A company initially records a full advance payment for insurance as an expense. What year-end adjustment is needed for the unexpired portion?
Correct answer: B. Debit prepaid insurance and credit insurance expense
- A. Debit insurance expense and credit prepaid insurance
- B. Debit prepaid insurance and credit insurance expense
- C. Debit cash and credit insurance expense
- D. Debit insurance expense and credit cash
Explanation
The unexpired portion provides a future benefit, so it is an asset rather than a current expense. Debiting prepaid insurance and crediting expense removes that portion from the current year's cost.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? support@testustad.com
About Accruals, Prepayments and Provisions
Accruals and prepayments adjust income and expenses to the accounting period in which they are earned or incurred, following the matching principle. Provisions recognise expected obligations or losses when their amount or timing is uncertain, which distinguishes them from ordinary accruals and from general reserves.
Practise Accruals, Prepayments and Provisions
34 free Accruals, Prepayments and Provisions MCQs from Accounting, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Exams that ask Accounting questions like this
Accounting is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Accruals, Prepayments and Provisions questions
Recognizing an accrued expense at the end of an accounting period normally has what effect?
A business pays Rs 24,000 for 12 months of insurance beginning on 1 October. What insurance expense and prepaid insurance balance are reported on 31 December?
At year-end, electricity consumed but not yet paid is recorded by which entry?
Which statement best distinguishes a provision from a reserve?
Under IAS 37, a provision is generally recognized when which combination of conditions exists?
Income has been earned but not yet received or recorded. Which entry records the accrued income?