How to journalize these?

[Seohee]

1. Paid $1000 to U Co. to apply partially on account.
- I know payment on account would be a debit to accounts payable and a credit to the cash account, but there are no other transactions with the said company (this is the first one). I was thinking, it is impossible to pay an account when you don't really owe the company some money. Could this be some kind of prepayment?

2. Determined that $100 of insurance had expired.
- This is like an adjusting entry, debit expense account and credit prepayment account. However, if it isn't separated as an adjustment, would it still be recorded the same or just as a memo entry?

 

[Steve-LevelUp]

1. You are essentially correct. You caught on that this would actually be a prepaid (asset) and would only be offset once you receive the invoice from the vendor with the details of the expense. This is presuming that no expense has been incurred.

2. Something like this could occur if you did not journalize the amortization of the policy correctly, leaving $100 on prepaid insurance. Then, the $100 could be expensed as you proposed as the insurance has expired.