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    ndz1218's Avatar
    ndz1218 Posts: 2, Reputation: 1
    New Member
     
    #1

    May 15, 2007, 07:06 AM
    Insurance Expense
    Hey guys. I am new to this site and it's very nice to meet you all.
    I have a question about the accounting of my business. On Aug 31, 2006 I bought Commercial Insurance. The total premium for one year is $7,701.00. I made a deposit of $1,911.75 and the balance to be paid in equal monthly installments until the end of the policy period. This is what I did:
    Balance of policy as of 11/01/06 was $5,789.25 So, I added the deposit of $1,911.75 =7,701.00 / 12 = $ 641.75

    8/31/06 Dr Insurance Expense $1,911.75
    Cr Cash $1,911.75

    11/1/06 Dr Prepaid Insurance $1,270.00
    Cr Insurance Expense $1,270.00

    11/1/06 Dr Insurance Expense 641.75
    Dr Prepaid Insurance 1.50
    Cr Cash 643.50

    12/1/06 Dr Insurance Expense 641.75
    Dr Prepaid Insurance 1.50
    Cr Cash 643.50

    That is the monthly entry I made every time I receive the invoice. My balance sheet shows a balance of $1,279.00 as of today, which is confusing me. What part was wrong and what exactly I need to correct?
    Thanks a million
    ndz
    berrysweetncgurl's Avatar
    berrysweetncgurl Posts: 166, Reputation: 19
    Junior Member
     
    #2

    May 16, 2007, 04:06 AM
    I don't know exactly what you are asking but the formula for finding insurance expense is
    cost of annual policy/12=cost per month x months used = insurance expense
    ndz1218's Avatar
    ndz1218 Posts: 2, Reputation: 1
    New Member
     
    #3

    May 16, 2007, 08:18 AM
    I am sorry. My question was if the calculation and entries are correct. The asset account shows a balance of $1,279.00 and keeps increasing every time I post the invoice. I just need to know if the entries that I've made during the year are correct.

    Now, if the asset account increases every month that I pay the invoice, at what point is that balance going to disappear from my balance sheet.

    If I have to make an adjusting entry, what would be the correct one?
    Thanks
    NDZ

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