based on the unique characteristics of the transaction. Most often, prepaid expenses are amortized using the straight-line method, which evenly spreads the expense over the period of benefit. For example, an amortization schedule for a six-month insurance premium would show one-sixth of the...
SUPPLIES INITIALLY RECORDED AS AN EXPENSE page 268 1 2 1. Debit the asset account. 2. Credit the expense account. LESSON 9-2 REVERSING ENTRY—SUPPLIES INITIALLY RECORDED AS AN EXPENSE page 269 1 2 1. Debit the expense account. 2. Credit the asset account. LESSON 9-2 PREPAID INSURANCE IN...
the goods or services are received. A common example of a prepaid expense is aninsurance policy. Another example is a lumpsumpayment forrent; if a companypaysfor a year's worth of rent in advance, it is recorded as a deferred charge. A deferred charge is also called a prepaid expense....
What happens when prepaid insurance expires?Assets:A current asset that is seen on the balance sheet of a lot of companies is called the prepaid insurance account but is often grouped into an account called prepaid expenses. It is termed as prepaid because the company is paying for the ...
Prepaid expenses are expenses like insurance and rent that are paid in advance, therefore before the expenses have been incurred. The entries to...Become a member and unlock all Study Answers Start today. Try it now Create an account Ask a question Our experts can answer your tough ...
Insurance expense and insurance payable are distinct terms; one is an expense and the other is a liability. However, both terms interrelate because there wouldn't be an insurance payable amount without an insurance expense. This is because the debt only emerges if a policyholder does not pay ...
#1. Prepaid Insurance Example Company XYZ purchases a 6-month insurance policy for $1200 at the beginning of the year. This prepaid expense is first recorded as anassetlike this: Since the insurance is valid for 6 months, thenthe corresponding expensefor each month would be: ...
Link to Sources https://www.investopedia.com/terms/p/prepaidexpense.asp See our Editorial ProcessShare Feedback Editors' Picks Related Articles Discussion Comments Byanon310480— On Dec 23, 2012 What if a prepaid insurance is overcast when recording from the trial balance, let's say maybe by ...
Each month, an adjusting entry will be made to expense $10,000 (1/12 of the prepaid amount) to the income statement through a credit to prepaid insurance and a debit to insurance expense. In the 12th month, the final $10,000 will be fully expensed and the prepaid account will be zero...
liability insurancefor the upcoming year. The company pays for the policy upfront and then, each month, makes an adjusting entry to account for the insurance expense incurred. The initial entry, where we debit the prepaid expense account and credit the account used to pay for the expense, ...