Question

A prepayment of insurance premium will appear in the Balance Sheet and in the Insurance Account respectively as.

• A. A liability and a debit balance
• B. An asset and a debit balance
• C. An asset and a credit balance
• D. None of the above

Answer 1

Answer: (B)

An asset and a debit balance

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. A related account is Insurance Expense, which appears on the income statement and shown on balance sheet as asset.