ACCOUNTING TUTORIALS
Transaction analysis: Insurance premium
Suppose that your company, Tri-State Consultants, pays an insurance premium of $3,500. This covers the insurance on your building for the next year. How will this be handled from a bookkeeping perspective?
Insurance payments are usually paid in advance. The advance payment of expenses (like insurance) are recorded as assets.
This will result in a debit entry in Prepaid Insurance (an asset account) and a credit in Cash (another asset account.)
The Prepaid Insurance account will increase by $3,500 while the Cash account will decrease by the same amount.
Below is the journal entry that will occur:
