Nancy O'Rode starts a consulting business called EducateMe.On May 1,the company paid $1,200 cash for six months of insurance coverage beginning on June 1.How would EducateMe record this transaction?
A)Debit Cash for $1,200 and credit Prepaid Insurance for $1,200.
B)Debit Cash for $1,200 and credit Insurance Expense for $1,200
C)Debit Insurance Expense for $1,200 and credit Cash for $1,200.
D)Debit Prepaid Insurance for $1,200 and credit Cash for $1,200.
E)Debit Cash for $1,200 and credit Common Stock for $1,200.

Question

Quizplus · Accepted Answer

The transaction involves paying cash for future insurance coverage, which is recorded as a prepaid expense. Therefore, Prepaid Insurance is debited and Cash is credited.

Nancy O'Rode Starts a Consulting Business Called EducateMe