Deferred expenses (aka Prepayments): cash is paid before the expense is incurred. Happens when: 1) firm...

 

Transcribed Image Text:

Deferred expenses (aka Prepayments): cash is paid before the expense is incurred. Happens when: 1) firm prepays for future goods or service and 2) time has passed and firm has received some or all the prepaid goods or service. At the end of the period, the adjusting entry will: 1) incur the correct amount of expense due to the passage of time and 2) adjust the unexpired costs (decrease the prepaid asset by the amount used) to reflect the remaining amount of future economic benefit. End of Period AJE ?????? Expense Prepaid ?????? Expense XXX XXX Example 5a: Torchy's Tacos paid $2400 for a two-year insurance policy on October 1, 20X1, with the original journal entry debiting a real account. Determine the original journal entry; then provide the necessary adjusting entries on December 31, 20X1 and 20X2. Deferred expenses (aka Prepayments): cash is paid before the expense is incurred. Happens when: 1) firm prepays for future goods or service and 2) time has passed and firm has received some or all the prepaid goods or service. At the end of the period, the adjusting entry will: 1) incur the correct amount of expense due to the passage of time and 2) adjust the unexpired costs (decrease the prepaid asset by the amount used) to reflect the remaining amount of future economic benefit. End of Period AJE ?????? Expense Prepaid ?????? Expense XXX XXX Example 5a: Torchy's Tacos paid $2400 for a two-year insurance policy on October 1, 20X1, with the original journal entry debiting a real account. Determine the original journal entry; then provide the necessary adjusting entries on December 31, 20X1 and 20X2.