Does prepaid insurance go on the balance sheet?
Understand the Problem
The question is asking whether prepaid insurance, which is an asset that is paid for in advance but not yet used, is recorded on the balance sheet. This typically concerns accounting practices and how assets are categorized within financial statements.
Answer
A current asset on the balance sheet.
Prepaid insurance is recorded as a current asset on the balance sheet.
Answer for screen readers
Prepaid insurance is recorded as a current asset on the balance sheet.
More Information
Prepaid insurance, purchased in advance, is classified as a current asset because it represents a future economic benefit within one year. It is expensed as it is used over time.
Tips
A common mistake is confusing prepaid insurance with expenses; remember, it’s an asset until it’s used.
Sources
- What is prepaid insurance? | AccountingCoach - accountingcoach.com
- Prepaid Insurance: Definition, How It Works, Benefits, and Example - investopedia.com
- Prepaid Expenses | Definition + Balance Sheet Example - wallstreetprep.com
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