On sept 1,2007 victor prepaid the insurance on the company vehicle for the whole year. He originally debited prepaid insurance and creditid cash.


On the original balance sheet the amount in the prepaid insurance account is 1200

How do I know how much to debit to insurance expense and credit to prepaid insurance?

If the insurance was $1,200 for 1 year beginning Sep 1, and the end of the accounting period is Dec 31 then you have used 4 months of insurance.

The formula is 1,200 X 4/12 = $400

Debit Insurance Expense 400
Credit Prepaid Insurance 400