The premium on a 3-year insurance policy expiring on December 31, 2022 was paid in total on January 1, 2020. The original payment was initially debited to prepaid insurance. The appropriate adjusting entry had been recorded on December 31, 2020. Which statement will be incorrect? * A. Insurance expense increased by amount equivalent to 1 year on December 31, 2020. B. Prepaid insurance balance on December 31, 2020 should be the same as it would have been if the original payment had been debited initially to an expense account. C. Prepaid insurance balance on December 31, 2021 is lower than the balance on December 31, 2020. D. none of the above
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
The premium on a 3-year insurance policy expiring on December 31, 2022 was paid in total on January 1, 2020. The original payment was initially debited to prepaid insurance. The appropriate
A. Insurance expense increased by amount equivalent to 1 year on December 31, 2020.
B. Prepaid insurance balance on December 31, 2020 should be the same as it would have been if the original payment had been debited initially to an expense account.
C. Prepaid insurance balance on December 31, 2021 is lower than the balance on December 31, 2020.
D. none of the above
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