 In this presentation, we will enter an adjusting entry related to prepaid insurance. Time to engage with SAGE 50, Cloud Accounting. Here we are in our Get Great Guitars file. We're going to start off by opening up our financial statements, going to the reports drop down, going on down to those financial statements, opening up that balance sheet. So we're going to open up this balance sheet as of the second period or February. Going to say OK to complete the process of opening it up. We'll scroll on down to the, what, we don't have to scroll down, that's right up top. We're going to be in the prepaid insurance. Now prepaid insurance is kind of like the primary example for anything that could be prepaid. There's any kind of thing that could be prepaid, but insurance is always prepaid. That's why it's going to be the primary example. When we put prepaid insurance on the books, what we're saying, the typical method on an accrual basis is to say, hey, accounting department, every time you enter the transaction for prepaid insurance, don't put it to insurance expense. Simply put it into prepaid insurance every time. And then at the end of the month or year, we will do an adjusting entry, taking a proportion out of it according to how much had been used each time period and recording that portion on the income statement. That's going to be the process we have. Now if it so happened that the accounting department had expensed it and we want to be correct on an accrual basis, then we'd have to go to the prepaid or the insurance expense and take out some of the expense and put it on the books as a prepayment. So this would be the method that you would typically want to do with a prepayment. And again, you could do it with any kind of prepayment. It might be prepaid rent or something like that, where you paid the rent in advance or if it's computer software, for example, a common example right now, you might pay for software for 12 months into the future and have a similar kind of prepayment issue as with the prepaid insurance. So anything that you're paying and you're going to get future use of, you have the similar kind of concepts here that you could record the prepayment, the insurance just being the primary example because it's pretty much always applicable. All right. So then we're going to say that we have this 11,000 and we're going to say that's for one year of insurance and only one month has passed as of February. So we're going to divide that by 12 and say that then 916 of it and 66 cents and has been consumed as of this point in time. So what we need to do then is reduce or record the expense of the 916 and reduce the prepaid insurance by the 916, which will leave us with what is going to be left in here is going to be 11 months. So this times 11 should be left. That's what's going to be left after the end of the day here. What happened here? It divided it. Something funny happened. 11. Let's do that again. 11,000 divided by 12 916 times then 11. So there's the 10,083 will be left. Okay. So let's do the adjusting entry. This is a typical adjusting entry 11,000 divided by 12. And that's going to be the amount that we will be recording this for. Let's open up our general journal entry going back to the entry screens. I'm going to go back on over here. We're going to go to the tasks drop down. We're going to go to the general journal entries. I'm going to make it large. We're going to enter it as of the cutoff date, which is going to be 022920, 29 days in 2020. And we're going to be saying that it's going to go to insurance expense. It's going to be the debit. So I'm going to select this item. We're going to go on down. I'm looking for the expenses on the right side. So we're down here in the expenses. I'm looking for an insurance expense. So it's had some kind of insurance. There we go. And this is going to be an ADJ entry, which stands for adjusting entry. And that was for the 916.67. And then the credit is going to go to the decrease of the prepaid insurance. So we'll select the drop down. We're looking for a prepaid insurance. That's going to be going down with a credit of the 916.67. So there we have it. And then let's go ahead and record this. And so I'm going to say save to do so. And then close this one out up top. We're going to close this out. We're going to go back to the old financial statements, back to the old balance sheet. And we're left here with that 10,083, which is 11 months, 11 months still having not been consumed as of yet. In other words, that's going to be the 11,000 that we paid divided by 12 times 11 months. So the 10,083, 33,333. But then we round it to the pennies. And then we're going to go to the PNL, or profit and loss. And so let's do that. And we're going to go to the income statement, otherwise known as. And then we'll uncheck these ones, because we don't want the zero balances in there. And here we have it. So we should have insurance down here. Here's the insurance of the 916. So if I double click on that 916, on the insurance expense, there's the journal entry. Double clicking on that, that of course takes us to that journal entry. So now we have expensed the 916, which is good, because even though we paid the 11,000, because then if we compare, say, February to March, we'll have the same 916, 916 comparison based on the usage. As opposed to if we use the cash basis method and simply expense the 11,000, and then compared this period to the next period, this month to next month, then you'd have a huge expense, 11,000, and no expense in the following month, even though both months had benefited from the payment that has been made. And you can see if you have a lot of prepayments, again, like software, is if you're paying for the whole software in month one, then you can have some huge distortions in your financial statements when you're trying to think about how good your months were for month to month. So it's good practice. You can see how it would be useful then for comparison for matching purposes to use the prepaid concept. Insurance, again, is of course the primary prepayment example because it's always prepaid. By definition, you're paying for insurance before you get the insurance, but same kind of concept can apply and you can think about it being applied to many, many different areas that you might prepaid such as those subscription-based items, oftentimes, like things like software. So that's gonna be it for now. Let's get out of here.