Quick Quiz A business paid $3,600 for insurance on 1 October 20X5 covering 12 months up to 30 September 20X6.
What insurance expense should be charged to the statement of profit or loss for the year ended 31 December 20X5?
A) $900
B) $1,200
C) $2,700
D) $3,600
Think it through before scrolling... 👇
.
.
.
.
.
✅ Answer: A — $900
The insurance covers 12 months, but only 3 months relate to the current year:
*October
*November
*December
So the expense for 20X5 is:
$3,600 ÷ 12 × 3 = $900
The remaining $2,700 relates to the next accounting period, so it should be treated as a prepayment.
This is an application of the accruals concept: charge only the expense that belongs to the current period.
@acca_with_bekhzod
