Hardwood Supplies Inc. purchased a 12-month insurance policy on March 1, 2014 for ₤ 1,500. At March 31, 2014, the adjusting journal entry to record expiration of this asset will include a

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The adjusting journal entry to record the expiration of the insurance policy will involve reducing the balance of the prepaid insurance account and recognizing the portion of the insurance expense that has been used up during the month. Since the policy was for 12 months, 1/12th of the policy cost will be expensed for the first month. Therefore, the entry will include a debit to Insurance Expense for 1/12th of ₤1,500 (which is ₤125) and a credit to Prepaid Insurance for the same amount.