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However the related benefits corresponding to the insurance amount prepaid will be received in the next accounting period.
Prepaid insurance on a balance sheet. Why is Prepaid Insurance. Prepaid insurance is considered a business asset and is listed as an asset account on the left side of the balance sheet. This is usually done at the end of each accounting period through an adjusting entry.
Prepaid expenses are the money set aside or effectively pre-paid for goods or services before they actually receive delivery of them. In simple terms it refers to that portion of the outstanding insurance premium. Prepaid expenses are not recorded on an income statement initially.
This is due to under the accrual basis of accounting the expense should only be recorded when it occurs. The definition of a short term or current asset is cash and other assets that will turn to cash or will be used up or consumed within one year of the balance sheet date. Prepaid Insurance is an example of Prepaid Expenses.
Prepaid insurance is considered a business asset and is listed as an asset account on the left side of the balance sheet. Other current assets are cash and equivalents accounts receivable notes receivable and inventory. Instead prepaid expenses are initially recorded on the balance sheet and then as the benefit of the prepaid expense is.
The prepaid insurance account must report the true amount that is prepaid but yet not expired as of the day of the balance sheet. This unexpired cost is reported in the current asset account Prepaid Insurance. The reason for the current asset designation is that most prepaid assets are consumed within a few months of their initial recordation.
The prepaid expense is shown on the assets side of the balance sheet under the head Current Assets. Treatment of Prepaid Insurance. The insurance expense incurs throughout the passage of time.
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