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A prepayment of insurance premium will appear in the Balance Sheet and in the Insurance Account respectively as:
- a)a liability and a debit balance.
- b)an asset and a credit balance.
- c)an asset and a debit balance.
- d)None of the above.
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
A prepayment of insurance premium will appear in the Balance Sheet and...
- Prepayment of Insurance Premium: When a business pays for an insurance premium in advance, it represents a payment for services that will be received in the future. This creates a prepaid expense.
- Balance Sheet: On the balance sheet, prepaid insurance is classified as a current asset because it represents a future benefit (insurance coverage) that the business has already paid for.
- Insurance Account: In the insurance account, the prepayment will appear as a debit balance because it reflects an expense that has been incurred in advance.
Thus, the prepayment of an insurance premium will be shown as an asset (prepaid insurance) in the balance sheet and as a debit balance in the insurance account.
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A prepayment of insurance premium will appear in the Balance Sheet and...
Explanation:
When an insurance premium is paid in advance, it is considered as a prepayment. This prepayment is recorded in the Balance Sheet and in the Insurance Account respectively.
- Asset Account: The prepayment of insurance premium is recorded as an asset in the Balance Sheet because it represents the amount paid in advance for future benefits. Hence, it is shown on the debit side of the Insurance Account.
- Credit Account: When insurance premium is paid in advance, it is shown as a credit entry in the Insurance Account because it is an income for the insurance company. This credit entry is also shown on the liability side of the Balance Sheet.
Therefore, the correct answer is option C - an asset and a credit balance.
When an insurance premium is paid in advance, it is considered as a prepayment. This prepayment is recorded in the Balance Sheet and in the Insurance Account respectively.
- Asset Account: The prepayment of insurance premium is recorded as an asset in the Balance Sheet because it represents the amount paid in advance for future benefits. Hence, it is shown on the debit side of the Insurance Account.
- Credit Account: When insurance premium is paid in advance, it is shown as a credit entry in the Insurance Account because it is an income for the insurance company. This credit entry is also shown on the liability side of the Balance Sheet.
Therefore, the correct answer is option C - an asset and a credit balance.
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A prepayment of insurance premium will appear in the Balance Sheet and in the Insurance Account respectively as:a)a liability and a debit balance.b)an asset and a credit balance.c)an asset and a debit balance.d)None of the above.Correct answer is option 'C'. Can you explain this answer?
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