What is Prepaid Insurance?
Prepaid insurance is an expense for insurance cover which has been paid in advance. A prepayment is sometimes referred to as a deferred expense.
For example, a business has an annual car insurance of 6,000 and pays yearly in advance on the first day of each year. On the 1 January it pays the next years car insurance of 6,000 to cover the 12 months of January to December. It has a prepaid car insurance expense of 6,000.
Prepaid Insurance Debit or Credit?
The journal entry for the prepayment of insurance would involve a credit to cash, as cash is paid out, and a debit to the prepaid insurance account. Prepaid insurance like any prepayment is an asset of the business and is included in the balance sheet.
For further information on an prepaid insurance see
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