Accounting Treatment For Insurance Premium – Learn The Journal Entries For Insurance Premium Income Paid In Advance, Payment, Claim Settlement & Brokerage Fees or Commission
As a business owner who is concerned about the risk of loss, insurance is designed to secure your business against future occurrences that might lead to loss of asset or properties due to an unforeseen event. Hence, you are expected to pay an agreed premium on a monthly or annual basis.
Since the amount calculated as a premium to cover the risk involved is paid to an insurance company prior to the prior covered, you will definitely be wrong if the full figure is expensed to a profit or loss account. In other words, that amount should be treated as prepayment which is a current asset.
Here are accounting entries for insurance premium paid, insurance claim, insurance compensation, insurance premium income and brokerage fees.
Insurance Premium Paid
DR the ‘Insurance Prepaid” account and CR “the bank account with the actual amount paid to the insurance company.
DR the “Insurance Expenses” account and CR “Insurance Prepaid” account with the amount written for the month.
The idea here is that the insurance premium is amortised for the period covered and expenses on a monthly basis till the value is written off to the profit or loss account.
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