Prepaid Advertising Debit Balance $1100

GBI's advertisement in the English language edition of Italian Cycling Journal was published today. This ad was prepaid at the end of July for six months of advertising, August through January, (Five months of advertising have already been used.)

What would the journal entry be?

Debit Advertising expense $916.67

Credit Prepaid Advertising $916.67

Being entries to recognize advertising expense incurred for 5 months.

Explanation:

When an amount is paid in advance, the entries posted are

Debit Prepaid Advertising

Credit Cash account (with the amount prepaid)

As the expense is incurred, entries required would be

Debit Advertising expense

Credit Prepaid Advertising (with the amount incurred)

Expense incurred in 5 months

= 5/6 * $1100

= $916.67

Hence the entries required will be

Debit Advertising expense $916.67

Credit Prepaid Advertising $916.67

Being entries to recognize advertising expense incurred for 5 months.