Debra paid $960 on a one-year insurance policy on March 1. The entry included a debit to Prepaid Insurance. The adjusting entry on December 31 would include a

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The adjusting entry on December 31 would involve moving a portion of the prepaid insurance expense to the current period as it has been used up during the year. This means that we need to increase the Insurance Expense account with a debit and decrease the Prepaid Insurance account with a credit. As Debra paid $960 for the one-year policy, and March to December is 10 months, we can calculate that she has used up 10/12 or 5/6 of the policy, which amounts to $800 ($960 x 5/6). Therefore, the adjusting entry would be a debit to Insurance Expense for $800 and a credit to Prepaid Insurance for $800.

Debra Paid $960 on a One-Year Insurance Policy on March