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It represents the amount that has been paid but has not yet expired as of the balance sheet date. prepaid insurance definition. A related account is Insurance Expense, which appears on the income statement. 15. Jones Company started the accounting period with $500 in supplies. Temporary accounts include revenue, expense, and gain and loss accounts. Regardless of whether it’s insurance, rent, utilities, or any other expense that’s paid in advance, it should be recorded in the appropriate prepaid asset account. Temporary accounts include revenue accounts, expense accounts, gains and losses. Temporary accounts include income statement accounts such as expenses and revenues. This journal entry credits the prepaid asset account on the balance sheet, such as Prepaid Insurance, and debits an expense account on the income statement, such as Insurance Expense. Permanent accounts are the accounts that are reported in the balance sheet. When there is a payment that represents a prepayment of an expense, a prepaid account, such as Prepaid Insurance, is debited and the cash account is credited. When you close a temporary account at the end of a period, you start with a zero balance in the next period. Interest expense is an expense account and therefore classified as a temporary account. Is prepaid insurance a temporary account? Fees Earned Revenue B. Prepaid Advertising C. Unearned Service Revenue D. Prepaid Insurance Prepaid Insurance. You must close temporary accounts to prevent mixing up balances between accounting periods. Prepaid Insurance is the amount of insurance premium paid by the company in an accounting period that didn’t expire in the same accounting period and therefore, the unexpired portion of this insurance will be shown as an asset in the balance sheet of the company. are all permanent accounts. more_vert Which of the following accounts is considered a temporary or nominal account? And, you transfer any remaining funds to the appropriate permanent account. If the insurance contract runs for a longer period, you need to take the deduction over time. A. An example of a prepaid expense is insurance, which is frequently paid in advance for multiple future periods; an entity initially records this expenditure as a prepaid expense (an asset), and then charges it to expense over the usage period. These accounts now begin the new year with zero balances. A. Prepaid Insurance B. Unearned Subscriptions Revenue C. Retained Earnings D. Subscription Revenue. A current asset which indicates the cost of the insurance contract (premiums) that have been paid in advance. Another item commonly found in the prepaid expenses account is prepaid rent. d. Prepaid Insurance Explanation: At the end of the accounting year temporary accounts are closed to capital account. Which of the following accounts is a temporary account? They are used to determine profit or loss position at year end. 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