Do you need to make an adjusting entry on prepaid insurance for a month if there were no actual payments made in the month? What would a t-account look like for prepaid insurance in this situation? Hope that makes sense, thank you.
Answer is it depends. Prepaid insurance is set up first by a debit to prepaid insurance when insurance has been purchased and the period of coverage is in the future. Thereafter, as each period of coverage is "used up" you then record a credit to prepaid insurance offset by a debit to insurance expense for that month's portion of expense So the USUAL example is you buy insurance coverage in Dec 2012 for the calendar year of 2013. So on your Dec 2012 balance sheet the debit for that payment is all in the prepaid insurance account. So here,yes, in Jan 2013 you make an adjusting entry when you prepare the Jan 2013 financials. And that entry is the credit to prepaid ins and dr to insurance expense for ONE month of expense which equals 1/12 of the prepaid amt. Note i said it depends so if the example was you paid in dec 2012 but the insurance coverage did not begin until FEB 2013 then you would make no expense entry in january.
Prepaid insurance is considered as an asset .when you purchased insurance that means you have already paid for it and no more payment is required .Therefore every month part of your prepaid insurance will become your prepaid expense.
For example 12000 rs paid in advanced for insurance.
Prepaid insurance Dr 12000
Cash Cr 12000
Then after one month
Insurance expense. Dr 1000
Prepaid insurance. Cr 1000