Adjustment for Insurance On December 1, a six-month liability insurance policy was purchased for $900. Analyze the required adjustment as of December 31 using T accounts, and then formally enter this adjustment in the general journal. (Trial balance is ab

The required adjustment as of December 31 for the insurance policy purchased on December 1 is to recognize the amount of insurance that has been used up during the month of December. Since the policy is for six months and cost $900, the monthly expense for insurance is $150 ($900/6 months). Therefore, the adjustment will be a debit to insurance expense for $150 and a credit to prepaid insurance for $150. This will reflect the portion of the insurance policy that has been used up during December. The T accounts will show the initial entry on December 1 as a debit to prepaid insurance for $900 and a credit to cash for $900. The adjustment entry on December 31 will be a debit to insurance expense for $150 and a credit to prepaid insurance for $150, decreasing the balance in the prepaid insurance account by the amount of insurance that has been used up. The general journal entry on December 31 will be: DATE ACCOUNT TITLE DOC. NO. POST. REF. DEBIT CREDIT 20-- Dec. 31 Insurance Expense $150 Prepaid Insurance $150 This entry records the adjustment for the portion of the insurance policy that has been used up during December.