Asked by Andriy Etcheverry on May 18, 2024
Verified
At year-end, the balance in the prepaid insurance account, prior to any adjustments, is $6,000. The amount of the journal entry required to record insurance expense will be $4,000 if the amount of unexpired insurance applicable to future periods is $2,000.
Insurance Expense
The cost incurred by a business to purchase insurance, which provides financial protection against losses.
Unexpired Insurance
Portion of insurance premiums paid that has not yet been used as of a specific date, and is considered a current asset on the balance sheet.
- Attain an understanding of the basic components of adjusting entries and their effect on the accounting statements.
- Acknowledge the different aspects and reasons for implementing adjusting entries in accounting, including accrued revenues, accrued expenses, deferred revenues, and prepaid expenses.
Verified Answer
JL
Jacelyn LeongMay 21, 2024
Final Answer :
True
Explanation :
To calculate the amount of insurance expense, we need to subtract the unexpired insurance from the prepaid insurance balance: $6,000 - $2,000 = $4,000. Therefore, the journal entry to record insurance expense will be $4,000.
Learning Objectives
- Attain an understanding of the basic components of adjusting entries and their effect on the accounting statements.
- Acknowledge the different aspects and reasons for implementing adjusting entries in accounting, including accrued revenues, accrued expenses, deferred revenues, and prepaid expenses.