Enjoyed this video? Then subscribe to the channel right now, and let's review the "opposite" of prepaid expenses: accruals ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-lBvnSgIGVnU.html
I prepay my website hosting service and domain name services, in advance for varied lengths of time. I credit the amount paid ($X.xx) for example, for six months of service, in an asset account, 'Prepaid Expenses' and debit cash. Then, I divide $X.xx by 6 months and credit that amount as a monthly expense, debiting the Prepaid Expense account, for six consecutive months. If the Tax period occurs in the middle of the six months, you declare the expired months as expenses. Whatever is left in the Prepaid account is an asset like cash in the bank you haven't spent yet.
Good example, I do the same in my business. I think you got the "sign" of the journal entries mixed up. When prepaying for the services: Debit prepaid expense (assets) Credit cash When recording the monthly cost: Debit webhosting service expense (cost in the income statement) Credit prepaid expense (assets)
To the point and clear...other daily prepain exps in personal life is prepaid recharge of bus pass for daily commute or metro smart card...in small company insurance of car.
thank you! great video, keep posting them please! Can you make a video about VAT accruals and what I need to do to be able to work in a general ledger department?
You're welcome! Thank you for the feedback. Let me think whether I can make enough interesting comments to fill up a video about VAT accruals. As top skills for working in finance or accounting in general I would say: attention to deal, analytical thinking, dedication and perseverance. A basic degree or education in accounting also helps. In the meantime, let me share some links with you that might be useful: VAT explained ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-a6RB4rIxWqI.html Accruals explained ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-lBvnSgIGVnU.html What is a general ledger ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-Wda0K93Nk0c.html
Hello Sari! Start with the matching principle (expenses should be recorded in the period they relate to), and go from there. I have two videos on the topic of prepaid expenses, here's the link to the other one with more examples: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-drX-qrrvedo.html
I disagree. If I pay €240 for a 24 month subscription. Then I will book 240 the day I buy the subscription. What you're suggesting requires me to make multiple different entries over an extended period, I have better things to do with my time. Using your method the accountant alone is going to cost more than the actual subscription service.
In today's accounting systems, those recurring journal entries are very easy and cost-effective to set up. Your point seems to be the materiality of the €240, and you propose to expense it straight way. You argue that it's not big enough to worry about. What if it is €2400 or €24000, and the owner of the company is very focused on the financial results (you never know when the next funding round with a VC might be coming up). Would you still book all of it to expense, and violate the matching principle?
@@TheFinanceStoryteller I don’t think the size of the transaction matters all that much. Although I was unaware of the cost effectiveness of those bookings. What I’m suggesting is that something is worth what someone else is willing to pay for it. And thus everything is worthless until I see money moving. A subscription service could be worth €2, or €240.000 for the seller, but worth a million € to me and my VC.
If we finetune the terminology a bit, we are talking about price vs value ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-2PO9tIt5830.html as well as "value in use" vs "value in exchange" (I don't have a video on that, but there are a lot of useful descriptions when you copy those terms into a search engine).
Sorry to hear that. Maybe watching this video again, as well as the related video with more prepaid expense examples could help? ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-drX-qrrvedo.html
@@TheFinanceStoryteller I came across another video n i understand the lesson very well ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-CFHJa1g6Z9o.html
You're welcome! Here's a related video discussing various types of adjusting entries, including prepaids: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-57CST6_RtWk.html
