I am showing a $8100 debit balance on prepaid insurance at the end of august. The pre-paid insurance was purchased in Feb. for 12 months. what should my adjusting entry to pre-paid insurance be for the month of Sept. which is the end of my fiscal year? Those are the only figures that have been provided for me.
To calculate the adjusting entry for prepaid insurance for the month of September, we need to first determine the number of months that are remaining in the prepaid insurance policy after August.
Given that the prepaid insurance was purchased in February for 12 months, we can calculate the remaining months by subtracting the month of February from the current month of August:
12 months - 7 months = 5 months remaining.
Now, we need to determine the monthly value of the prepaid insurance. To do this, divide the total prepaid insurance balance by the number of months in the policy:
$8100 / 12 months = $675 per month.
Since there are 5 months remaining in the policy, we can calculate the unexpired portion of the prepaid insurance for September by multiplying the monthly value by the remaining months:
$675 per month * 5 months = $3375.
So, the adjusting entry for prepaid insurance at the end of September would be to debit the Prepaid Insurance account by $3375 to decrease the prepaid insurance asset and credit the Insurance Expense account by the same amount to recognize the insurance expense for the period.
Adjusted Entry:
Debit: Prepaid Insurance $3375
Credit: Insurance Expense $3375
Please note that this calculation assumes that the prepaid insurance is allocated evenly over the 12-month period. If the policy cost varies throughout the year or if there are any additional details or specific instructions provided, the calculations may differ.