What adjustment should be made to record expired advertising on the firm?
On Decemeber 1, 2007, a firm signed a contract with a local radio station for advertising that will extend over a one-year period. The firm paid $5,400 in advance and debited the amount to Prepaid Advertising.
It should be expensed as it is used. That is, a twelve-month contract costing $5,400 should be expensed over the twelve month period. That’s $450 per month.
Each month a credit of $450 would be made to the prepaid advertising account and a debit of $450 would be made to the advertising expense account. At the end of the contract period, there will be no remaining prepaid advertising balance related to this contract.
It should be expensed as it is used. That is, a twelve-month contract costing $5,400 should be expensed over the twelve month period. That’s $450 per month.
Each month a credit of $450 would be made to the prepaid advertising account and a debit of $450 would be made to the advertising expense account. At the end of the contract period, there will be no remaining prepaid advertising balance related to this contract.
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