Carol, the accountant for Cool Pte. Ltd. recorded the insurance expense transaction as follows: DR Insurance expense $49,000 CR Bank $49,000 The above insurance expense is paid for 7 months up to 31 May 2021. Assuming monthly insurance is about the same, which of the following is the best adjusting entry to be passed as at year ended 31 August 2021? Question 5 options:

1) DR Prepaid expense $21,000 CR Insurance expense $21,000

2) DR Insurance expense $21,000 CR Prepaid expense $21,000

3) DR Accrued expense $21,000 CR Insurance expense $21,000

4) DR Insurance expense $21,000 CR Accrued expense $21,000