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kriskingsbury · Jan 27, 2010, 10:39 AM

The question reads:
A company shows $22,000 of insurance expense for the fiscal year. The company records showed a balance in prepaid insurance at the beginning of the year of $5,000 and a balance at the end of the year of $3,000. What amount of cash was paid for insurance during the year?
2,000
22,000
20,000
25,000

I think that the answer is 22,000 since that is the amount purchased in the expense account and needs to move to the prepaid insurance account. The question is not asked how much was used, is this correct?

morgaine300 · Jan 28, 2010, 12:44 AM

The amount "used" actually would be the expense. So in a way, you're contradicting yourself. You're right that it didn't ask for the amount used -- it therefore also is not asking for the amount of the expense.

It asked for the amount of cash paid for insurance for the current year.

You have to think about how the account works: You add new purchases of insurance (which you paid for), and subtract out the amount that got used up (the expense), and you end up with an ending balance.

Does that help clear it up? I prefer solving these with t accounts, entering what I already known, and then trying to solve for the missing numbers by doing some backwards work.