On Nov. 1, Lyons Company pays $1000 cash for a 12-month insurance policy. Use your knowledge of what a correct journal entry should look like to identify what would be included in the correct journal entry?

Insurance paid in advance

(prepaid expense) $1000 Debit

Cash. $1000 Credit

Explanation: it is an expense paid in advance because we are advancing 12 months or a year of payment that should be monthly, so in order not to affect the monthly income statement of the company each month you have to register a portion of this expense paid in advance, take it to a discharge in the income statement and subsequently, regularize this item of the asset because we already disbursed the cash, however we cannot place the entire money in the statement of income.