Now let's get started with the exercise. Here is the full scenario:
Your client, Craig, received a $12k bill in November for an annual insurance policy that runs from December 1 this year to November 30 the following year. He paid the bill in November, posting the total amount to the Prepaid Expenses account.
You need to reclassify December’s portion of the bill payment from the Prepaid Expenses account to the Insurance account.
Here’s what you need to do:
- Create a journal entry for December 31 to record the monthly bill portion of $1,000
- The journal entry should debit the Insurance account and credit the Prepaid Expenses account