Which of the following is true regarding the adjusting entry for prepaid insurance?

Question

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The prepaid insurance account is an asset account that is initially recorded when prepaying for insurance coverage. At the end of the accounting period, an adjusting entry is required to reflect the portion of the prepaid insurance that has been used up or expired during the period. This adjustment reduces the asset account and records the appropriate amount as an expense. Therefore, the adjusting entry results in a debit to an expense account and a credit to an asset account. Choice A is incorrect because a liability is not recorded for prepaid insurance. Choice B is incorrect because prior to adjustment, expenses and assets are not overstated or understated, rather they are recorded as they should be. Choice D is incorrect because there is a correct answer among the given choices.

Which of the Following Is True Regarding the Adjusting Entry