Accrual basis proration of insurance expense

Steps:

• Accounting period is 1 April 2022 to 31 March 2023 (12 months).
• 2022 payment ($1680) covers 1 Jan 2022–31 Dec 2022; relevant 1 Apr–31 Dec 2022 (9 months at$1680/12 = $140/month =$1260).
• 2023 payment ($1920) covers 1 Jan 2023–31 Dec 2023; relevant 1 Jan–31 Mar 2023 (3 months at$1920/12 = $160/month =$480).
• Total insurance expense: $1260 +$480 = $1740.

Why B is correct:

• Accrual accounting principle requires expenses matched to the period of benefit via proration of prepaid insurance.

Why the others are wrong:

• A: Uses full 2022 payment, ignores 3 months of 2023 coverage.
• C: Uses full 2023 payment, ignores 9 months of 2022 coverage.
• D: Adds both full payments, overstates by not prorating to the year.

Final answer: B