Prepaid Insurance
Definition: Premiums paid in advance
Scope:NarrowDifficulty:Very Easy
Premiums paid in advance
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Pay annual premium | ||
| Pay $6,000 for 12-month policy. | ||
| Prepaid InsuranceAsset+ | $6,000 | |
| CashAsset− | $6,000 | |
| Asset created; benefit will be consumed over 12 months. | ||
| 2. Monthly adjusting entry | ||
| One month expires: $6,000 / 12 = $500. | ||
| Insurance ExpenseExpense+ | $500 | |
| Prepaid InsuranceAsset− | $500 | |
| Prepaid asset decreases as expense is recognized. | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
Prepaid InsurancePrepaid InsuranceAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$6,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$500.00
$5,500.00
CashAsset account. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$6,000.00
$6,000.00
Insurance ExpenseInsurance ExpenseExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$500.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$500.00
DurationShort-Term
External Links
- Prepaid expense — Wikipedia