Normal Balances: Since debits increase asset and expense accounts, they normally have debit balances. On the other hand, because credits increase liability, retained earnings, and revenue accounts, they normally have credit balances.

Is prepaid insurance normal balance a debit or credit?

Prepaid Insurance Journal Entry Prepaid insurance is usually charged to expense on a straight-line basis over the term of the related insurance contract. When the asset is charged to expense, the journal entry is to debit the insurance expense account and credit the prepaid insurance account.

What is the normal ending balance for expense?

Asset accounts normally have debit balances, while liabilities and capital normally have credit balances. Income has a normal credit balance since it increases capital . On the other hand, expenses and withdrawals decrease capital, hence they normally have debit balances.

Is prepaid insurance an asset or liability?

current asset
Prepaid insurance is usually considered a current asset, as it becomes converted to cash or used within a fairly short time. But if a prepaid expense is not consumed within the year after payment, it becomes a long-term asset, which is not a very common occurrence.

What is the normal balance of an expense account?

Accounting transactions are entered daily into the General Journal. Each transaction involves at least one debit entry and one credit entry such that total debits equals total credits for each transaction. Become a Study.com member to unlock this answer! Create your account Expense accounts normally have a debit balance.

How is an insurance expense reported on the income statement?

If an amount is owed to the insurance company, there should be a liability account with a credit balance for the amount owed as of the balance sheet date. Because adjusting entries involve a balance sheet account and an income statement account, it is wise to also look at the amount being reported in the income statement account Insurance Expense.

How is the balance of prepaid insurance calculated?

Therefore, prepaid insurance must be adjusted: Note: One month corresponds to $2,000 ($24,000 x 1/12) in insurance policy. The adjusting journal entry is done each month, and at the end of the year, when the insurance policy has no future economic benefits, the prepaid insurance balance would be 0.

Where does insurance payable go on a balance sheet?

Insurance payable is a debt related to insurance expense. It is a component of a corporate balance sheet, also known as a statement of financial condition or statement of financial position.