Prepaid Insurance Reconciliation Methods

A.

The appropriate reconciliation method for a prepaid insurance account that explains the current month balance would be Account Analysis (option D).

Account Analysis is a reconciliation method that involves reviewing the account balance and analyzing the underlying transactions and activity to ensure that they are accurate and complete. This method is appropriate for reconciling accounts that have a significant volume of transactions or activity and require a more detailed review to identify any discrepancies.

Prepaid insurance is an asset account that represents the amount of insurance premiums paid in advance but not yet expired. At the end of each month, the balance in the prepaid insurance account needs to be reconciled to ensure that it accurately reflects the amount of insurance coverage that has been used up during the month.

To reconcile the prepaid insurance account using the account analysis method, the accountant would need to review the transactions that have occurred during the month and compare them to the beginning balance in the account. This would involve reviewing the insurance policies that have been purchased, any adjustments or refunds that have been made during the month, and the amount of insurance coverage that has been used up based on the company's activities.

By analyzing the underlying transactions, the accountant can ensure that the balance in the prepaid insurance account accurately reflects the amount of insurance coverage that has been used up during the month. If any discrepancies are found, they can be investigated further and resolved to ensure the accuracy of the account balance.

In contrast, balance comparison (option A) involves comparing the account balance to an external source, such as a bank statement or a ledger, to ensure that they match. This method is more appropriate for reconciling accounts that have a limited number of transactions or activity, such as a bank account.

Transaction matching (option B) involves matching individual transactions in one account to corresponding transactions in another account. This method is more appropriate for reconciling accounts that have a high volume of transactions and require a more detailed review, such as accounts payable or accounts receivable.

Variance analysis (option C) involves analyzing the differences between expected and actual results to identify any discrepancies or areas of concern. This method is more appropriate for analyzing financial performance or identifying potential issues in the company's operations.