Question : We are converting to online quickbooks, want to have the most minimal Chart of Accounts. My question: Why should INSURANCE a yearly expense paid quarterly, NOT be expensed in the same account as the phone bill?
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Answer : Hello, my name is Fred and I can assist you. So the difference is the phone bill is paid monthly, while the insurance bill is usually paid up front, but the period of service extends usually for a year. Therefore the expense should be spread over the year. Example, let’s say you have an insurance policy for $12,000, paid in full in January, and the policy term is January to December. In January, you would show prepaid insurance of $11,000 and expense of $1,000. In February, your prepaid would be $10,000 and your expense would be $1,000. Please let me know if you have any follow up questions on this. Thanks!
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