Asked by Lianna Moricee on Jun 15, 2024
Verified
Which of the following entries records the payment of a bill for your insurance premium?
A) debit Prepaid Insurance; credit Cash
B) debit Insurance Payable; credit Accounts Receivable
C) debit Accounts Payable; credit Cash
D) debit Cash; credit Prepaid Insurance
Prepaid Insurance
An asset account representing insurance payments made in advance of the coverage period, recognized as an expense over time.
Insurance Payable
A liability account that represents amounts owed for insurance premiums that are due but not yet paid.
- Evaluate the outcomes of transactions on account balances.
- Learn the technique of recording transactions in financial statements.
Verified Answer
RS
renee smiddleJun 20, 2024
Final Answer :
A
Explanation :
Payment for an insurance premium is recorded as a debit to Prepaid Insurance (an asset account) and a credit to Cash (an asset account). This is because the payment results in a decrease in cash (an outflow of cash) and an increase in prepaid insurance (an asset account representing insurance coverage that has been paid for but not yet used).
Learning Objectives
- Evaluate the outcomes of transactions on account balances.
- Learn the technique of recording transactions in financial statements.