Typically, insurance premiums are paid when coverage begins. So if you paid for an insurance policy during the accounting period, you probably bought coverage for several months or a year in advance. At the end of the accounting period, a prepaid expense account called prepaid insurance should be set up as an asset, reflecting insurance coverage for the future that you have already paid for. This can be done by making an adjusting entry in your general journal.
|To set up eight months of prepaid insurance on 12/31/2001|