This video shows how to record a journal entry for prepaid insurance.
Prepaid insurance is initially booked as an asset. As time passes, you decrease the prepaid insurance account and record insurance expense. For example, let’s say your company pays $2,400 for a 1-year insurance policy upfront.
You would initially debit the Prepaid Insurance account for $2,400 and credit the Cash account for $2,400.
|Journal Entry to Record Purchase of Insurance:|
After one month, you will have used up one month of your insurance policy and only have 11 months remaining on the policy. Thus, you record an adjusting journal entry at the end of the first month by debit Insurance Expense for $200 and crediting the Prepaid Insurance account for $200.
|Journal Entry to Record Monthly Use of Insurance:|
You would then make this same adjusting journal entry at the end of each month until the policy expires.