Hardwood Supplies Inc. purchased a 12-month insurance policy on March 1, 2010 for $900. At March 31, 2010, the adjusting journal entry to record expiration of this asset will include a

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The adjusting entry for the insurance policy would involve decreasing (or expensing) the prepaid asset and increasing (or recording) the expense. Since the policy was purchased for 12 months, and only one month has passed, the portion of the prepaid asset that has expired would be calculated as $900/12 months = $75. Therefore, the adjusting entry would involve a debit to Insurance Expense for $75 and a credit to Prepaid Insurance for $75.