Illustration 2 – Prepaid expenditure
The annual insurance charge for a business is $24,000 pa. $30,000 was
paid on 1 January 20X5 in respect of future insurance charges.
For the year-ended 31 December 20X5 what is the closing
prepayment and the insurance expense for the year?
Show the relevant entries in the ledger accounts.
Solution to Illustration 2
•
The total expense charged to the statement of profit or loss in
respect of insurance should be $24,000.
•
The year-end prepayment is the $6,000 that has been paid in
respect of 20X6.
The accounting entries required are:
Dr Prepayment $6,000
Cr Insurance expense $6,000
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