What will be the entry of "out of insurance which was debited to the profit & loss A/c, Rs. 1500 be carried forward as unexpired insurance." in revaluation A/c??? also tell me the reason ...........
Rs.1,500 will be recorded at the credit side of revaluation A/c i.e. "By insurance premium" & it will also be shown in the assets side of Balance sheet. By this way dual entry system will be satisfied.
Reason for doing so:-
Actually this insurance is not expired its an unexpired insurance which was wrongly debited to the P&L A/c hence now it will ibe claimed & be recieved.
Unexpired insurance/prepaid insurance a/c dr. 1500
To revalution 1500
In the p&l a/c expenes are debited to the extent benefit obtained whether paid or not. In the above question prepaid insurance (benefit of which is to be obtained in the future )wrongly debited to the P&L a/c so we nullify the effect by passing the above entry.
prepaid insurance is our asset. it should not have been debited to p/l ac. so if however it is done means we have over stated our expenses and have not shown the asset. so we will pass the entry
prepaid insurance a/c dr 1500
to reval a/c 1500
prepaid insurance a/c is debited which means we have inducted it in the assets. and reval a/c is credited so the overstated previous years expense is cancelled.