Page 78 - Accounting Principles (A Business Perspective)

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General Ledger
Prepaid Insurance

(Dr) Acct. No. 108 (Cr)
2010 2,400
Dec. 1
Cash

(Dr) Acct. No. 100 (Cr.)
2010 50,000 2010 40,000
Dec. 1 Beg. Bal Dec. 1 Dec. 1 2,40
Effects of transaction
An asset, prepaid insurance, increases (debited); and an asset, cash, decreases (credited) by USD 2,400. The debit
is to Prepaid Insurance rather than Insurance Expense because the policy covers more than the current accounting
period of December (insurance policies are usually paid one year in advance). As you will see in Chapter 3, prepaid
items are expensed as they are used. If this insurance policy was only written for December, the entire USD 2,400
debit would have been to Insurance Expense.

Transaction 4: Dec. 1 Rented a building and paid $1,200 to cover a three-month period from this date.
General Journal
Date Account Titles and Explanation Post. Debit Credit
Ref.
2010 Dec. 1 Prepaid Rent (+A) 112 1 2 0 0
Cash (-A) 100 1 2 0 0
Paid three months' rent on a building.

General Ledger
Prepaid Rent
(Dr.) Acct. No. 112 (Cr)
2010
Dec. 1 1,200
Cash
(Dr.) Acct. No. 100 (Cr.)
2010 2010
Dec. 1 Beg. Bal. 50,000 Dec. 1 40,000
Dec. 1 2,400
Dec. 1 1,200

Effects of transaction
An asset, prepaid rent, increases (debited); and another asset, cash, decreases (credited) by USD 1,200. The
debit is to Prepaid Rent rather than Rent Expense because the payment covers more than the current month. If the

payment had just been for December, the debit would have been to Rent Expense.
Transaction 5: Dec. 4 Purchased $1,400 of training supplies on account to be used over the next several months.
General Journal
Date Account Titles and Explanation Post. Debit Credit
Ref.
2010 Dec. 4 Supplies on Hand (+A) 107 1 4 0 0
Accounts Payable (+L) 200 1 4 0 0
To record the purchases of training supplies for future use.

General Ledger

Accounting Principles: A Business Perspective 79 A Global Text