Question

can you explain how you calculated the insurance expense and prepaid insurance

Answer 1

The amount of insurance that was used, expired, incurred during the period of time will be appeared in the heading of income statements are called as insurance expenses like expired insurance premiums. Insurance expenses is a part of operating expenses in the income statement. Only expired portion of the premium should be presented as insurance expenses.

Insurance expenses journal entries:

1. When bussiness buys an insurance coverage

Prepaid insurance     Dr      xxx

     Cash                                      xxx

2. Upon expiration of contract or part it

Insurance Expenses    Dr      xxx

    Prepaid insurance                    xxx

Prepaid insurance is the fee associated with an insurance contract that has been paid in advance of the coverage period and has been not expired as the time of balance sheet. These unexpired costs are noted in current asset account under the head prepaid insurance. As soon as the amount of prepaid insurance expires, these expired costs will be moved from asset account prepaid insurance to the income statement account as insurance exepenses.

Journal Entry :

Prepaid insurance is usually charged to expenses on a straight line basis. When the asset is charged to expenses, the journal entry is to debit the insurance expenses account and credit the prepaid insurance account is the initial entry. Later , in each successive month for the term of insurance contract , there should be a journal entry that debits the insurance expense account and credits the prepaid expenses account.