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Prepaid Insurance is the amount of insurance premium paid by the company in an accounting period that didnt expire in the same accounting period and therefore the unexpired portion of this insurance will be shown as an asset in the balance sheet of the company.
Accounting for prepaid insurance. There is no longer any economic benefit to the company as there is none left. If the prepayment covers a. Prepaid expenses are expenses paid for in advance and recorded as assets before they are used or consumed.
Prepaid insurance is an asset account on the balance sheet in which its normal balance is on the debit side. Prepaid insurance would initially be considered an asset because it offers a future economic benefit to the company. At the end of any accounting period the amount of the insurance premiums that remain prepaid should be reported in the current asset account Prepaid Insurance.
Examples of prepaid expenses can be insurance premiums or rent. Prepaid Insurance A XXX for unexpired policy. By the second month 8000 is used.
Since you are using cash your cash will fall and prepaid insurance will rise but total assets will stay the same. This is the accounting practice and it is helpful in keeping accounts update. Prepaid Insurance is the amount of insurance premium which has been paid in advance in the current accounting period.
This is accomplished with a debit of 1000 to Insurance Expense and a credit of 1000 to Prepaid Insurance. When a company pays insurance premiums in advance the insurance coverage relates to a future period. How Does Prepaid Insurance Affect Financial Statements.
Prepaid insurance is considered a business asset and is listed as an asset account on the left side of the balance sheet. The prepaid amount will be reported on the balance sheet after inventory and could part of an item described as prepaid expenses. An entry will then be created on the books to move this amount from current assets to the expense side.
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