Gadget Company pays $2,000 on January 1st. This $2,000 is for insurance that will cover all...
Gadget Company pays $2,000 on January 1st. This $2,000 is for insurance that will cover all of January and all of February. Answer the following:
- What accounts would be involved here?
- What would the journal entry be?
- What would the journal entry be on January 31st?
- Explain in writing what took place, aka, why are the accounts that are used in the initial journal entry used? Why was expense recognized when it was?
Homework Answers
1. Accounts that would included is prepaid insurance and cash and insurance account
2.Prepaid insurance cr. 2000
To Cash account dr. 2000
3.Insurance account Cr. 2000
To prepaid insurance ac. Dr. 2000
4. Firstly the prepaid insurance account were debited with cash account as they were being prepaid in advance
At the end of the month they were readjusted with the original insurance account.
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Gadget Company pays
$2,000 on January 1st. This $2,000 is for insurance that will cover
all...
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