Alberto Company paid its insurance premiums for a two-year insurance policy on May 1, 2018, and recorded them in a prepaid insurance account. The adjusting entry required at May 31, 2018, to recognize the one-month portion for the month of May will

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The adjusting entry required on May 31, 2018, is to recognize the one-month portion of the two-year insurance policy for the month of May. This means that the prepaid insurance account needs to be decreased (since a month has passed and the insurance has been used up), while the insurance expense account needs to be increased (to recognize the cost of the insurance for the month of May). Therefore, the entry will increase an expense account (insurance expense) and decrease an asset account (prepaid insurance). Answer B is the only choice that reflects this effect on accounts.

Alberto Company Paid Its Insurance Premiums for a Two-Year Insurance