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Question

An entrepreneur is setting up his new business. He purchases some equipment. He also takes insurance on the equipment for which the premium is paid for 6 months even though the business is yet to commence operations. The equipment cost and insurance for 6 months is start up cost for the entrepreneur. For the business, the insurance paid is       

A Deposits Correct Answer Incorrect Answer
B Inventory Correct Answer Incorrect Answer
C Prepaid expenses Correct Answer Incorrect Answer
D Fixed asset Correct Answer Incorrect Answer
E Provision Correct Answer Incorrect Answer

Solution

Paying insurance premium is a prepaid expense for the business as it is paid in advance.

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