Equipment is a noncurrent or long-term asset account which reports the cost of the equipment. Equipment will be depreciated over its useful life by debiting the income statement account Depreciation Expense and crediting the balance sheet account Accumulated Depreciation (a contra asset account). A current asset which indicates the cost of the insurance contract (premiums) that have been paid in advance. It represents the amount that has been paid but has not yet expired as of the balance sheet date. Under the accrual basis of accounting, expenses are matched with revenues on the income statement when the expenses expire or title has transferred to the buyer, rather than at the time when expenses are paid. The ending balance in the contra asset account Accumulated Depreciation – Equipment at the end of the accounting year will carry forward to the next accounting year.

As a result the bad debts expense is more closely matched to the sale. When a specific account is identified as uncollectible, the Allowance for Doubtful Accounts should be debited and Accounts Receivable should be credited. Although Mr. John’s trial balance does not disclose it, there is a current asset of $3,200 on 31 December 2019.

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You can put the insurance check back onto the same expense account that the original repairs were coded to which will offset that expense. When a business puts in an insurance claim to their provider for damages, the provider will pay money to help them cover the costs of repairing or replacing what was damaged (this is just one example). However, you can then reclaim a portion of that as a business expense when you calculate your deductible vehicle expenses based on the business use of your personal vehicle.

Instead, they provide value over time—generally over multiple accounting periods. Because the expense expires as you use it, you can’t expense the entire value of the item immediately. Record a prepaid expense in your business financial records and adjust entries as you use the item.

How do you record a payment for insurance?

To assist you in understanding adjusting journal entries, double entry, and debits and credits, each example of an adjusting entry will be illustrated with a T-account. Because you split the insurance expense evenly for the year, you will need to record the expense each prepaid insurance journal entry month, meaning the above journal entry will need to be recorded each month for the next twelve months. All 12 months from Jan’20 to Dec’20 will be charged in each period against the prepaid expense account to reduce the prepaid account to zero by end of the year.