The unexpired insurance at the end of the fiscal period represents which of the following?

• A. Deferred expense
• B. Asset
• C. Liability
• D. Revenue

Answer: (A)

When you pay for insurance in advance, you’ve created a prepaid asset because it will provide benefits in future periods. The portion that has not yet expired represents a future benefit still to be used, so it’s recorded as a deferred (prepaid) expense. As time passes and coverage is used, that asset is gradually expensed. It isn’t a liability or revenue because nothing is owed to others and no revenue has been earned yet.