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. You must close temporary accounts to prevent mixing up balances between accounting periods. are all permanent accounts. 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. Temporary accounts include revenue accounts, expense accounts, gains and losses. A. Fees Earned Revenue B. Prepaid Advertising C. Unearned Service Revenue D. Prepaid Insurance And, you transfer any remaining funds to the appropriate permanent account. Permanent accounts are the accounts that are reported in the balance sheet. 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. Prepaid insurance premiums are deductible when paid as long as they don't apply to a period extending more than 12 months after the end of the taxable year when the payments were made. … Asset accounts – asset accounts such as Cash, Accounts Receivable, Inventories, Prepaid Expenses, Furniture and Fixtures, etc. It represents the amount that has been paid but has not yet expired as of the balance sheet date. Prepaid Insurance. Another item commonly found in the prepaid expenses account is prepaid rent. more_vert Which of the following accounts is considered a temporary or nominal account? Temporary accounts include income statement accounts such as expenses and revenues. 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. A related account is Insurance Expense, which appears on the income statement. If the insurance contract runs for a longer period, you need to take the deduction over time. When you close a temporary account at the end of a period, you start with a zero balance in the next period. Is prepaid insurance a temporary account? Interest expense is an expense account and therefore classified as a temporary account. A. Prepaid Insurance B. Unearned Subscriptions Revenue C. Retained Earnings D. Subscription Revenue. During the period the company purchased $1,100 of supplies on account. prepaid insurance definition. 15. 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. 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