Australia How to record prepaid trial balance?

[TonyH890]

Hello all,

I have a question about the prepaid insurance on the trial balance and cannot seem to find answers elsewhere. So, if you prepay insurance, this is recorded as "prepaid insurance" as a debit (and makes no difference to the total sum since 1000 is taken from cash) for example's sake say 1000. If you use up a months insurance (say 100) this will be recorded as "insurance expense" as a credit.

My question is: if these both "prepaid insurance" and "insurance expense" are recorded, how would I match the 100 credit of "insurance expense" as 100 credit (to balance the total sum) and what would I record it as?

Many thanks.

 

[kirby]

So let's say a company pays an insurance company $1,200 on Jan 1 for insurance for the whole year.
Entry
DR Prepaid Insurance (asset) $1,200
CR Cash <$1,200>

On Jan 31 the insurance expense for the month of January is recorded in the amount of 1/12 of the payment.
DR Insurance Expense $100
CR Prepaid Insurance (asset) <$100>

and that expense entry is made each month until the original $1,200 prepaid insurance asset is used up.