Question

5. Insurance premium paid in advance is treated as (1) an asset (2) a loss (3) a gain (4) a liability

Answer 1

Hence the prepaid amount is usually a currentasset. If a company would have to pay aninsurance premium in advance for a period longer than one year, the portion of the prepayments that will not turn to cash within one year (or the operating cycle if it is longer than one year) would be reported as a long term asset.