Answer:
On December 31 we debit Insurance Expense $400 and credit Prepaid insurance $400.
Explanation:
Adjusting entries are made at the end of an accounting period to record income and expenses realised by a business. For example if insurance is paid upfront (prepaid) adjusting entries are made from the prepaid account to expense to show the expense incurred for that period.
Also note that asset and expense accounts are debit for balance increase, and credited when balance decreases.
Prepaid insurance (asset) is debited for $4,800 on December 1.
Since it's payment for one year monthly payments will be 4800/12=$400
On December 31 we debit Insurance Expense (expense account) for $400 and credit Prepaid insurance $400.
This shows we have realised an insurance expense of $400
Answer:
Debit Insurance expense $400
Credit Cash account $400
Explanation:
On purchase of a policy that is billed to run over a period, the amount paid is first capitalized by posting the following entries;
Debit Prepaid expense
Credit Cash account
The amount is subsequently expensed by
Debit Insurance expense
Credit Cash account
As such where a 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment, the monthly amortization will be
= 1/12 × $4,800
= $400
The adjusting journal entry on December 31 includes a
Debit Insurance expense $400
Credit Cash account $400
