A Paid Insurance Premium Journal Entry is the amount paid by a business to an insurance company for coverage against risks such as property damage, liability, or employee health. Recording this transaction accurately is essential for tracking expenses and maintaining correct financial records.
Key Concepts
- Insurance Expense: The account representing the cost of insurance coverage.
- Cash/Bank Account: The account from which the insurance premium is paid.
Journal Entry for Paid Insurance Premium
Example Scenario
Assume a company pays an insurance premium of ₹15,000 for property insurance on 10-09-2023.
Step-by-Step Journal Entry
- Record the Insurance Premium Payment
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 10-09-2023 | Insurance Expense | 15,000 | Insurance premium paid | |
| 10-09-2023 | To Cash/Bank | 15,000 | Payment for insurance premium |
Explanation
- Debit to Insurance Expense: This increases the insurance expense account, reflecting the cost incurred for insurance coverage.
- Credit to Cash/Bank: This decreases the cash or bank account balance, reflecting the payment made for the insurance premium.
Conclusion
Accurately recording insurance premium payments is essential for tracking expenses and maintaining precise financial records. Properly managing these transactions helps ensure that the business’s expenses are accurately represented in the financial statements, contributing to better financial management and reporting.
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