WRONG QUESTION : Insurance paid in advance reduces the company's result at the time of payment, thus causing a concomitant reduction in the balance of a cash and cash equivalents account.
Prepaid insurance consists of a prepaid expense, which is recorded as an asset.
So, at the time of payment, there is only one exchange between asset accounts.
D - Prepaid Expense (↑ active)
C - Cash (↓ active)
The insurance will be appropriated as an expense during the term of the insurance, according to the accrual basis.
RIGHT QUESTION: A corporation took out a fire insurance policy, valid for three years, and paid the insurance premium in full to the insurance company at the time of contracting. From this hypothetical situation, judge the following item. For the insured company, it is an exchangeable accounting fact, with immediate equity effects in current asset accounts and long-term realizable assets.
The advance payment of the insurance premium valid for 3 years will be recognized according to the following accounting entry:
D: Expiring Insurance (AC – 12 months)
D: Insurance to expire (AÑC/RLP – 24 months)
C: Cashier (AC)
WRONG QUESTION : Provision for doubtful accounts, recognition of salary expenses and advance payment of insurance premiums are events that alter the company's results.
Early payment generates a right for the company
“Prepayment of insurance premiums” Represent rights.
(…)
It is a merely exchangeable fact, as we will only have equity accounts, which do not affect the company's net worth.
D - Insurance Paid in Advance (AC)
C - Banks (AC) or cashier (AC)
RIGHT QUESTION : Consider that the total premium of a fire insurance, contracted on July 1 of a given year and valid for 12 months, is R$ 3,000.00, with payment of 50% in cash and the remainder in 12 monthly installments. In this case, the amount initially activated will be R$3,000.00 and the impact on the final result for the year in question will correspond to an expense of R$1,500.00.
On the date of hiring:
D: AC - Insurance to be Appropriated - BRL 3,000 (ACTIVATED VALUE)
C: AC - Cash/Banks - BRL 1,500
C: PC – Insurance Payable – R$ 1,500
Insurance appropriation per month:
D: Expense as Insurance – R$ 250
C: AC - Insurance to be Appropriated - BRL 250
At the end of the first year:
July/X1 to December/X1 = 6 months
D: Expense as Insurance – R$ 1,500
C: AC - Insurance to be Appropriated - BRL 1,500
WRONG QUESTION : Insurance paid in advance reduces the company's result at the time of payment, thus causing a concomitant reduction in the balance of a cash and cash equivalents account.
The expenses are being accounted for by the company month by month, related to the proportional payment of the insurance value for that month. Therefore, they do not decrease the company's result at the time of payment, despite reducing the “availability” account.
Insurance paid in advance reduces the company's result at the time of payment… WRONG
…thus causing a concomitant reduction in the balance of a CORRECT cash account.
Prepaid expenses, as is the case with insurance paid in advance, are those paid in advance, but referring to subsequent periods of accrual, and must be recognized in the company's results when they accrue.
Accounting:
For prepayment of insurance:
Insurance Paid in Advance (AC)
to Banks (AC)
Due to the occurrence of the event giving rise to the expense, use of insurance, month of accrual:
Insurance Expenses
a Prepaid Insurance (AC)
RIGHT QUESTION : Insurance with a term of twelve months, paid in advance, should be classified in current assets.
Insurance or to expire or to elapse. If they are classified in Current Assets, each month that a installment is paid will go to the DRE as an expense result account.
Prepaid expenses are classified under current assets. This classification in current assets must observe the period for generating the benefit of the expense. Thus, the expense whose benefit will be enjoyed until the end of the fiscal year following the one in which it is effective is classified in this group.
RIGHT QUESTION : When a company pays an insurance installment for a coverage period that has not yet elapsed, the amount corresponding to the installment paid cannot be included in the income statement for the period.
According to the principle of competence, expenses and income must be recorded with reference to the corresponding period, regardless of their payments or receipts. The item in question refers to an installment paid for a period not yet elapsed, that is, the triggering event of this event, which is the passage of time, has not yet occurred. Thus, the accounting of the expense should only occur after this event has occurred (the passage of time). Thus, the accounts involved in this operation will initially be:
D-Insurance due or insurance in progress (advance expense)
C-Cash or cash equivalent
Remembering that the insurance account due (or unexpired) is an equity account that records an expense paid in advance. The posting to the income statement (expense) account will occur as soon as the corresponding period has been completed. When this occurs the release will be:
D-Insurance expenses (income account)
C-Insurance due (Advance expense)
RIGHT QUESTION : On 7/2/2018, a tour company sold a package for a family to spend their January 2019 vacation in Orlando. The amount was paid in full in July. Check the option that indicates the correct entry of the transaction, on the date of sale:
D – Box
C - Advance revenue
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