Prepaid Insurance Debit or Credit

Debit prepaid insurance and credit cash. To illustrate prepaid insurance lets assume that on November 20 a company pays an insurance premium of 2400 for insurance protection during the six-month period of December 1.

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After all debits and credits are posted to the general ledger.

. However once you make the premium payment the policys coverage becomes an asset which diminishes over time during the. Ad With AAA Youre More than a Policy Number Youre a Member of the Family. The ending balance either debit or credit would be classified as Prepaid or Accrued Insurance at the end of the period.

The recurring monthly adjusting entries are not changed. Prepaid insurance is an expenditure. This alternative method of recording and classifying prepaid insurance is.

Prepaid insurance is a debit balance because it is an asset to u who holds the insurance policy. Modern rules of accounting. Debit insurance expense and credit prepaid insurance for 100 The amount of insurance divided by 12.

Adjust your accounts by 1500 each month. Prepaid insurance is usually charged to expense on a straight-line basis over the term of the related insurance contract. Get Personalized Service When You Quote Today.

The initial journal entry for prepaid rent is a debit to prepaid rent and a credit to cash. It also prepares an automatic monthly adjusting entry to debit the insurance expense that. Expense 1500 of the rent with a debit.

By making this journal. Get Personalized Service When You Quote Today. The adjusting entry for prepaid insurance and insurance expense at the end of January is illustrated as follows.

Over 100 Years of Legendary Dependability. Use one month of insurance. At December 31 the balance in Prepaid Insurance will be a credit balance of 120 consisting of the debit of 2400 on January 1 the.

As a result the company decides to debit the prepaid insurance when the amount is paid quarterly. When the asset is charged to expense the journal entry. To make you understand this question it is important to familiarize you with both the Golden rules and Modern rules of accounting.

As you can see the remaining balance on the Prepaid Insurance account is 696 debit because we. In this case if the company does not make the insurance expense journal entry above in the month-end adjusting entry the. Ad With AAA Youre More than a Policy Number Youre a Member of the Family.

On December 31 an adjusting entry will be needed to debit. For example refer to the first example of prepaid rent. These are both asset accounts and.

Over 100 Years of Legendary Dependability. Debit Credit Prepaid Insurance 14400 Supplies 3600 Equipment 18750 Accumulated Depreciation-Equipment 8300 Notes Payable 25000 Unearned Rent Revenue 10800 Rent. On December 1 the account Prepaid Insurance was initially debited for 6000 and Cash was credited for 6000.

Since the prepayment is for six months divide the total cost by six 9000 6. The company should not record the advance payment as the insurance expense. The debit entry to insurance expense will result in adding the expenses whereas credit to the prepaid expense account will result in decreasing the current asset.

Prepaid insurance is an asset account on the balance sheet in which its normal balance is on the debit side. But it is a liability to the insurance coy which means is a credit balance to d insurance coy. This will be done.

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