Doug paid $1,200 on a one-year insurance policy on March 1.The entry included a debit to Prepaid Insurance.The adjusting entry on December 31 would include a:

Question

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The adjusting entry on December 31 would involve transferring an amount representing insurance coverage consumed during the current period from the Prepaid Insurance account (a balance sheet account) to Insurance Expense (an income statement account). Since one year has passed since the policy was purchased, $1,200 - $200 (amount already consumed) = $1,000 worth of insurance coverage needs to be expensed. Therefore, the entry will be a debit to Insurance Expense for $1,000 and a credit to Prepaid Insurance for $1,000.

Doug Paid $1,200 on a One-Year Insurance Policy on March