what is the journal entry for insurance premium
Answers
Explanation:
A basic insurance journal entry is Debit: Insurance Expense, Credit: Bank for payments to an insurance company for business insurance. Not all insurance payments (premiums) are deductible* business expenses. Some insurance payments can go on to the Profit and Loss Report and some must go on the Balance Sheet.
Insurance Journal Entry
A basic insurance journal entry is Debit: Insurance Expense, Credit: Bank for payments to an insurance company for business insurance.
Not all insurance payments (premiums) are deductible* business expenses.
Some insurance payments can go on to the Profit and Loss Report and some must go on the Balance Sheet.
So when it comes to entering these transactions into the bookkeeping records of a business there are different journal entries to consider.
Insurance Journal Entry
There are various types of insurance cover available to small businesses and business owners so we'll have a look at those and how best to treat them in the accounts.
Plus, there are questions I received from real bookkeepers/business owners who needed to know how to enter their insurance proceeds from property damage to which you can read my answers.
*A deductible expense is one that can be included in your income tax calculations.
Insurance Expense Journal Entry
An insurance expense occurs after a small business signs up with an insurance provider to receive protection cover.
The insurance provider charges an annual fee, called a premium, which will cover the business for 12 months.
This annual fee can be paid with a one-off payment or it can be spread over 12 monthly payments, or sometimes fortnightly.
The annual payment is usually cheaper than the total of the monthly payments as an incentive to pay the bill up-front, but small businesses often can’t afford this, so the providers offer the monthly option.
Business Insurance
Here are some common types of insurance that are recommended for a business depending on the type of business they operate.
All of these have the same insurance journal entry:
Debit: Insurance Expense (expense account) Credit: Cash/Bank (asset account)
General Liability Insurance
This insurance can also be known as public liability insurance and protects against financial loss resulting from other people’s property damage, injuries to people and medical costs, lawsuits and more.
Professional Liability Insurance
This insurance can also be known as professional indemnity insurance and is suited for businesses providing a service. It protects against financial loss resulting from errors or negligence.
Other Insurances
These include commercial property cover, product liability cover and employee cover.
Compulsory Insurance
Some insurances may be compulsory like Worker’s Compensation, Commercial Auto and Professional Liability.