Question

Adjustment for prepaid expense The prepaid insurance account had a beginning balance of $6,000 and was debited for $12,500 of premiums paid during the year. Journalize the adjusting entry required at the end of the year, assuming the amount of unexpired insurance related to future periods is $13,000. If an amount box does not require an entry, leave it blank. blank Account Debit Credit blank - Select - - Select -

Answer 1

To adjust for prepaid insurance, calculate the insurance expense of $5,500 by subtracting the unexpired insurance of $13,000 from the total of $18,500. Debit Insurance Expenses and credit Prepaid Insurance for the expenses incurred during the year.

Step-by-step explanation:

The task involves creating a journal entry for the adjustment of prepaid insurance at the end of an accounting period. Given that the Prepaid Insurance account started with a balance of $6,000 and was debited an additional $12,500 for insurance premiums paid during the year, the total amount in the Prepaid Insurance account would be $18,500 ($6,000 + $12,500). The adjustment requires us to account for $13,000 of this amount as still being prepaid (unexpired) at the year-end. To adjust, we must recognize the insurance expense incurred during the year. We do this by subtracting the unexpired amount ($13,000) from the total in the Prepaid Insurance account ($18,500), to find the insurance expense for the period, which is $5,500 ($18,500 - $13,000).

The journal entry would be:

Insurance Expense - Debit $5,500

Prepaid Insurance - Credit $5,500

This entry effectively moves the amount that has expired (the insurance cost for the period) from an asset account to an expense account, which properly matches the insurance cost to the period in which it was incurred.