Using the accrual method of accounting, how do you record the following: The property and liability insurance bill (total of $240,000) for 2013 was paid on June 1, 2012? When the bill is paid by check, what journal entry is generated to record the transaction? How do you record the property and liability insurance expense in 2013?

ANSWER

The BIDaWIZ Team's Answer:

Thank you for your response. To record this transaction, you would treat the prepayment as an asset in 2012 and expense the asset as incurred in 2013. See the journal entries below.

1/6/12     Debit: Asset - Prepaid Property & Liability Insurance $240,000

To record prepayment of asset

1/1/13 Debit: Expense - Property and Liability Insurance Expense: $240,000

                                        Credit: Asset - Prepaid Property & Liability $240,000

To record insurance service performed