Practice prompt · Q:transactions-to-statements/adjustment-type-and-entry-001

Name the adjustment type and write the entry

Tests whether the learner sorts a year end fact into its adjustment type before computing the entry.

Updated Sep 11, 2026 Review due Nov 18, 2026

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On October 1 a company paid 24,000 for twelve months of insurance and debited Prepaid Insurance. At December 31 no entry has been made since.

Sorting comes before arithmetic. Deferral means cash moved first; accrual means the revenue or expense came first. Getting the type wrong puts the credit in the wrong account even when the amount is right.

Choose the best answer. a A deferred expense: debit Insurance Expense 6,000 and credit Prepaid Insurance 6,000. b An accrued expense: debit Insurance Expense 6,000 and credit Insurance Payable 6,000. c A deferred expense: debit Insurance Expense 24,000 and credit Prepaid Insurance 24,000. d No entry, because the payment was already recorded in October.

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Answer: a

Choice a. It is a deferred expense, and three of twelve months have expired: 24,000 times 3/12 equals 6,000.