Adjusting journal entries are used to (you guessed it) adjust the balances in certain accounts due to the passage of time. Adjusting entries are made at the end of an accounting period.

Concept #1: Introduction to Adjusting Journal Entries

Concept #2: Adjusting Journal Entries: Prepaid Expenses (Accrual Accounting Method)

Concept #3: Adjusting Journal Entries: Prepaid Expenses (Cash Basis to Accrual Method)

Concept #4: Step-by-Step Process for Prepaid Expenses

Practice: On January 1, a company purchased a two-year insurance policy at $2,400 per year in cash. At this time, the company included the entire value of the policy in Prepaid Insurance. The coverage began immediately. The adjusting entry necessary when preparing the June 30 financial statements would include:

Practice: On January 1, a company signed a two-year rental agreement policy at $4,800 per year in cash. At this time, the company included the payment of the lease in Rent Expense. The lease began immediately. The adjusting entry necessary when preparing the June 30 financial statements would include:

Practice: The prepaid insurance balance on December 31, 2017 was correctly shown as $900. On April 1, 2018 an additional premium of $600 was paid by the company. The balance sheet at December 31, 2018 showed the appropriate amount of prepaid insurance as $500. The correct amount of insurance expense for 2018 would be: