[Cmneubauer]

How do I adjust a trial balance on insurance expires at a rate of $300 per month

[pready]

First thing you will have to figure out is the number of months your insurance was used. You may be given the date the last adjusted trial balance was or when the company closes its books, or you will just be given the number of months to account for. Now you need to know when you are doing your trial balance.

So for an example my accounting corp closed its books on 31 Dec 2013 and on 30 Jun 2014 you are doing a trial balance, so your number of months used will be 6 months, or from 1 Jan 2014 to 30 Jun 2014.

Next thing you need to know is when was the insurance purchased, how much was the insurance for, and for how long.


An example would be Insurance was purchased on 1 Jul 2013 for 3 years and for $3,600.


Now you can solve the problem by using the information provided to calculate the amount of insurance used for 6 months.

Take your $3,600 times 6 months of use divided by 36 total months equals your amount of insurance used for 6 months.

Your adjusting entry accounts will be Insurance Expense and Prepaid Insurance. The adjusting entry will in effect transfer the amount of insurance used from the prepaid account to the expense account.

If your problem just says your trial balance is for 6 months you would take your $300 a month times 6 months to get your adjusting entry amount.