Question

The prepaid insurance account had a beginning balance of $7,840 and was debited for $540 for premiums paid during the year.Required:Journalize the adjusting entry required at the end of the year, assuming the amount of unexpired insurance related to future periods is $5,010. Refer to the Chart of Accounts for exact wording of account titles.Journalize the adjusting entry required on December 31, assuming the amount of unexpired insurance related to future periods is $5,010. Refer to the Chart of Accounts for exact wording of account titles

Answer 1

The adjusting entry will involve debiting Insurance Expense and crediting Prepaid Insurance.

Date Account Debit ($) Credit ($)

12/31 Insurance Expense 5,010

Prepaid Insurance 5,010

Insurance Expense (Debit): Represents the portion of insurance that has been used or expired during the year. This amount is calculated as the beginning balance plus premiums paid during the year minus the unexpired insurance related to future periods.

Prepaid Insurance (Credit): Represents the portion of insurance that is still unexpired or related to future periods. This amount is being moved from the asset (Prepaid Insurance) to the expense (Insurance Expense) since it has been used during the year.