The accounting cycle refers to the specific steps used to complete the accounting process and maintain an organization’s financial records. Learn the definition of the accounting cycle, and explore the process, including its 10 basic steps, and how when they are done a new accounting period begins. Other operating risks against which an organization can insure its activities include casualty, property, legal liability, credit and life. The accounting treatment of car insurance and product liability insurance will show up on your income statement rather than your balance sheet. Insurance expense will be one of the categories that your income statement lists as an expenditure.

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• Accumulated depreciation reflects the decrease in value of a company’s assets over time and from continued use, such as manufacturing equipment.
• Deductibles and co-payments are two methods of cost sharing between the insured and the insurer, and they are both important considerations when looking at reimbursement.
• On the other hand, liabilities, equity, and revenue are increased by credits and decreased by debits.
• DTTL and each of its member firms are legally separate and independent entities.
• Companies will typically debit the expense and credit cash every time they pay their insurance premium.
• For example, a company that operates in a high-risk industry will typically pay more for insurance than a company that operates in a low-risk industry.

Insurance expenses are some of the most common expenses encountered in small business. In many cases, businesses are billed for a year or more of insurance coverage upfront. However, generally accepted accounting principles require that this coverage is amortized over the life of the policy.

Risk & Financial Advisory

We may earn a commission when you click on a link or make a purchase through the links on our site. All of our content is based on objective analysis, and the opinions are our own. In the meantime, your journals look logical and should make the events clear for anyone to follow. Once Law Firm Accounts Receivable Management again I have entered an example into the free bookkeeping software called Manager.

What are prepaid expenses?

Unexpired or prepaid expenses are the expenses for which payments have been made, but full benefits or services have yet to be received during that period. Life insurance policies for executives can supplement retirement income or ensure income continuation for beneficiaries. These policies are typically funded through split-dollar arrangements, where costs and benefits insurance expense are shared between the employer and the executive. This arrangement offers tax advantages and aligns with the company’s financial planning strategies. The insurance company will then review the claim and decide whether or not it is valid. If the claim is approved, the insurer will issue a payment to cover the cost of the loss or policy event.

Premium Payments and Deductions

• On December 1 the company pays the insurance company $12,000 for the insurance premiums covering one year.
• It is important to ensure that the journal entry is properly documented and that all necessary information is included.
• Chip Stapleton is a Series 7 and Series 66 license holder, CFA Level 1 exam holder, and currently holds a Life, Accident, and Health License in Indiana.
• These include protections in adverse situations related to auto, home and health.
• So, if you originally put the repairs against a Repairs & Maintenance expense account, that is the account you will put the insurance proceeds against.
• Learn about the adjusted trial balance, income statement, statement of retained earnings, and balance sheet, and explore the elements and steps in creating these financial statements.

Filing a claim for property-casualty insurance may cause rate hikes in future premiums. It is important to be aware of this potential consequence when filing a claim and to weigh the pros and cons of doing so. Ultimately, it is important to research the details of the policy and make an informed decision about filing a claim to ensure the best outcome. The cost of health care coverage is an important aspect of insurance reimbursement. Deductibles and co-payments are two methods of cost sharing between the insured and the insurer, and they are both important considerations when looking at reimbursement. Other factors that can influence the cost of a premium include the policyholder’s driving record, the number of years they have been driving, and the location where they live.

• For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online.
• This insurance can also be known as professional indemnity insurance and is suited for businesses providing a service.
• Understanding the various types of insurance expenses is essential for proper financial management.
• The amount of time a prepaid expense is reported as an asset should correspond with how long the payment will provide a benefit to the organization, usually up to 12 months.
• All of our content is based on objective analysis, and the opinions are our own.

Do you own a business?

Securing a key-person policy involves evaluating the company’s risk exposure and reviewing dependencies on the key individual. The underwriting process requires detailed financial statements and projections to reflect the business’s needs and risks adequately. By taking the time to understand how insurance expenses affect their business, businesses can ensure that trial balance they are adequately protected without overspending.