A one-year insurance policy was purchased on June 1 for $2,400. The adjusting entry on December 31 would be:

Adjusting Journal Entry:

Debit Insurance Expense $1,400

Credit Prepaid Insurance $1,400

To record the insurance expense for the year (7 months).

Explanation:

This adjustment will cause the Prepaid Insurance account to remain $1,000.  This balance represents the insurance cost for 5 months having deducted the insurance cost for 7 months from June 1 to December 31.  So, in line with the accrual concept and the matching principle of generally accepted accounting principles, only $1,400 Insurance was incurred for the current year.  The balance will be charged to the account when the service is consumed.

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answer; whoever is willing and able to pay the price;