The correct answer is Rs. 2,000 to a Prepaid insurance account. Prepaid Insurance: Prepaid insurance includes the amount of insurance premium which is paid in advance pertaining to the next financial year. Prepaid Insurance is an asset of the business and thus has a Debit balance in the ledger account. Important PointsPrepaid Insurance account has an opening balance of Rs. 10,000 that denotes the amount of insurance premium paid in excess during the previous year pertaining to the current year. One-fifth of the Prepaid Insurance (Rs. 2000) has expired, which represents that amount of insurance that is used up in the current year as an Insurance expense. This results in a decrease in prepaid insurance balance. To decrease prepaid insurance, its account must be credited. So, the adjustment entry would require a credit of Rs. 2,000 to Prepaid insurance account.