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Question: 1. Which accounts are affected? Prepaid Insurance and Cash
2. How is each account classified? Prepaid Insurance is an asset account. Cash is an asset account.
3. How is each classification changed? One asset (Prepaid Insurance) increases and another asset (Cash) decreases.
4. How is each amount entered in the accounts? Assets increase on the debit side. Therefore, debit the asset account, Prepaid Insurance. Assets decrease on the credit side. Therefore, credit the asset account, Cash.
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