Question

Why do we add prepaid insurance to insurance in profit and loss account?

Answer 1

Answer:

Accounting Capital

Home Expenses Treatment of Prepaid Expenses in Final Accounts

Treatment of Prepaid Expenses in Final Accounts

Prepaid Expenses

At times, during business operations, a payment made for an expense may belong fully or partially to the upcoming accounting period. Such a payment (partly or fully) is treated as a prepaid expense (unexpired expense) for the current period. It is treated as an adjustment in the financial statements and this article will describe the treatment of prepaid expenses in final accounts.

Some common examples of prepaid expenses are prepaid rent, prepaid insurance premium, etc.

Journal Entry for Prepaid Expense

Prepaid Expense A/C Debit

To Expense A/C Credit

Payment for “insurance premium” is commonly issued in advance hence it will be used to explain the treatment of prepaid expenses in final accounts (or) financial statements.