Question

What is the proper adjusting entry at december 31, the end of the accounting period, if the balance in the prepaid insurance account is $7,750 before adjustment, and the unexpired amount per analysis of policies is, $3,250?
a. debit insurance expense, $3,250; credit prepaid insurance, $3,250.
b. debit insurance expense, $4,500; credit prepaid insurance, $4,500.
c. debit prepaid insurance, $4,500; credit insurance expense, $4,500.
d. debit insurance expense, $7,750; credit prepaid insurance, $7,750.
e. debit cash, $7,750; credit prepaid insurance, $7,750?

Answer 1

It would be b because expenses are always debited and since there will be a remaining balance of $3,250 after the adjusting entry, you would take the difference between both amounts to get $4,500 as the amount that is being accounted for at the end of the period.

Answer 2

The adjusted balance uses the previous balance from the end of your last payment cycle and excludes any payments and credits made during the current payment cycle. Thus, the correct statement is B.

What is adjusting entry in accounting?

In accounting / accountancy, the adjustment entry is included in a journal and that is usually done at the end of the accounting period in order to allocate income and expenses over the actual period.

Expenses are always debited and assets are credited if there is reduction in the balance due to any transaction.

Since there will be a remaining balance of $3,250 after the adjusting entry, the difference between both amounts $4,500 can be taken as the amount that is being accounted  as insurance expense for at the end of the period.

Hence, Option B. that is Debit insurance expenses and credit prepaid insurance is the correct answer.

To learn more about adjusting entry, refer to the link:

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