On 15 May Osaka paid $715 cash for an 18-month insurance policy including 10% GST.Which of the following is the general journal entry to record the payment?
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Question

Quizplus · Accepted Answer

The payment of $715 for an 18-month insurance policy including 10% GST means that the cost of the insurance policy is $650 ($715 ÷ 1.1) and the GST component is $65 ($715 - $650). Therefore, the journal entry should debit Prepaid insurance for $650 and credit Cash for $715. The GST component should be recorded separately as GST outlays, which is a liability account, and should be credited for $65 while Cash should be debited for the same amount. Therefore, the best choice is option C. Options A and B are incorrect because they do not account for the GST component separately. Option D is incorrect because it only accounts for the prepaid insurance and not the GST component.

On 15 May Osaka Paid $715 Cash for an 18-Month