What is the adjusting entry for.. unexpired insurance on dec.31 is 3000, if the prepaid insurance is 12000?
To determine the adjusting entry for unexpired insurance, we need to understand the concept of prepaid insurance and how it relates to the financial statements.
Prepaid insurance is an asset account that represents insurance coverage that has been paid for in advance but has not yet expired. Initially, when the insurance is paid, it is recorded as a prepaid expense, as it has not yet been "used up" or recognized as an expense. As time elapses, a portion of the prepaid insurance becomes "used up" and needs to be recognized as an expense in the appropriate period.
In this case, the unexpired insurance on December 31 is given as $3,000, and the prepaid insurance is $12,000. To calculate the adjusting entry, we need to determine the amount of insurance that has expired or been "used up" during the period.
To do this, we subtract the unexpired insurance from the prepaid insurance:
$12,000 (Prepaid insurance) - $3,000 (Unexpired insurance) = $9,000 (Expired insurance)
The adjusting entry will decrease the prepaid insurance account and increase the insurance expense account by $9,000, reflecting the amount that has expired or been used up during the period.
Adjusting Entry:
Debit: Insurance Expense - $9,000
Credit: Prepaid Insurance - $9,000
By making this adjusting entry, the financial statements will accurately reflect the expired portion of the prepaid insurance as an expense for the period.