On November 1, 2013, Schumacher Company paid $1,200 in advance for an insurance policy that covered the company for six months. Assuming that Schumacher recorded this purchase as an asset, the adjusting entry required on December 31, 2013 would include:

Question

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Two months of insurance had been used during 2013. Therefore, Schumacher should recognize 2/6 of $1,200, or $400 of insurance expense at the end of the year. The adjusting entry to recognize insurance expense would a debit to insurance expense and a credit to prepaid insurance for $400.

On November 1, 2013, Schumacher Company Paid $1,200 in Advance