Question
Once Prana has her supplies and workspace in order for her sweater business, she realizes that she should have insurance. So she purchases some from an online broker with her credit card. How should she reflect this in her journal?
Answers
GPT-4o mini
When Prana purchases insurance for her sweater business, she needs to reflect this transaction in her journal to accurately record the expense and maintain proper accounting for her business. Here’s how she should record this in her journal:
1. **Date**: Record the date of the transaction.
2. **Account Titles**: Identify the accounts affected by the transaction. In this case, the "Insurance Expense" account and the "Accounts Payable" or "Credit Card Payable" account, depending on how she tracks her credit card purchases.
3. **Debit and Credit**:
- **Debit** the Insurance Expense account to reflect the cost of the insurance as an expense.
- **Credit** the Accounts Payable or Credit Card Payable account to show that she owes this amount to the credit card company.
The journal entry could look something like this:
```
Date Account Titles Debit Credit
YYYY-MM-DD Insurance Expense XXX
Accounts Payable/Credit Card Payable XXX
```
**Note**: "XXX" should be replaced with the actual amount she paid for the insurance.
### Explanation:
- **Insurance Expense**: This is an expense account, and debiting it increases the amount of expenses, which reflects the cost of doing business.
- **Accounts Payable/Credit Card Payable**: This liability account shows that Prana has incurred an obligation to pay for the insurance, which decreases her equity.
By recording the transaction this way, Prana accurately captures the financial impact of the insurance purchase on her business's books.
1. **Date**: Record the date of the transaction.
2. **Account Titles**: Identify the accounts affected by the transaction. In this case, the "Insurance Expense" account and the "Accounts Payable" or "Credit Card Payable" account, depending on how she tracks her credit card purchases.
3. **Debit and Credit**:
- **Debit** the Insurance Expense account to reflect the cost of the insurance as an expense.
- **Credit** the Accounts Payable or Credit Card Payable account to show that she owes this amount to the credit card company.
The journal entry could look something like this:
```
Date Account Titles Debit Credit
YYYY-MM-DD Insurance Expense XXX
Accounts Payable/Credit Card Payable XXX
```
**Note**: "XXX" should be replaced with the actual amount she paid for the insurance.
### Explanation:
- **Insurance Expense**: This is an expense account, and debiting it increases the amount of expenses, which reflects the cost of doing business.
- **Accounts Payable/Credit Card Payable**: This liability account shows that Prana has incurred an obligation to pay for the insurance, which decreases her equity.
By recording the transaction this way, Prana accurately captures the financial impact of the insurance purchase on her business's books.