Insurance expense in Business
Insurance expense is defined as the cost of insurance that has been incurred, has expired or has been used up during the current accounting tenure of the insurance policy. It denotes the premium payments by a business to its insurer that has expired. In business organizations different values or entities are ensured individually. So the expiry of one entity accounts to its “insurance expense” and the unexpired part is considered as an asset and is termed as “prepaid insurance”.
Varied types of business expenses
For a business many types of insurance policies are applicable. General liability, life insurance of the business, building, equipments and many other types of insurances are availed by a business organization. An insurance expense of a company will always have a debit balance, as it is an expense account. Every time the premium is paid by the company, the expenses and the credit cash are debited.
Prepaid Insurance Expense
When an insurance policy is bought by a company its prepaid insurance account will be debited and the company’s cash account will be credited. Thus a portion of insurance policy that has not expired remains useful. This partial expiry of insurance is termed as prepaid insurance expense and is widely employed in all business organizations as the security seems higher.
