Accounting International Marketable Securities Standard

Under the accrual method of accounting, the matching concept means that revenues and expenses must be recorded in the same accounting period that they were incurred. For example, a three-month insurance policy dated December 1, 2010 for $600 would be recorded as an asset (debit to Prepaid Insurance and credit Cash) not an expense. At the end of the accounting period on December 31 an adjusting entry would be made to record the actual amount of insurance that has been used as an expense. In this case $200 of the prepaid insurance has been used up ($600/3 x one month), so an adjusting entry debiting Insurance Expense and crediting Prepaid Insurance for $200 must be made. Note that this leaves a balance of $400 in the Prepaid Insurance account to start off the new accounting period in 2011.

Understanding the Characteristics of Fixed Assets

Unlike the above example, accounting for the monetary outlay of a fixed asset is not quite so straightforward; therefore it is important to understand what may be categorized as a fixed asset as well as how to classify the costs of fixed assets.

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