Harrowgate Landscaping Ltd. pays $1,800 on 1 March for a one-year insurance policy covering 1 March to 28 February. Record the payment on 1 March.

Answer

Dr Prepaid Insurance 1800; Cr Cash 1800

Accounts - Cash - Prepaid Insurance - Insurance Expense - Accounts Payable - Unearned Revenue On 1 March nothing has been used up: the company has bought twelve months of coverage, which is an asset — **Prepaid Insurance** — so it is debited. Cash went out, so Cash is credited. The trap is **Insurance Expense**: the expense is recognised month by month as the coverage is used (Module 5’s adjusting entry), not on the day the premium is paid. Accounts Payable is wrong because the policy was paid, not bought on account; Unearned Revenue is a liability for cash *received* in advance, the mirror image of this transaction.

AFM 191 research §8 (prior-knowledge divide); concept map A4, H8, K3; CBCA s.24 (no-par shares)