Examples
An adjusting entry for prepaid insurance
One month of a $1,200 policy used up: the month’s expense worked out, then the adjusting entry written in the US format.
- 0:51
- Accounting problems
- Narrated by Erinome
- English
Made from a prompt
Record the adjusting entry: $1,200 of prepaid insurance covers 12 months, and one month has passed.
Video transcript
In this video, you will record an adjusting entry for prepaid insurance.
Question one. Record the adjusting entry: twelve hundred dollars of prepaid insurance covers twelve months, and one month has passed.
First, divide the prepaid insurance cost by the number of months covered to find one month's expense. Twelve hundred dollars divided by twelve gives one hundred dollars of insurance expense.
Insurance Expense is an expense account, so you debit it to record the increase. Prepaid Insurance is an asset account, so you credit it because the unused insurance decreases. Now, debit Insurance Expense for one hundred dollars.
Then, credit Prepaid Insurance for one hundred dollars.
Debits equal credits: one hundred dollars each.
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