 have to put it on the books as an asset. Now, if you're a small business, you might be thinking, well, I can deal with just expensing it because that's easier, and maybe I want to do that. So then the question is, well, what's the purpose of your financial statements? Possibly it's for taxes. So you might want to talk to your CPA firm and say, what would be the best way for me to deal with this for tax purposes? You might be able to simply expense it if you would like to do that. And then ask your tax preparer or the adjusting entry person at the end of the year to do whatever they need to do with an adjusting entry. Say, hey, look, I've expensed all of my insurance here. And if you need to put prepaid insurance on the books, here are my insurance documents. Here's the coverage that is being covered. And you can make an adjusting entry if you so choose. But if they need to break out the insurance, it's likely that they would rather have you put it on the books as prepaid insurance on acid, which is still pretty easy to do from a bookkeeping standpoint. So this is the traditional way that we would do it. We would say, hey, look, when you pay for the insurance, what you're going to do is not expense it to insurance expense, but rather put it into a prepaid insurance account. That's going to make it easier on the adjusting entry process. Why? Because the expense accounts are temporary. They close out into retained earnings, which kind of messes up the adjusting entries a bit. Whereas if you put it on the books as an asset, then we can easily then look at the insurance coverage, see how much of the insurance has been consumed, and make an adjusting entry. So it's still pretty easy from a bookkeeping standpoint to do that. You might need to work with your tax preparer. You need to let them know, hey, look, I'm putting all of my insurance with the use of the bank feeds into a prepaid insurance account. I'm not doing any adjusting entries for them. I would like you to do the adjusting entries for them. I'm just going to keep on increasing prepaid insurance. I will give you the coverage at the end of the year so that you can make the proper adjusting entry and expense the portion of prepaid insurance. That might be a method that you can use. Also note that if you have multiple insurance accounts, you might want to make a parent account for insurance and then put the different types of insurances underneath it. That might make it a little bit easier. So if you had car insurance and then you had liability insurance and so on and so forth, you can list those different types of insurance so that when you do the adjusting entry, then you can look at each of the individual insurance policies to see how much of the insurance has been consumed and how much has not yet been consumed. And then we can think about, OK, then what's the insurance calculation going to look like? Well, if I just put the prepaid insurance, if I go into this insurance account, you can see we put it on the books with just a check. We paid for it $12,000. We're going to imagine that it was for an entire year's worth of insurance. We're imagining that that insurance started on the February. Let's say February. And this is, of course, just to kind of make it easy. So let's pretend that that $12,000 payment was for liability insurance, which starts on February and then goes for an entire year after that point in time. So that means that if I look at that policy, then I pay for it in advance in a year and now we're doing our books as of the end of February. So one month has passed. I have consumed then one month of the 12 months of insurance. You might say, well, yeah, the insurance company didn't give me anything in that month. How did I get anything? What do you mean I've consumed the insurance? I only get something if someone stubs their toe and they sue me, right? But we're hoping that that doesn't happen. So we're hoping that the fact that we have the insurance covers us in the event that that happens. So although we didn't get anything from the insurance, we did get something. We got coverage. We got the safe of mind that if the crazies come in and stub their toe, I'm not going to worry about it too much. Hopefully the court won't rule that they're going to get billions of dollars for some crazy story. But given the track record, it might happen. And it's annoying, but hopefully we have insurance. OK, so we're going to do that with a journal entry. Now, we could go to the journal entry up now. So if I took the 12,000 divided by, what did I say? 12,000? Yeah, 12,000 divided by 12. That's 1,000 a month. One month has now passed. Therefore, I'm going to expense one month of the coverage. That's the calculation. So we could do that with a journal entry. That's going to be our classic form. It's an adjusting entry. So we want to mark that off by saying, I'm not going to do it. I'm going to do it with a journal entry form, not one of the standard forms. Put it as of the cutoff date, 229 in our case, and mark it as an adjusting entry in the memo. But there's only two accounts affected. So we could use the register. So let's do that. We'll look at both formats. But if there's only two accounts affected, we can go to the register and we can look at the account that is the balance sheet account. This is a classic adjusting entry in that there's a balance sheet side and an income statement side because it's a timing difference to see when we're going to be recording the expense. The registers are linked to the balance sheet account, which is prepaid insurance. So let's go into prepaid insurance. There it is. There's the 12,000. Open the register. I'm going to select a form, which will be the journal entry, journal entry form, and we're going to make it as of the cutoff date, which in our case is 022924. If it was a tax for taxes, it would be the end of the year, probably 1231, right? And then we're going to say that the memo is an adjusting entry so that we can clearly define it as an adjusting entry. It's going to be a decrease. And we're going to say a decrease will be a credit in this case, by the way, which we'll see shortly in the debit and credit format. $1,000 has been expensed. The other side, do we have an insurance expense provided by QuickBooks? So they put an insurance parent category and then business insurance, liability insurance, property insurance. This same format might be how you would like to set up your insurance on the balance sheet for prepaid insurance accounts as well if you have multiple insurances so that you can do a similar process and track each of the insurance items. But let's choose the liability insurance. And so I'm going to say, all right, that's it. Let's go save it. And then let's go back into it and check it out in journal entry format.