An unexpired expense occurs when a company makes a prepayment for goods or services. A company may prepay for items such as insurance coverage, and legal and accounting services. A company treats a prepaid expense as an asset until the company receives the goods or service. A company must journalize the unexpired expense in the general journal to indicate the unused portion of the prepaid expense. When a company makes the prepayment, it decreases the company’s cash account and increases the amount in the prepaid expense account.
Subtract the expired portion of the prepaid expense from the total amount of prepayment to verify the unexpired portion of the prepayment . For example, a company that has used $10,000 of its $12,000 prepaid legal expense has a $2,000 unexpired prepaid legal expense.
Write the date of the adjustment in the far left column of the general journal. Draft the day and month of the adjusting entry for unexpired expense.
Write the words “prepaid expense” next to the date. Write the amount of the unexpired legal expense in the debit column of the general journal. For example, a company that has a $2,000 unexpired legal expense must debit “prepaid expense” for $2,000. Prepaid expense is an asset that appears on the company’s balance sheet.
Write the word “expense” below the words “prepaid expense. Indent the word “expense.” Record the unused amount of the expense in the credit column. For example, a company that has $2,000 unused legal expense must credit expense for $2,000.