Question

What adjusting entry should be made when the Prepaid Insurance account has a balance of $3,000 and $2,000 of it has expired?

Answer 1

To record the expired portion of the Prepaid Insurance, make an adjusting entry that decreases the Prepaid Insurance account and increases the Insurance Expense account by $2,000.

Step-by-step explanation:

To record the expired portion of the Prepaid Insurance, you would need to make an adjusting entry that decreases the Prepaid Insurance account and increases the Insurance Expense account. Since $2,000 of the Prepaid Insurance has expired, you would debit Insurance Expense for $2,000 and credit Prepaid Insurance for $2,000. This entry recognizes the portion of the insurance that has been used up and transfers it to an expense account.