Session 11 - Adjustment of Prepaid expenses

Session Plan : Adjustment of Prepaid expenses

Introduction (5 min): Explain meaning of prepaid expenses and the need for adjustment in final accounts.

Concept & Journal Entry (10 min): Show entry – Prepaid Expense A/c Dr. → Expense A/c Cr.

Illustrations (15 min): Work out examples showing treatment in P&L A/c and Balance Sheet.

Class Activity (10 min): Students solve practice problems on prepaid expenses.

Recap & Q/A (5 min): Summarize importance and clarify doubts.

Lecture Material : (PDF, PPT)

Adjustment_of_Prepaid_Expenses.pptx 

Learning Material (IV Quadrant Approach)

(Q1) : Text and Image based Content (PDF/Image Formats)

3. Prepaid Expenses

Definition: Expenses paid in advance for benefits to be received in future periods.

Treatment:

• Profit & Loss Account: Deducted from the respective expense to reflect only the expense pertaining to the current period.

• Balance Sheet: Shown as a current asset.

Journal Entry:

Prepaid Expense A/C  Dr.

  To Expense A/C

Scenario: An insurance premium of ₹12,000 is paid on December 1st for a one-year policy. By March 31st, only four months' worth (₹4,000) is applicable to the current financial year.

Journal Entry:

Prepaid Insurance A/C  Dr. ₹8,000

  To Insurance Expense A/C                ₹8,000

Impact:

• Profit & Loss Account: Only ₹4,000 is charged as an expense, matching the expense to the period it pertains to.

• Balance Sheet: Prepaid insurance of ₹8,000 is shown under current assets.

(Q2) : Video Based Content (Youtube): www.youtube.com/watch?v=BLKW8z1yNEk&list=PLLhSIFfDZcUXEs3UhIv5tMn6AAU1GNnPr&index=37 

(Q3) : Formative Assessment (Google Form/Any Other Online Quiz Platform): forms.fillout.com/t/uanxTK7pDius