On September 1, Taggert Company paid $1,800 for a 6-month insurance premium beginning September 1. Which of the following statements are correct regarding the accounting for this i... On September 1, Taggert Company paid $1,800 for a 6-month insurance premium beginning September 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period?
Understand the Problem
The question is asking about the accounting entries that Taggert Company should make related to an insurance premium paid for a six-month period, specifically what debits and credits should be recorded at various dates within that period.
Answer
Debit Prepaid Insurance $1,800 on Sept. 1; debit Insurance Expense $300 on Sept. 30.
The correct statements are: Taggert will debit Prepaid Insurance for $1,800 on Sept. 1 and Taggert will debit Insurance Expense for $300 on Sept. 30.
Answer for screen readers
The correct statements are: Taggert will debit Prepaid Insurance for $1,800 on Sept. 1 and Taggert will debit Insurance Expense for $300 on Sept. 30.
More Information
Insurance payments are initially recorded as assets (Prepaid Insurance), and expenses are recognized over time as the coverage is used.
Tips
Common mistake is to forget adjusting the Prepaid Insurance account monthly by recognizing the insurance expense.
Sources
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