At 31 December Northlake Nordic Centre Inc. determines that $500 of its prepaid insurance has expired during December. Record the adjusting entry.

Answer

Dr Insurance Expense 500; Cr Prepaid Insurance 500

Accounts - Insurance Expense - Prepaid Insurance - Cash - Accounts Payable A deferral: the cash moved on 3 December, and the month used is now moved out of the asset into expense — **Insurance Expense** (debit) and **Prepaid Insurance** (asset down — credit). The trap is **Cash**: an adjusting entry never touches it; the payment was recorded when made. Accounts Payable is wrong because nothing is owed to the insurer.

Hermanson Vol 1 ch 3 (the deferral/accrual 2 × 2); Dauderis & Annand §3.2 (the five families); OpenStax Accounting Vol 1 §4.1 (concept map D5)