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Accounting

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Nov 24, 2024

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1 Discussion Question Sonika Gundati ACCOUNTING FOR MANAGERS 23/09/2023

2 Question 1: What does prepaid insurance mean. What type of account it is Debit/Credit and what financial statement it goes on Prepaid insurance is described as the payments made to the insurer in advance for insur- ance coverage. Prepaid insurance is also defined as the premiums paid in advance, occurring in the regular and recurring charges made to the insurer. Insurance companies carry prepaid insur- ance as current assets on their balance sheet because it is not relatively consumed (Lessambo, 2022). Insurance is termed a debit since it is an increased expense, while prepaid insurance is de- fined as a credit account since it is reduced and determined monthly through expense recording. The prepaid insurance is in the balance sheet financial statement. Question 2: Show me the entry to set up or repay three months of insurance that costs $1200 a month. You used cash to prepay the insurance . First, you know what insurance is being paid every month that has been provided as an expense of $1200 with a debit, which is an entry to show the loss of cash which he is reducing or paying the insurance with. Reduce the prepaid expense account with a credit, and repeat the process each month until the insurance is used and the asset account is empty. Record the insur- ance repaying as follows; DATE ACCOUNT DEBIT($) CREDIT($) 1/3 Insurance Expense 1200 Prepaid Insurance 1200 Then you should use the prepaid expense account that will show an increase in asset for the three months as general. In this entry, you should take the prepaid amount of each month then

3 multiply with the number of months that will be paid as follows; ($1200*3) and then adjust your accounts by $3600. DATE ACCOUNT DEBIT($) CREDIT($) 1/1 Prepaid Insurance 3600 Cash 3600 Question 3: What would be the entry effecting prepaid insurance after a month goes by and by how much prepaid would be left? The prepaid insurance is represented by the amount of $3600, which is the amount that is expected to be prepaid at the end of the three months. However, the prepaid expense in one month will be reduced by a certain amount carried repeatedly. Therefore, the insurance would have leased an agreement to show the amount at the end of one month; accordingly, prepaid insurance will be adjusted (Deegan, 2022). The amount will be ($3,600 * 1/3) = $1,200 in the insurance policy, and the adjusting journal entry will be done each month at the end of the third month. When the insurance policy has no future benefits, the prepaid insurance balance will equal zero (0).

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4 References Deegan, C. (2022). An Introduction to Accounting: Accountability in Organisations and Society 2e . Cengage AU. Lessambo, F. I. (2022). Prepaid Expenses, Unearned Income, and Other Current Assets. In Financial Statements: Analysis, Reporting and Valuation (pp. 77-82). Cham: Springer International Publishing.