Deferred Expenses Adjusting Entries Examples Help

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Meaning of Deferred Expenses Adjusting Entries

 

Deferred Expense refers to that expense whose benefit has not been consumed during the accounting period but those expenses have been paid in that accounting period. Such expense is considered as an asset. It is considered as an expense only when the benefit has been fully consumed. The deferred expense is otherwise called as prepaid expenses. Examples of such expenses are insurance paid, interest paid in advance, supplies.The adjusting entry for deferred expense is as follows:
Deferred Expense a/c Dr.
To Expense a/c
 

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Deferred Expenses Adjusting Entries Examples Explanation

 

Let me explain it with the help of an example.
Example 1: Insurance premium of $4000 is paid on 1st July 2013 and the accounts are to be closed on 31st March 2014. The benefit of insurance policy will accrue up to 30th June 2014. This means insurance benefit for three months that is from 1st April to 30th June will be consumed in the next accounting year therefore the entry to be passed is
 

Deferred Insurance Premium a/c Dr. 1000
To Insurance Premium a/c 1000
 

Example 2: when a company purchases supplies it is not necessary that the whole supplies will be consumed in one accounting period. It is recorded as an asset until the supplies are used and an adjusting entry is used to record the amount of supplies used during the period.
 

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