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Module 1: Balance day adjustments

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XSIQ
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Accounting - Balance day adjustments

Balance day adjustments

When using the 'Asset' approach to expense recognition the initial payment
is treated as an asset rather than an expense. A consequence of this
approach is that there are no reversing entries involved as only that
portion of the payment to be treated as an expense is deducted from the
'asset'.

Stan Jones from the Video and CD Store pays $6000, on 1 January for an
advertising program which will extend over the next three years.

Show how this will appear in the general journal and general ledger for
the next two accounting periods. Stan's business has accounting periods of
six months.

30 Jun.
Advertising expense
1 000

Prepaid advertising expense

1 000

Advertising expense allocated to this period

31 Dec.
Advertising expense
1 000

Prepaid advertising expense

1 000

Advertising expense allocated to this period

1 Jan.
Bank
6 000
30 Jun.
Advertising expense
1 000

Balance

6 000

6 000

1 Jul.
Balance
5 000
31 Dec.
Advertising expense
1 000

Balance
4 000

5 000

5 000

30 Jun.
Prepaid advertising expense
1 000
30 Jun.
Profit and Loss a/c
1 000

31 Dec.
Prepaid advertising expense
1 000
31 Dec.
Profit and Loss a/c
1 000

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