BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Debit Insurance Expense, $5, 000; Credit Prepaid Insurance, $5, 000.
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Debit Insurance Expense, $15, 400; Credit Prepaid Insurance, $15, 400.
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Debit Prepaid Insurance, $10, 400; Credit Insurance Expense, $10, 400.
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Debit Insurance Expense, $10, 400; Credit Prepaid Insurance, $10, 400.
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Detailed explanation-1: -An adjusting journal entry is an entry in a company’s general ledger that occurs at the end of an accounting period to record any unrecognized income or expenses for the period.
Detailed explanation-2: -Prepaid Insurance Journal Entry When the asset is charged to expense, the journal entry is to debit the insurance expense account and credit the prepaid insurance account. Thus, the amount charged to expense in an accounting period is only the amount of the prepaid insurance asset ratably assigned to that period.
Detailed explanation-3: -Adjusting entries are necessary to update all account balances before financial statements can be prepared. These adjustments are not the result of physical events or transactions but are rather caused by the passage of time or small changes in account balances.
Detailed explanation-4: -What type of entry will decrease the normal balances of the accounts Prepaid Insurance and Prepaid Expenses, and Insurance Expense? Since Prepaid Insurance and Prepaid Expenses are asset accounts, their normal debit balance will be decreased with a credit entry.