What adjustment is necessary when an insurance payment is made but no entry is recorded?

When an insurance payment is made but not recorded, it is essential to adjust the accounting records to accurately reflect the expense incurred for the insurance coverage received. The correct adjustment involves debiting an expense account related to insurance to recognize the cost incurred.

The selection of debit to the Insurance Expense account for $1,500 signifies that this amount is being recorded as a cost of doing business—representing the insurance coverage the company has benefitted from over a specific period. This aligns with the matching principle in accounting, which dictates that expenses should be recorded in the same period as the revenues they help to generate. By debiting insurance expense, the financial statements will show the true expenses of the period, thereby giving a correct picture of the company's financial health.

In this scenario, if an insurance payment was made but not recorded, the payment amount needs to be added to the expenses to maintain an accurate portrayal of financial activities, which justifies the choice of debiting Insurance Expense. This correction helps ensure that the income statement accurately reflects the costs associated with operating the business during that period.