The first account to be
used is prepaid insurance. This is a current asset which specifies the price of
the insurance contract or also known as premiums that have been paid in
advance. It signifies the amount that has been paid but has not yet expired as
of the balance sheet date.
The second account to be
used is cash because it was used to pay for the insurance bought.
To record this
transaction:
Debit, Prepaid Insurance
$2500
Credit, Cash $2500
