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A business paid insurance premiums of $18,400 during the year ended 31 March 20X7. At
1 April 20X6 there was an insurance prepayment of $1,800 and at 31 March 20X7 there was
a prepayment of $1,920.
What was the insurance expense for the year ended 31 March 20X7?
Given Answer: 18400 + 1800 – 1920 = 18280
Below is my answer,
b/d 1920 | c/d 1800
bank 18400 | P/L 18520
is prepayment suppose to be on the credit side for expense?
and debit side for liability?
At the start of the year there is a prepayment of 1800. Therefore the year starts with a debit balance of 1800.
At the end of the year, there is a prepayment of 1920 and so we want to end up with a debit balance of 1920, which means carrying down a balance of 1920 from the credit side.
It will help you to watch the free lectures on accruals and prepayments.
(Also the question is best done without using t-accounts – you are not tested on t-accounts in the exam, and they take longer and risk confusing)