Patricia Event Planning Service records prepaid expenses and unearned revenues using the alternative treatments. Patricia makes adjusting entries as needed to bring her books to the full accrual basis once a year at the end of the year. On October 1, she paid $3,600 for insurance for a one-year period. At the end of the year, she will make an adjustment entry that debits Insurance Expense for $900.

Question

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The adjustment entry should debit Insurance Expense for $900 because only three months (October to December) of the insurance coverage have been used by the end of the year, which is $900 ($3,600/12 months * 3 months).

Patricia Event Planning Service Records Prepaid Expenses and Unearned Revenues