If a company pays a 12-month insurance premium for $2400 on 1 June 2012,then at 30 June 2012 the accounts will show:

Question

Quizplus · Accepted Answer

Since the company paid the insurance premium on 1 June 2012, by 30 June 2012, only one month of coverage has been used up. Therefore, the company has a prepayment of $2200 ($2400 - $200) in the balance sheet for the remaining 11 months of coverage. The $200 insurance expense ($2400/12 months) is shown in the profit and loss account for the one month of coverage used up in June.

If a Company Pays a 12-Month Insurance Premium for $2400