On July 1, Mize paid $24,000 for a two-year insurance policy, increasing Prepaid Insurance for the full amount. If the adjusting entry is not made at December 31, the end of the accounting period, how does the error affect this year's financial statements?

Question

Quizplus · Accepted Answer

Not adjusting for the used portion of the prepaid insurance will result in the Prepaid Insurance account being too high, thus overstating assets. Revenue, common stock, and expenses are not directly affected by this error.

On July 1, Mize Paid $24,000 for a Two-Year Insurance