Insurance
Also called: Insurance Premium
Premiums for vehicle, fire, travel and staff medical insurance, charged to the months the cover applies, on the Profit and Loss statement.
In detail
Insurance holds the cost of cover on the company's property, vehicles, stock and staff: fire and theft cover on the office and the warehouse, third-party and comprehensive cover on the scooter, medical or accident cover on trekking guides. A premium is normally paid for a year in advance, so the full amount is first debited to Advances and Prepayments and one twelfth is moved here each month by Journal Entry, which keeps every month's profit fair. Insurance premiums are exempt from VAT, and premiums paid to a resident insurer attract no TDS. Insurance Contract Liabilities on the liability side is for insurers themselves. Expensing a full year's premium in one month distorts that month's result and the Ashadh end accounts.
Formula
Monthly insurance expense = Annual premium / 12; Prepaid balance = Premium - Months expired x Monthly expense
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Insurance | Rs 10,000 | |
| Advances and Prepayments | Rs 10,000 |
How to record it in BRAccount
- 01Post the premium payment: Invoicing > Journal Entry, Dr Advances and Prepayments Rs 1,20,000, Cr Bank.
- 02Each month end, go to Invoicing > Journal Entry > New.
- 03Debit Insurance Rs 10,000 and credit Advances and Prepayments Rs 10,000.
- 04Submit. The entry below posts.
- 05Check the prepaid balance on Financial Reports > General Ledger matches the months of cover left.
When to use it
Post by Purchase Invoice, or by Journal Entry each month when releasing a yearly premium from Advances and Prepayments.
Example from the demo books
Dr Insurance Rs 10,000, Cr Advances and Prepayments Rs 10,000 for one month of the Rs 1,20,000 yearly premium.