On September 1, Lazy A, Inc. paid $2,200 for a one year insurance policy. The journal entry to record this transaction is:

Question

Quizplus · Accepted Answer

The journal entry to record the purchase of a one year insurance policy should debit Prepaid Insurance and credit Cash for the amount paid, as the payment represents a prepayment of future insurance coverage. Therefore, option C is the correct choice. Option A would be correct if the payment was made to record payment for an insurance policy that had already been used, and option B would be incorrect as it would be recording an expense before it has been incurred. Option D would be incorrect as it would be recording the expense immediately, rather than deferring it to future periods through Prepaid Insurance.