CSEET · Fundamentals of Accounting · Basic Concepts and Principles of Accounting
Mehta & Co. paid Rs 24,000 on 1 January for insurance covering 12 months from 1 January to 31 December. Its accounting year ends on 31 March. As per the matching concept, how much insurance expense belongs to the year ending 31 March?
The expense for the year is Rs 6,000. The premium of Rs 24,000 covers twelve months, so each month costs Rs 2,000, and only three months, January to March, fall in the year. The remaining Rs 18,000 is a prepaid expense.
- ARs 6,000Correct
- BRs 24,000
- CRs 18,000
- DRs 2,000
Explanation
Monthly cost is 24,000/12 = Rs 2,000. Cover from 1 January to 31 March is 3 months, so the expense is 3 × 2,000 = Rs 6,000. Charging Rs 24,000 would reflect the cash basis, and Rs 18,000 is the prepaid portion that carries forward.
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