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General Accounting Discussions: pls..... help.... immediate answer needed

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    this is the situation. i have paid an insurance for my motor vechicle for the whole year.and started the amortization for the insurance expense but eventually i decided to sold the car in the middle of the year and because of that the insurance company give back the money i paid for the half year that was not incurred. the question is how would i treat the money that was given back? what would be my journal entry?
    • CommentAuthorneo
    • CommentTimeSep 18th 2007 edited
     
    Initially, your journal entry for paying the insurance for the whole year (assuming you paid $50.00 on Jan 1, 20X1) should be:

    Dr. Prepaid Insurance $50.00
    Cr. Cash $50.00

    Thus, the money that was given back to you by the company should have a journal entry

    Dr. Cash $25.00
    Cr. Prepaid Insurance $25.00

    that is, since 50% had already been amortized.


    ***This solution is by using Asset method; if the company is using expense method, just replace prepaid insurance with insurance expense. I hope it helped. :D

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