Final answer:
Insurance payments made in advance are categorized as a prepaid expense because they represent a payment for a service that will be received in the future. Option D
Step-by-step explanation:
Making insurance payments in advance is an example of a prepaid expense. In accounting, a prepaid expense refers to costs that are paid for in advance of receiving the benefit of the service or product.
This concept lies under the accounting principle known as the matching principle, which states that expenses should be recorded in the accounting period in which they are actually incurred, matching them with the revenues of the same period.
Therefore, when you pay for insurance ahead of the period it covers, it is considered a prepaid expense since the payment is made prior to receiving the full benefit of the insurance service. Option D