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

When an insurance payment is made without a corresponding journal entry, it typically indicates a failure to recognize the expense for the period in which the payment was made. Recording the insurance payment as an expense is essential because it reflects the cost incurred for the coverage provided during that period.

Debiting Insurance Expense for the amount of the payment (in this case, $1,500) correctly increases the expense account, aligning the financial statements with the accrual accounting principle. This principle dictates that expenses should be recognized when they are incurred, regardless of when the cash is actually paid.

By debiting Insurance Expense, the financial records will show the appropriate costs associated with insurance for that period, ensuring that the net income accurately reflects the organization’s true profitability.

It’s also important to note that any adjustments involving prepaid insurance would typically concern either the allocation of future insurance costs or the recognition of expenses as they are incurred. Since no entry was recorded for the insurance payment initially, the correct response directly addresses the need to capture the expense incurred.