Debit the prepaid account, in this case prepaid insurance, for five months of the premium. For example, a six-month premium of $450 would equal $75 per month, or $375 for five months.

On December 31, an adjusting entry will show a debit insurance expense for $400—the amount that expired or one-sixth of $2,400—and will credit prepaid insurance for $400.

Understand adjusting entries for accounting purposes, how they are made and what they impact. ... ($100 x 12 months = the $1,200 you paid for your insurance premiums for the year).

Adjusting entries allow the accountant to communicate a more accurate picture of the company's finances. The owner can read through the financial statements knowing that everything that occurred ...