Thursday, January 14, 2010

Cash Payment Journal Entry

On December 17 a company paid $1,500 to an Insurance company for the purchase premium on a six month insurance policy for fire protection.

What journal entries will the accountant use?

Accounting Answer:

The company paid a bill and cash has been reduced, this means the accountant should credit cash

There is also a prepaid asset which will have to be adjusted every month until the insurance has been used.

Prepaid Insurance Journal Entry

DEBIT Prepaid Insurance 1.500
CREDIT Cash 1,500

Six months of 1,500 is 250 a month. 1500/6 = 250

Journal Entry for first month.

DEBIT Insurance expense
CREDIT Prepaid Insurance expense

1 comment:

Unknown said...

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