Is Prepaid Insurance An Asset

November 17, 2020

Every month a portion of the insurance benefit expires. The definition of a short term or current asset is cash and other assets that will turn to cash or will be used up or consumed within on.

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Prepaid insurance represents an asset to the business since it will reap the benefits of the insurance policy for future periods.

Is prepaid insurance an asset. As the amount of prepaid insurance expires the expired portion is moved from the current asset account prepaid. The accountant includes prepaid insurance with current assets on the balance sheet. Prepaid insurance is the amount of insurance premium paid by the company in an accounting period that didnt 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.

It pays 120000 upfront for the insurance policy. Abc company will initially book the full 120000 as a debit to prepaid insurance an asset on the balance sheet and a credit to cash. Payments that are made in advance for insurance services or coverage.

The company enjoyed the security provided by the. Prepaid insurance is treated in the accounting records as an asset which is gradually charged to expense over the period covered by the related insurance contract. Prepaid insurance is the portion of an insurance premium that has been paid in advance and has not expired as of the date of a companys balance sheet.

I know that costs are known and that it will provide future benefit for the company but is this future benefit measurable. Prepaid insurance is nearly always classified as a current asset on the balance sheet since the term of the related insurance contract that has been prepaid is usually for a. According the gaap the 3 asset criteria how can i justify that prepaid insurance is an asset.

Prepaid insurance is usually a short term or current asset because the prepaid amount will be used up or will expire within one year of the balance sheet date. Manik chand dey. Prepaid insurance an asset.

This unexpired cost is reported in the current asset account prepaid insurance. The period for which insurance is prepaid is generally one year but may exceed a year in certain cases.

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