I have another adjusting entry question!

Statement:
The prepaid insurance balance arose from the payment of an annual premiumo on January 1, 2004.

How do I even do this?! :confused:

The account balance is Pre-paid insurance $2,400

HELP!

Thanks
-D

The prepaid insurance balance means it's the insurance that you paid in advance on Jan. 1, 2004. When you first paid the insurance your entry was:

Debit Prepaid Insurance 2,400
Credit Insurance Expense 2,400

Then, at the end of the month, you have to do the adusting entry to show the insurance portion that had been used up:

Prepaid insurance of 2400 divided by 12 months = 200 will expire every month

Debit Insurance Expense 200
Credit Prepaid Insurance 200

Now after entering this journal entry, the balance of your Prepaid Insurance will be 2,200

Prepaid Insurance 2,400
Less: Expired portion 200
_____
Balance 2,200


At the end of every month, you will do this journal entry:

Debit Insurance Expense 200
Credit Prepaid Insurance 200

And at the end of the year, your Prepaid Insurance balance will be zero

Thank you so much!