QuickBooks Online 2021 adjusting entry prepaid insurance within QuickBooks, let’s get into it with Intuit QuickBooks Online 2021. Here we are in our get great guitars practice file, we’re going to start off opening our reports up by duplicating the tabs up top right clicking on the tab up top, duplicate two more times, right click on the tab up top duplicate one more time, right click on the tab up top and duplicate, we’re going to be having the trial balance, then the profit loss or income statement followed by the balance sheet, we’ll go down to the reports on the left hand side search for the trusty trial balance the TV trial balance, and then we’ll do the range change up top Indian Point being Oh 228 to one and run that report.
Then we’ll close up the hamburger up top hold down Control, scroll up just a bit to get up to that one to 5%. Next tab to the left, we’re going to go down then do the same routine reports. But this time, opening up the profit and loss the PnL the income statement range, changing it up top to the endpoint of Oh 228 to one, and then we’ll run that report, close it up the hamburger next one over to the left. Next tab to the left, this one’s going to be our balance sheet, the good old balance sheet, we’re going to go into it and open it up range change up top ending at Oh 228 to one, run that report close up the good old hamburger.
So what we’re doing now is our adjusting entry for prepaid insurance in prior presentations or when we enter the data into the system we entered. And this is kind of standard if you’re depending on making an adjusting entry. So if you’re depending on making adjusting entries at the end of the month or year, then whenever you pay for insurance, we will not put it into the insurance expense but rather into prepaid insurance.
This is especially useful if you’re paying insurance for multiple periods multiple months for example, because you will then have a timing difference with as to when you pay for the service the insurance and when you get the benefit, meaning the coverage that will be received. So in that case, you would want to put everything into basically prepaid insurance. And then as time passes, typically on a periodic basis, typically monthly, you would then reduce the prepaid insurance for the amount that had been covered, what we would do is look at the insurance policy, see what amount had been covered or how much had been been consumed in terms of usage, and decrease the prepaid insurance and record expense.
For each time period that makes it more easier to compare the matching principle is met. By doing that if I compare January to February or February to March, for example, then we’re not going to have this big expense in one month, and no expense in the other month when both month were benefited from the payment for insurance. That’s the concept. However, note that if you are a small company, and you’re just you’re doing basically this for taxes, and you want to make sure that your accountant picks it up at the end of the year, then you might do it the other way, you might put this on the books and just expense, the insurance expense.
Or if you’re paying insurance monthly, and you’re pretty close, you know, instead of paying for the whole year of insurance or multiple years of insurance, you’re paying it month by month, then it might be worthwhile just to expense it as you go. If that’s the case, then you could still do the adjusting entry if you want to. So if you have a year’s worth of insurance, for example, and you put all the insurance as an expense as insurance expense, and possibly you need to make the financials and then do your adjusting entry, you can do the adjusting entry the other way right, you can reduce the amount of insurance expense for the amount that had not yet been consumed.
And put the prepaid insurance on the books at the app periodically at the end of the month or year, you don’t typically want to do it that way, if you’re planning on doing adjusting entries, because these are temporary accounts and they’re going to roll into the equity section. So it kind of complicates the adjusting entry process to do that. So if you if you have a good system of adjusting entry setup, then you would prefer to put them in to the prepaid insurance and then allocate them out it does take a little bit more work, of course, to do that method rather than just expensing them you know, as the as the as you pay them.
Okay, so that’s going to be a process we did it in Excel last time. So we saw the the example in Excel, this is going to be the adjusting entry, we’re basically going to be decreasing the insurance here and then the other side is going to go to the insurance expense. The calculation that we had if we pull out the trusty calculator, trusty calculator calculator is gonna be here. We’re gonna say that it was a year’s policy that started in February. So one month has been passed. So we’re going to be taking then the 11,000 divided by the the 12 months, and that’s going to be 619 that we are point six 767 cents that we’re going to make for our journalists.
Within QuickBooks, that’s the wrong QuickBooks this QuickBooks, we’re going to be doing this into, we could do a journal entry, but we’re going to use the register whenever possible, the register we will be using will be the prepaid insurance register, because it is already set up. So let’s go to the first tab then. And we’re going to say that, let’s open up the hamburger, we could then use a journal entry like this with the debits and credits, or we can go to the register.
And that would be down here in the accounting tab, which will still basically record a journal entry, I’m going to close up the hamburger, I’m going to look for the balance sheet account, which was the prepaid insurance this one, because it has a register, remember that if you’re going to use this register method, you can’t do so if you’re going down here and using an income statement accounts because they don’t have the register.
So you got to choose whichever side of the transaction you’re working on. That is a balance sheet account, then you can kind of use this register method. So I’m going to go right let’s go into the prepaid insurance register, notice that I’m in prepaid insurance now, then I can say, Well, this is the account that needs to be going up or down the prepaid insurance, in our case needs to be going down. Because we’re decreasing the prepaid insurance, I’m going to hit the drop down, I would like to do it in the format of a journal entries, we’re still basically doing a journal entry as of the cutoff date, as is all of our adjusting entries.
Oh, 228 to one, and we’re gonna call this one. What do we call this one, AJ e five, and already has that there, that looks good memo, I’m just gonna call AJ e five, we could put more descriptive than that. But that’s what I’m going to keep it and this was going to be 916, point six, seven, decrease, other side go into the insurance expense. So scroll on down insurance expense, there it is, let’s save it and close it. What’s this going to do when we do this, obviously, it’s going to decrease the prepaid insurance, the other side go into insurance expense, which will be increasing it which will then decrease the net income.
So we’re gonna say save it and close it, we have our balance here, in our insurance account now at the 10,083. So that looks, I think that’s good. But let’s check it out on the balance sheet, that’s where we want to see it. Let’s refresh the balance sheet reports. We’re working with fresh stuff. And then we’re gonna go down to the prepaid insurance. And there it is, there it is, if I go into that, there’s our journal entry. If I go into that, and now it’s in the format of a journal entry, it doesn’t take me back to the register here, we see it in journal entry format.
So there’s your debits and credits, if you want to see it in that format. And this is going to be this should be a G five. This is not a reversing entry, a j, e five, save it, close it. So there we have that. So that looks good. Going back up top back to the good old balance sheet. Notice we have the 10,083 left, and we had 11,000 originally, so you would think if I paid for 11,000 for a year 11000 divided by 12 months, that gives us our six or 916. If I multiply that times, the 11 months remaining, we get about 10,083. There are some rounding involved here.
And then if I go into the income statement, next tab on over, refresh that report running it, going down to the good old income statement, we’re looking for insurance here, there it is, there’s the insurance, there’s the 916 on the insurance side of things, on the expense side of things on the income statement side of things. Scrolling back up top, we can then check our bottom line number.
We’re now at the 943 3.18. So if I go back on over here, just check our numbers on our worksheet 943 3.18. So you can see how transparent our worksheet is compared to excel where we compared to QuickBooks, where we’re kind of jumping back and forth. And we can only see of course, the end number, we can’t see where we started at before the adjusting entries. So that’s, you know, the Excel worksheets a little bit more transparent in that way. Let’s go to the trial balance.
Now. Run this one, go ahead and run this one. This is where we stand at this point in time. So you can check your numbers here. We’ll also be printing this out. So you can check your numbers on your own time. Because this is our time and you can check them on your own time. If you want