FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Concept explainers

The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can resu…
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the a…
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately…
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial repor…
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Chapter 7 - Adjusting Entries Problem 7-5 Prepaid Insurance and the Monthly Prepaid Insurance Adjusting Entry On September 1, 2023, Amy's Floral Shop, Inc. paid cash for the following two insurance policies. Insurance Policy #1 Type of insurance coverage.......... Starting date of the insurance coverage. Period of time coverage is for.. Total cost of coverage paid in advance Insurance Policy #2 Type of insurance coverage Starting date of the insurance coverage Period of time coverage is for.. Total cost of coverage paid in advance. SOLID FOOTING 89 Auto and Truck September 1, 2023 3 months $525 Business Liability September 1, 2023 4 months $1,400 The company has the accounting policy that all prepaid assets are initially recorded in asset accounts. The following is a partial list of the accounts in Amy's General Ledger. These are the only accounts you need for this problem. ▷ Cash ▷ Prepaid Insurance (asset account) ▷ Insurance Expense Use the forms on Tabs 7-5 A and 7-5 B in the Excel workbook Chapter 07 c - Problem 7-1 to 7-8 Forms to complete this problem. Requirement 1 Prepare the General Journal entry to record the September 1 cash payment made to purchase the two insurance policies. Note that there is only one General Ledger account for Prepaid Insurance, and that the amount of Prepaid Insurance related to both insurance policies is kept in that one account. Requirement 2 Fill-in the amounts on the Auto and Truck Prepaid Insurance timeline. The boxes above the timeline show the amount of Auto and Truck Prepaid Insurance still remaining at various dates during the three month period. The boxes below the timeline show the amount of Auto and Truck Prepaid Insurance that expires (is used-up) during each of the three months. Requirement 3 Fill-in the amounts on the Business Liability Prepaid Insurance timeline. The boxes above the timeline show the amount of Business Liability Prepaid Insurance still remaining at vario dates during the four month period. The boxes below the timeline show the amount of Business Liability Prepaid Insurance that expires (is used-up) during each of the four (Problem 7-5 continued on the next page)
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Transcribed Image Text:Chapter 7 - Adjusting Entries Problem 7-5 Prepaid Insurance and the Monthly Prepaid Insurance Adjusting Entry On September 1, 2023, Amy's Floral Shop, Inc. paid cash for the following two insurance policies. Insurance Policy #1 Type of insurance coverage.......... Starting date of the insurance coverage. Period of time coverage is for.. Total cost of coverage paid in advance Insurance Policy #2 Type of insurance coverage Starting date of the insurance coverage Period of time coverage is for.. Total cost of coverage paid in advance. SOLID FOOTING 89 Auto and Truck September 1, 2023 3 months $525 Business Liability September 1, 2023 4 months $1,400 The company has the accounting policy that all prepaid assets are initially recorded in asset accounts. The following is a partial list of the accounts in Amy's General Ledger. These are the only accounts you need for this problem. ▷ Cash ▷ Prepaid Insurance (asset account) ▷ Insurance Expense Use the forms on Tabs 7-5 A and 7-5 B in the Excel workbook Chapter 07 c - Problem 7-1 to 7-8 Forms to complete this problem. Requirement 1 Prepare the General Journal entry to record the September 1 cash payment made to purchase the two insurance policies. Note that there is only one General Ledger account for Prepaid Insurance, and that the amount of Prepaid Insurance related to both insurance policies is kept in that one account. Requirement 2 Fill-in the amounts on the Auto and Truck Prepaid Insurance timeline. The boxes above the timeline show the amount of Auto and Truck Prepaid Insurance still remaining at various dates during the three month period. The boxes below the timeline show the amount of Auto and Truck Prepaid Insurance that expires (is used-up) during each of the three months. Requirement 3 Fill-in the amounts on the Business Liability Prepaid Insurance timeline. The boxes above the timeline show the amount of Business Liability Prepaid Insurance still remaining at vario dates during the four month period. The boxes below the timeline show the amount of Business Liability Prepaid Insurance that expires (is used-up) during each of the four (Problem 7-5 continued on the next page)
90 SOLID FOOTING Problem 7-5 (continued) Chapter 7 - Adjusting Entries Requirement 4 Prepare a "T" account analysis to determine the required September 30 adjustment to the Prepaid Insurance account. Note that your "T" account analysis is for the Prepaid Insurance account, which contains the total amount of Prepaid Insurance for both insurance policies. Requirement 5 Prepare the September 30 General Journal adjusting entry for Prepaid Insurance. Requirement 6 Assuming that all monthly General Journal adjusting entries were correctly made and that no additional insurance has been purchased: ▷ What would be the amount of Prepaid Insurance shown on Amy's Floral Shop, Inc.'s Balance Sheet as of October 31, 2023? ▷ What would be the amount of Insurance Expense on the Income Statement for the period October 1 to October 31, 2023?
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Transcribed Image Text:90 SOLID FOOTING Problem 7-5 (continued) Chapter 7 - Adjusting Entries Requirement 4 Prepare a "T" account analysis to determine the required September 30 adjustment to the Prepaid Insurance account. Note that your "T" account analysis is for the Prepaid Insurance account, which contains the total amount of Prepaid Insurance for both insurance policies. Requirement 5 Prepare the September 30 General Journal adjusting entry for Prepaid Insurance. Requirement 6 Assuming that all monthly General Journal adjusting entries were correctly made and that no additional insurance has been purchased: ▷ What would be the amount of Prepaid Insurance shown on Amy's Floral Shop, Inc.'s Balance Sheet as of October 31, 2023? ▷ What would be the amount of Insurance Expense on the Income Statement for the period October 1 to October 31, 2023?
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Prepaid Insurance

Prepaid insurance is insurance for which premiums are paid up front to insurers. Because it is not used, insurance companies report prepaid insurance as working capital on their balance sheets. As soon as the insurance coverage kicks in, it becomes an expense rather than an asset.

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