Question

journal entry: - paid insurance in advance​

Answer 1

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Prepaid Insurance Journal Entry

• When the asset is charged to expense, the journal entry is to debit the insurance expense account and credit the prepaid insurance account. Thus, the amount charged to expense in an accounting period is only the amount of the prepaid insurance asset ratably assigned to that period.

Answer 2

ANSWER :

❖ The journal entry for the transaction "Paid insurance in advance" is :-

$: \mapsto: \: \: \sf{ \large{ Prepaid \: \: Insurance \: \: A/C \: \: Dr. \: \: \:(Amount)}} \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \\ \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \sf{ \large{ \: \: To \: \: \: Cash \: \: \: \: A/C \: \: \: \: \: \: \: \: \: \: \: \:\:(Amount)}} \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \\ \\ \sf{ \large{[ \: Being \: \:insurance \: \: paid \: \: in \: \: advance \: ] }} \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \:$

EXPLANATION :

❖ The three steps involved in the process of journalising the given transaction are :-

• Step 1. Identification of accounts : In this transaction, insurance paid in advance, i.e, Prepaid. Hence, the two accounts involve in this transaction are : Prepaid Insurance A/C and Cash A/C.

• Step 2. Classification of accounts : According to the Modern Approach of classification, Prepaid Insurance A/C is an Asset Account and Cash A/C is also an Asset Account.

• Step 3. Application of Debit and Credit rule : When Insurance paid in advance, it becomes prepaid insurance and it is an Asset. As the asset increases, the Prepaid Insurance A/C will be debited (as per the rule being increase in Asset : Debited). Again, when the insurance paid, the Asset in the form of Cash decreases. Therefore, Cash A/C will be credited (as per the rule being Assets decrease: Credited).