If the balance of prepaid insurance increases during a period, it indicates more cash was expended for insurance than is reported in the income statement.

Question

Quizplus · Accepted Answer

When the balance of prepaid insurance increases, it means that the company has paid for insurance that will cover future periods, not just the current period. This results in more cash being expended for insurance than the expense recognized in the income statement for that period, as the expense is recognized over time as it is incurred.

If the Balance of Prepaid Insurance Increases During a Period