The $900 must then be recognized as expense since it has already been used. Thus, out of the $1,500, $900 worth of supplies have been used and $600 remain unused. Suppose at the end of the month, 60% of the supplies have been used. Take note that the amount has not yet been incurred, thus it is proper to record it as an asset. In one of our previous illustrations (if you have been following our comprehensive illustration for Gray Electronic Repair Services), we made this entry to record the purchase of service supplies: Dec 7 Service Supplies 1,500.00 Cash 1,500.00 Prepaid expense accounts include: Office Supplies, Prepaid Rent, Prepaid Insurance, and others. Under the asset method, a prepaid expense account (an asset) is recorded when the amount is paid. There are two ways of recording prepayments: (1) the asset method, and (2) the expense method. The adjusting entry for prepaid expense depends upon the journal entry made when it was initially recorded. Jacoby Companys Prepaid Rent account had a balance before adjustment of 6,000. Place the steps in the four-step closing process in the correct order: 1.
Prepaid expenses may need to be adjusted at the end of the accounting period. cover less than one year, usually spanning one-, three.
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