Final answer:
To record the expired insurance for the year, one would debit Insurance Expense for $7,500 and credit Prepaid Insurance for $7,500, reflecting the expense in the correct period.
Step-by-step explanation:
The question asks us to record the adjusting entry for insurance that has expired during the year, amounting to $7,500. This is a typical example of an adjusting entry in accounting, which is necessary to ensure that the revenues and expenses are recorded in the period in which they are incurred, in accordance to the matching principle.
The entry to record this will be:
- Debit Insurance Expense $7,500
- Credit Prepaid Insurance $7,500
By recording this entry, the company is matching the insurance cost (expense) to the period in which the benefit was used up, which is an application of the accrual method of accounting.