Which of the following will properly record the payment of a two-year insurance policy?
A) Increase assets and increase retained earnings
B) Increase liabilities and decrease retained earnings
C) Increase and decrease assets
D) Decrease assets and decrease liabilities

Question

Quizplus · Accepted Answer

When a company pays for a two-year insurance policy, it decreases its cash asset (an outflow of resources) and increases another asset, prepaid insurance (representing the future economic benefit of the insurance coverage). This is an asset exchange transaction, not affecting retained earnings or liabilities directly.

Which of the Following Will Properly Record the Payment of a Two-Year