In today's clip, another beautiful adjustment is coming
Prepaid Expenses
P-R-E-P-A-I-D Prepaid Expenses
What? Why? How?
Let's start doing its postmortem
Without any delay
Come on, come on, dear children, sit with me
Start writing
It is also important to write
It is important to write
It is the rule of the class
Write quickly
What is the name?
Prepaid Expenses
I will try to explain this through an insurance scheme
With the help of insurance scheme
Friends
Do you know that taking insurance is necessary in life?
Yes It is necessary
Because Incidents can happen to anyone at any time
Everyone thinks that we are dear to God
Nothing will happen to us
We meditate twice as soon as we wake up in the morning
We have a Rudraksha necklace around our neck
We have a Tulsi necklace
We have a picture of Lord Ganesha in our pocket
But all these things work in your thinking
They give you hope and strength
But the truth is
Anything can happen to anyone at any time
That's why it is important to take insurance
It is important to take insurance
Yes I will give you a homework
Search on YouTube
Why Insurance is Necessary
ICICI Prudential Life Insurance Advertisement
They made a very good ad
With ICICI
I can't show you now
There will be a copyright issue in the recording
Let the class over
I will show you
Why insurance is necessary
So listen to the rest first
As we all know
Insurance is important
There is a person
His name is Chintamani
What is his name?
Chintamani He is very worried
About what?
There is a lot of stuff in his warehouse
Not now, later
There is a lot of stuff in his warehouse
It will be fun if everyone sees it together
Why alone?
It will be fun if everyone sees it together
In Islam, Haram is not allowed
Ok There is a lot of stock in Chintamani's warehouse
And he is very worried
The stock should not be stolen
The stock should not catch fire
The stock should not get wet from the rain
He is very worried about the stock
Because all his business depends on the stock
All his business depends on the stock
If the stock disappears
Then the money will not come after selling
Those who have a debt on their head
They will ask for money to pay
So he is very worried
An insurance agent came to him
The insurance agent explained to him
That you get insurance
If you have a loss
Then whatever the loss of the stock
That much money will be given by our company
This man felt like a God
He said, I am not a God
Don't think of me as a God
I am saying
I will take some fees in return
Chintamani was happy
He was dancing
He said, I had only one worry
If nothing happens to my stock
Then from where will I pay
You are taking a guarantee
If something happens to the stock
Then you will pay the loss
So the worry disappeared from my head
Now I am happy
I will dance
But the person who is an insurance agent
He said
I will take the cap of your worry on my head
His eyes are gone
I will take the cap of your worry on my head
But in return
I will charge some fees
Now no one will take such a worry in return
Right So what does the insurance company do?
It says we will pay your loss
But in return
What will you give us
A fee
What is it called?
Premium What is it called?
Insurance Premium
Does everyone know?
Sir, why did the insurance company start doing this work?
I mean, in a small fee
Why did the insurance company take such a big risk on its
head?
There is a very simple logic in this
Assume this man's one year stock
Insurance premium is 10,000 rupees
And it has a stock of one lakh rupees
How much is the stock?
One lakh rupees
Do insurance for 100 people like this
So 10,000 into 100
How much is it? 10 lakh rupees have come to the insurance
company
How much is it? 10 lakhs
And out of 10 people
How many people will get burnt?
How many people will get robbed?
You tell me
Max to max 2 people 3 people
Max to max
It is possible that no one will get burnt
If maximum
If the situation is worst than worst
Then somewhere 3-4 people will get burnt
Then also 3-4 lakhs will have to be paid
Then also 5-6 lakhs will be saved
Insurance business is very good
Are you seeing?
That's why
So now Chintamani
One year 12 months
Always remember insurance premium
Is of 12 months
How much insurance will be taken for a period?
For 12 months
Now the insurance
The agent who came to Chintamani
He came
On 1st June 2023
When did he come?
On 1st June 23
So you can tell
Where will these 12 months end?
These 12 months
Will end on 31st May 2024
When? Count on 31st May
June July August
September October November
December January February
March April
May On 31st May 24
Insurance premium
What he has charged
He has taken 12,000 rupees for a year
IP means insurance premium
How much did you take for a year? 12,000 rupees
And paid today
Because the insurance company
The whole premium
Takes advance
Says 1 lakh
We are insuring things for rupees
We are taking only 12,000 in return
Will you give us that too later?
Move We need that right now
Advance Okay So these 12,000 rupees
Related to 12 months
June July August September October November December
January February March
And next year's April and May
April and May
So I can say
This year
Financial year 23-24
Related to this
How much is the expense of insurance? 10 months
Means 10,000
10,000 And Where is the remaining 2,000 related from?
Next year 24 25 Next year 24-25 You paid the whole 12,000
today
June 1, 2023
In which year has the payment been completed?
In 23-24
But still
The whole 12,000
We will not take in the P&L of 23-24
Ask why?
Because How much is the expense related to 23-24?
Only 10,000 In return of 2,000
Insurance services
When will you get?
Next year 24-25 That's why the expense of 2,000
Next year
Related to 24-25
So it will go to the P&L account of 24-25
Means When you make the P&L of 23-24
When you make the P&L of 23-24
So there is a debit side in P&L
Expensive side
Here you can see
The expense of insurance premium
Whole 12,000 rupees
What will you say?
You will say
Luca di Pasioli has taught
Accounting is done on an accrual basis
Payment is never seen
How much is the related expense? 2,000 out of 12,000
Related to next year
This year's expense is only
How much is it? 10,000
So how much will come in this year's P&L? 10,000 rupees
And what name will you give this 2,000?
Prepaid Insurance
What name will you give it?
Prepaid Insurance
Okay There will be one more effect of this
Can you tell?
What will happen in this balance sheet?
Asset will be made
Why? Take money in advance
If there is a liability
Then pay the money in advance
Asset will also be made
Brother In return of this 2,000 rupees
What will you get next year?
You will get services
Your insurance is free
You are getting security
If there is any loss
You will be paid for the next two months
That's why this 2,000 is your asset
Anything that benefits you
It is also your asset
So this Prepaid Insurance
In the balance sheet of 2,000
Asset side will also come
Will come
Will definitely come
And what will be the journal entry?
Asset will be made
Debit the asset
That's why Prepaid Insurance
Debit the account
Prepaid Insurance
Account Debit
To Insurance Account
Credit the expense called insurance
Will reduce
Expense is debit
You must have heard the rule
Debit all expenses and losses
You have to reduce the expense
You have to reduce 2,000
Credit from it
Prepaid Insurance
Account Debit
To Insurance Account 2,000 First write the journal entry
Then write P&L
And then write the balance sheet
Thank you for watching
Now, I will tell you how the balance sheet will be tallied
in spite of this effect.
Did you reduce your expenses from 2000?
Yes or no?
Yes As soon as you reduce the expenses, will the profit
increase from 2000 or not?
And as soon as the profit increases from 2000, when you add
profit in the capital, will it increase from 2000?
If the profit increases from 2000, then the liability side
of the balance sheet will also increase from 2000.
Say yes or no?
Yes Yes So, on one side, the liability side of the balance
sheet increased from 2000 and the asset side also increased
from 2000 in the name of prepaid insurance.
So, both sides have the same effect of 2000 and 2000.
The balance sheet will remain tallied.
The balance sheet will remain tallied, friends.
OK Let's revise it once.
Prepaid expenses means the expense that is related to the
next year, but you have paid it now.
But what do accounts say?
Even if the payment is done this year, we will not accept
the expense of this year because it is related to the next
year.
So, it will go to the P&L of the next year.
It will go to the P&L of the next year.
What will be the entry?
Prepaid insurance account debit to insurance
Because making a payment in advance is an asset for you.
In return, you will get services in the future.
Your responsibility has been fulfilled, now services will
continue to come for insurance.
That's why the insurance prepaid account will be debited.
Call it prepaid insurance, call it insurance prepaid, it's
the same thing.
And if you want to reduce the expense, you will credit it.
If you want to reduce the expense, you will credit it.
Because the expense is always debited.
Debit all expenses and losses.
If you want to reduce it, what will you do?
Reverse means credit.
Is it done?
OK So this was the adjustment of prepaid insurance.
More adjustments in the coming clips.
Thank you for everyone.
Bye Bye
Keep revising.