helping which
[359]
avoids us to make an entry for new
business transactions so to pass an
[364]
adjustment entry you need to debit the
actual expense and credit the prepaid
[369]
expense account over the period of the
amortization the account which is prepaid
[373]
will come to nil-nil balance at the end
of the accounting period and all the
[377]
expense accrued in the what we call as the income statement that set for this
[382]
particular topic if you have learned and
you know liked the video if you think
[387]
that you know if you have enjoyed and
learned watching this video please like
[391]
comment on this video and subscribe to
our channel for all the latest updates
[394]
thank you everyone
Cheers
Most Recent Videos:
You can go back to the homepage right here: Homepage