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Which of the following is the proper adjusting entry, based on a prepaid insurance account balance before adjustment of $14,000 and unexpired insurance of $3,000, for the fiscal year ending on April 30?
A) debit Insurance Expense, $3,000; credit Prepaid Insurance, $3,000
B) debit Insurance Expense, $14,000; credit Prepaid Insurance, $14,000
C) debit Prepaid Insurance, $11,000; credit Insurance Expense, $11,000
D) debit Insurance Expense, $11,000; credit Prepaid Insurance, $11,000
Prepaid Insurance
Payments made in advance for insurance coverages, recognized as assets until the coverage period lapses and it then becomes an expense.
Fiscal Year
A one-year period that companies use for accounting and financial reporting purposes, which may or may not coincide with the calendar year.
Unexpired Insurance
The portion of an insurance premium that has not yet been used up and is considered a prepaid expense for the company.
- Comprehend the association between prepaid expenses, accrued expenses, and the modifications required for each.
- Gain insight into the mechanics and outcomes of adjusting entries within the accounting cycle.
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Learning Objectives
- Comprehend the association between prepaid expenses, accrued expenses, and the modifications required for each.
- Gain insight into the mechanics and outcomes of adjusting entries within the accounting cycle.
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