Expiration of one month of an insurance policy paid in advance, initially recorded by debiting Prepaid Insurance, results in an adjusting entry that reduces the company's liabilities.

Question

Quizplus · Accepted Answer

The expiration of prepaid insurance results in an adjusting entry that reduces the asset account (Prepaid Insurance) and increases the expense account (Insurance Expense), not liabilities.

Expiration of One Month of an Insurance Policy Paid in Advance