BZ102 Prepaid Insurance
Information below is provided for a retail business which sells household appliances and electrical goods.
Required
- Prepare General Journal entries for the balance day adjustments as at 30th June, in the current year.
- Separately show your workings or provide an explanation of your reasoning for each of the transactions.
- The business received its electricity bill on 29 June, for $823. This covered usage of electricity from 20 March to 20 June. The bill was filed and will be paid by the due date of 10 July.
- The business paid $1 260 on 1 September last year for twelve months’ car insurance. At the time of the transaction, Insurance Expense was debited and Cash at Bank credited, for $1 260.
- Employees are paid every Monday morning for the previous five day working week. $1,200 of wages was paid on Monday 2nd
- A customer paid a deposit of $400 on 29 June, for a three-month service contract commencing 1 July. On 29 June, the accountant recorded a debit to Cash at Bank of $400 and a credit of $400 to Service Fees Revenue account.
- The business met their sales goal of 100 Phillips brand televisions sold for June. They expect to receive commission revenue of $550 from Phillips in the last week of July.
Answer:
| General Journal | ||||
| Date | Particulars | Debit | Credit | Explanation/ working |
| 29-Jun | Electricity expense | $ 823 | Since the bill was received for period 20th Mar to 20th Jun, so it needs to be charged off completed . | |
| To Electricity expense payable | $ 823 | |||
| (To record electricity bill received and payable) | ||||
| 30-Jun | Prepaid insurance (1260/12*2) | $ 210 | Since two months (Jul and Aug) are prepaid, we need to transfer the expenses for these two months in prepaid ledger from the expenses account. | |
| To Insurance expense | $ 210 | |||
| (To record prepaid insurance of Aug & Sep, booked under insurance expense) | ||||
| 30-Jun | Wages expense | $ 1,200 | Since wages have not been paid for five working days of Jun month as on date of closing, these needs to be accrued. | |
| To Wages expense payable | $ 1,200 | |||
| (To record wages payable on 2nd July) | ||||
| 30-Jun | Service Fees revenue account | $ 400 | Since the services has not been provided yet, therefore complete amount needs to be transferred to unearned service revenue ledger. | |
| To Unearned services fees revenue | $ 400 | |||
| (To record services fees received, but services to be provided) | ||||
| 30-Jun | Commission revenue receivable | $ 550 | Since the services have been provided, same needs to be recognized in the current accounting period. | |
| To Commission revenue | $ 550 | |||
| (To record commission earned but not received) | ||||
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