Prepaid insurance

The Concept of Accrual states that all Expenses should be booked as and when they are accrued.

Insurance expense

Insurance is for a period falling partly in current year and partly in next year.

If insurance payment is not done entry:

Insurance Expenses A/c Dr                  (Propotionate amount of Policy on C.Y.)

    To Insurance Payable A/c                 (-------do-----------)

(Being Insurance Expenses for the current period booked)

THe remaining insurance expenses will be booked at the time of payment.

• If payment made before end of C.Y

          Insurance Payable A/c Dr.            (Amount Credited before)

          Prepaid Insurance A/c Dr.             (Remaing Insurance Amount)

               To Cash / Bank A/c                  (Amount of Invoice)

• If Payment is made after the end of Current F.Y.    

          Insurance Payable A/c Dr.             (Amount Credited before) 

          Insurance Exps A/c Dr.                  (Balance amout of Insurance)

                To Cash /BAnk A/c                  (Amount of Invoice)

accrued expense is recorded by debiting the expense account and crediting the related liability. if the invoice is still unpaid but the insurance covers the current periode, you may make adjusting journal entry:

Dr. Insurance Expense XXX

Cr. Insurance Payable XXX

The dollar recorded is the amount of insurance incurred within the current period.