On January 1, 2014, Smith had a beginning balance in Prepaid Insurance Expense of $1,200. On February 1, 2014, Smith paid an annual insurance premium in the amount of $4,800. On February 28, 2014, the balance in Prepaid Insurance is $2,000. The prepaid expense was initially recorded as an asset.

Question

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The balance in Prepaid Insurance on February 28, 2014, should be $5,200, not $2,000, if the prepaid expense was initially recorded as an asset. The $1,200 beginning balance plus the $4,800 payment minus the expense for January and February ($800) should result in a balance of $5,200.

On January 1, 2014, Smith Had a Beginning Balance in Prepaid