Preparing Adjusting Entries at Year-End

Paid P24, 000 for a 1-year fire insurance policy to commence on Sept. 1. The amount of premium was debited to Prepaid Insurance.

You would have to divide your cost for fire insurance and divide it by 12 to get the monthly rate, then take this number and times it by 4 to get 4 months of insurance used (Sep, Oct, Nov, & Dec).

Your accounts for the adjusting entry will be; Insurance Expense and Prepaid Insurance.