Which of the following is the correct journal entry to record the payment of insurance on factory equipment?

• A. Debit Insurance Payable; Credit Factory Equipment
• B. Debit Factory Insurance Expense; Credit Cash
• C. Debit Cash; Credit Factory Insurance Expense
• D. Debit Factory Equipment; Credit Insurance Expense

Answer: (B)

Verified step by step guidance

1. Understand the nature of the transaction: The payment of insurance on factory equipment is an expense incurred to ensure the equipment is covered. This is typically recorded as an expense in the accounting records.
2. Identify the accounts involved: The accounts affected are 'Factory Insurance Expense' (an expense account) and 'Cash' (an asset account). The expense account will increase, and the cash account will decrease.
3. Determine the debit and credit rules: Expenses are increased by debits, and assets (like cash) are decreased by credits. Therefore, 'Factory Insurance Expense' will be debited, and 'Cash' will be credited.
4. Write the journal entry: The journal entry will be structured as follows: Debit 'Factory Insurance Expense' and Credit 'Cash'. This reflects the payment of insurance as an expense and the reduction in cash.
5. Review the options provided: Compare the journal entry you constructed with the options given in the problem. The correct option is 'Debit Factory Insurance Expense; Credit Cash'.