Question

"Paid $3,000 insurance for next year in advance" What are the accounts and how are their debits and credits affected?

Answer 1

When paying $3,000 insurance for the next year in advance, the Prepaid Insurance account is debited by $3,000, and the Cash or Bank account is credited by $3,000.

Step-by-step explanation:

When you pay $3,000 insurance for the next year in advance, the following accounts are affected:

1. Debit the Prepaid Insurance account by $3,000
2. Credit the Cash or Bank account by $3,000

This transaction increases the Prepaid Insurance asset account because it represents an expense that has been paid in advance. It also reduces the Cash or Bank account because cash has been used to make the payment.