Wilson Company paid insurance premiums for four months in advance on November 1.The balance in the prepaid insurance account before adjustment at the end of the year is $4,800 and no adjustments had been made previously.The adjusting entry required on December 31 is:

Question

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The adjusting entry required on December 31 is to debit Insurance Expense for $2,400 and credit Prepaid Insurance for $2,400. This is because the company has paid for four months of insurance in advance, and two of those months have already passed. Therefore, the company has used up $2,400 of prepaid insurance and needs to record this expense.

Wilson Company Paid Insurance Premiums for Four Months in Advance