Bank paid 15000 directly for insurance premium
Answers
The Current transaction affects two accounts life insurance premium account(it is a nominal account;all losses Gains income expenses come under nominal account; life insurance premium is an expense),, Bank account.. because life insurance premium is deducted from bank directly...(it is a Real account; all assets and Liabilities come under Real account; bank balance/cash balance is an asset) ..
The Three golden rules of accounting are....
Personal Account: Debit the receiver, credit the giver
Nominal account: Debit All expenses and losses, credit All incomes and gains
Real Account: Debit what comes in ,credit what goes out
In contention with the above rules...
life insurance premium should be debited (it is a nominal account/its an expense)
Bank account should be credited (it is a Real account/cash from bank is Going out)
The Journal Entry will be....
life insurance premium a/c Dr xxxxx
To Bank a/c. xxxx
(Being life insurance premium paid)
Answer:
If you are considering life insurance premium, then the answer will be different.
Explanation:
If it is an insurance premium for life, then it is a form of drawings because business does not have life and you cannot insure against that.
Hence, if this is the case, it should be
Drawings A/c......Dr. 15000
To Bank A/c 15000
If it is for any other sort of insurance then it will be:
Insurance A/c.....Dr. 15000
To Bank A/c 15000
Rule applicable for first one:
Drawings is personal account so debit the receiver, owner is the receiver.
Bank is personal account so credit the giver, bank is the giver.
Rule applicable for second one:
Insurance is an expense so nominal account, so debit all expenses and losses.
Bank is personal account so credit the giver, bank is the giver.
This is the answer. Hope your doubt is clarified :).