Question

On January 30, a 6-month insurance policy was purchased with cash for $428.82
Create both the cash basis and accrual basis general journal entries for the above transaction.

Answer 1

Cash Basis	Expense is recognized in the period it is paid
Date	Account	Debit	Credit
Jan 30	Insurance Expense	$ 428.82
	Cash		$ 428.82
	(To record Insurance expense payment)
Accrual Basis	Expense is recognized in the period it is INCURRED irrespective of payment
Date	Account	Debit	Credit
Jan 30	Prepaid Insurance	$ 428.82
	Cash		$ 428.82
	(To record Insurance payment)
	Expense will be recognized every month or at year end (as per company policy)
	for the months insurance expired.