The insurance premium to be taken to the profit and loss account would be?

Use the information to answer the question.

……………………..30/9/06…….30/9/07…..
……………………….N………….N………
Accrued insurance premium…600………..710…….
Prepaid rent income………490…………630……

The cash book includes N1,850 and N,2,100 in respect of insurance premium and rent income respectively.

 

A. N1,310
B. N1,850
C. N1,990
D. 2,210

Correct Answer:

Option A – N1,310

Explanation

The insurance premium to be taken to the profit and loss account will be the amount which could not be recovered by the trader on account of credit sales. It is a business loss, so is debited in the profit and loss account.

Insurance premium posted to the P/L account would be;

710 + 600 = 1310