The adjusting entry to account for the expiration of prepaid insurance consists of:
A)a debit to Accumulated Depreciation and a credit to Prepaid Insurance.
B)a debit to Insurance Expense and a credit to Prepaid Insurance.
C)a debit to Insurance Expense and a credit to Accumulated Depreciation.
D)a debit to Prepaid Insurance and a credit to Accumulated Depreciation.

Question

Quizplus · Accepted Answer

Prepaid insurance is an asset account that represents the insurance premium that a company has paid in advance. As time passes, the prepaid insurance account is reduced or "used up" as the insurance coverage that it represents expires. This reduction in the prepaid insurance account is recorded as an expense on the income statement and is known as insurance expense. Therefore, to account for the expiration of prepaid insurance, we need to make an adjusting entry that debits insurance expense (an income statement account) and credits prepaid insurance (a balance sheet account). The correct entry is a debit to insurance expense and a credit to prepaid insurance, as in choice B.

The Adjusting Entry to Account for the Expiration of Prepaid