Get Prepaid Insurance Formula Background. Definition of prepaid insurance prepaid insurance is the portion of an insurance premium that has been paid in advance and has not expired as of to illustrate prepaid insurance, let's assume that on november 20 a company pays an insurance premium of $2,400 for insurance protection during the. Prepaid insurance is the amount of insurance premium paid by the company in an accounting period that didn't expire in the same accounting period and therefore, the unexpired portion of this insurance will be shown as an asset in the balance sheet of the company.
Prepaid insurance is insurance paid in advance and that has not yet expired on the date of the balance sheetbalance sheetthe balance sheet is one of the three fundamental financial statements.
To make you understand this question, it is important to familiarize you with both the golden rules and modern rules of accounting. On december 31, an adjusting journal entry is made because it is the end of an accounting period and microtrain has not used all of the insurance they paid for. Prepaid insurance is the amount of insurance premium paid by the company in an accounting period that didn't expire in the same accounting period and therefore, the unexpired portion of this insurance will be shown as an asset in the balance sheet of the company. Prepaid insurance, depreciation, prepaid rent and supplies on hand are all examples of asset/ expense entries.
