Homework Answers
Prepaid insurance is the portion of an insurance premium that has been paid in advance and has not expired as of the date of a company's balance sheet. This unexpired cost is reported in the current asset account Prepaid Insurance.
As the amount of prepaid insurance expires, the expired portion is moved from the current asset account Prepaid Insurance to the income statement account Insurance Expense. This is usually done at the end of each accounting period through an adjusting entry.
|
Account titles |
Debit |
Credit |
|
Insurnace |
500 |
|
|
Prepaid Insurance |
500 |
|
|
(To record expired portion of insurance) |
workings
Insurance is taken for five months(1feb to 30th June)
Henece insurance for one month =1250/5=250
Total expired month=2 months
Total expired insurance =250*2=500
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