Toyosi paid £6,600 for insurance during the year ended 31/03/2014. The "insurance prepaid" account showed a balance of £390 as at 01/04/2013 and a balance of £450 as at 31/03/2014. Calculate the insurance expense for the year ended 31/03/2014.

Intuitively, the £390 prepaid balance at the beginning of the year should go to this year's income statement in full (it was paid last year but relates to this year; "prepaid"). In addition, we are told that £6,600 was paid during the year, but a portion of that (£450) actually relates to next year. This means that the £450 portion should not be considered in this year's income statement. Therefore, the amount to be recognised as an expense for the year ended 31 March 2014 is:390 + 6,600 - 450 = £6,540 Although it is always possible to answer these questions using the "logical" method described above, this may not be straightforward in exam conditions. Therefore, I would always advise to draw up a "T" account when answering this kind of question. In this case, our "T" account for insurance would look as follows:Debit side: Balance b/d £390; Cash £6,600. (Total Box: £6,990)Credit side: Income statement (balancing figure) £6,540; Balance c/d £450. (Total Box: £6,990)(Question adapted from AQA Unit 3 Exam June 2014, Task 2).