Prepaid Insurance is a temporary account.

• A. True
• B. Not sure
• C. Permanent
• D. False

Answer: (D)

Prepaid Insurance is an asset because it represents a payment made for future coverage that provides a benefit over time. Temporary accounts are those that are closed to zero at the end of the period, such as revenue and expense accounts. Prepaid Insurance is not temporary; it sits on the balance sheet as an asset and is gradually expensed over the period of the coverage. As time passes, you transfer the appropriate portion from Prepaid Insurance to Insurance Expense, reducing the asset and increasing expenses, but the asset account itself remains until the benefit is fully used. Therefore, the statement is false.