15. Jones Company started the accounting period with $500 in supplies. A. Prepaid Insurance B. Unearned Subscriptions Revenue C. Retained Earnings D. Subscription Revenue. It represents the amount that has been paid but has not yet expired as of the balance sheet date. A related account is Insurance Expense, which appears on the income statement. A. Prepaid Insurance. These accounts now begin the new year with zero balances. Regardless of whether it’s insurance, rent, utilities, or any other expense that’s paid in advance, it should be recorded in the appropriate prepaid asset account. Is prepaid insurance a temporary account? Temporary accounts include revenue, expense, and gain and loss accounts. are all permanent accounts. Which of the following accounts is a temporary account? This journal entry credits the prepaid asset account on the balance sheet, such as Prepaid Insurance, and debits an expense account on the income statement, such as Insurance Expense. An example of a prepaid expense is insurance, which is frequently paid in advance for multiple future periods; an entity initially records this expenditure as a prepaid expense (an asset), and then charges it to expense over the usage period. Temporary accounts include income statement accounts such as expenses and revenues. prepaid insurance definition. They are used to determine profit or loss position at year end. A current asset which indicates the cost of the insurance contract (premiums) that have been paid in advance. When you close a temporary account at the end of a period, you start with a zero balance in the next period. During the period the company purchased $1,100 of supplies on account. And, you transfer any remaining funds to the appropriate permanent account. Fees Earned Revenue B. Prepaid Advertising C. Unearned Service Revenue D. Prepaid Insurance You must close temporary accounts to prevent mixing up balances between accounting periods. Prepaid insurance premiums are deductible when paid as long as they don't apply to a period extending more than 12 months after the end of the taxable year when the payments were made. Another item commonly found in the prepaid expenses account is prepaid rent. 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. When there is a payment that represents a prepayment of an expense, a prepaid account, such as Prepaid Insurance, is debited and the cash account is credited. Permanent accounts are the accounts that are reported in the balance sheet. Temporary accounts include revenue accounts, expense accounts, gains and losses. Interest expense is an expense account and therefore classified as a temporary account. 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