The Prepaid Insurance account has a normal balance of $3,750 at the beginning of the month.The company used $980 of insurance coverage during the month.Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Prepaid Insurance is an asset account and has a normal debit balance. As insurance coverage worth $980 was used during the month, it means Prepaid Insurance needs to be reduced by $980. This is done by crediting Prepaid Insurance for $980. The Insurance Expense account is an expense account which has a normal debit balance. When insurance coverage is used, this expense needs to be recognized, and hence insurance expense should be debited for $980. Therefore, the correct option is to debit Insurance Expense for $980 and credit Prepaid Insurance for $980. Options A, B, and D are all incorrect choices.

The Prepaid Insurance Account Has a Normal Balance of $3,750