Another method of handling such items is based on an asset classification of the accounts recording them. Under this hypothesis such account titles as Postage, Stationery, Wrapping Supplies, and even Insurance (that is, unexpired insurance), are classed as asset accounts. At the close of the period when the adjustments are made, it is necessary to transfer from such asset accounts only the portions used or consumed during the current period. The balances left in the accounts represent the unused assets carried over into the next period. The difference between the two methods is indicated by the two sets of adjusting and closing entries given below.
Problem. Assume that $1,000 of insurance has been purchased during the current period and that at its close unexpired insurance is $250.
First Method.
The adjustment of the Insurance account classified as an expense account is here made by the following entry:
| Insurance (Deferred) | 250.00 | ||
| Insurance | 250.00 | ||
The closing entry would be:
| Profit and Loss | 750.00 | ||
| Insurance | 750.00 | ||
The ledger account would show as follows:
| Insurance | |||
| 19— | 19— | ||
| Jan. 15 | 500.00 | Dec. 31 Deferred as unexpired | 250.00 |
| June 15 | 500.00 | Profit and Loss | 750.00 |
| 1,000.00 | 1,000.00 | ||
| 19— | |||
| Jan. 1 | 250.00 | ||
Second Method.