I am financing prepaid insurance. 6500 total for 1 year (july 28 2009 - July 28 2010), $1625 down, and $4875 financed. Making payments of $578.22 a month and total interest through 12/31/2009 was $226.76. What entry do I record to capitalize prepaid insurance, the liability of financing it, and the interest as of 12/31/2009.

First what are you receiving. You are receiving Prepaid Insurance. What are using to receive this prepaid insurance, cash and a loan. So your entry will be Debit Prepaid Insurance for the amount, Credit Cash for the amount paid, and Credit Notes Payable for the difference.

What does the payment include. Is this just for the principal or the principal and interest. Your entry will be: Debit Notes Pyable and or Interest Expense and Credit Cash

If you are just doing the interest at the end of the year, the entry will be: Debit Interest Expense for the amount and Credit Cash (if paying) or Interest Payable for the amount.

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