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ngwigwa45469741
Sep 1, 2009, 10:34 AM
If accrued insurance of $600 was inadvertently treated as prepaid insurance in the books of triangle Limited, how much will the profit be?

rehmanvohra
Sep 1, 2009, 09:41 PM
If accrued insurance of $600 was inadvertently treated as prepaid insurance in the books of triangle Limited, how much will the profit be?

This is perhaps the first time I have learned that insurance premiums are paid in arrears. If the premiums are not paid in advance, the insurance policy becomes non effective. If you suffer a loss, you can not claim compensation from the insurance company.

However, to answer your question. If accruals are treated as prepayments then the profits would be overstated by twice the amount of error. In your case $1,200.

Assume that income before adjustment is $1,000. If you treat the amount as prepaid, the income after adjustment will be $1,600. However, if you treat the adjustment as accrued, the income will be $400 ($1000 - 600). As such, the profits have been overstated by $1,200 ($1,600- 400)

morgaine300
Sep 1, 2009, 11:44 PM
I've never heard of accruing insurance either. It's possible OP is using the term incorrectly.