271 Prepaid Insurance

Assets

Prepaid Expenses

Synopsis

Account 271 is established to record the amount of Insurance premiums, which are paid to cover a term that provides coverage in the future.

Debits

Credits

The amount of insurance premiums paid in advance
The advance deposit premiums which are subject to future determination of earned premiums

Example 1

Record the payment of the commercial property, garage keeper’s and workers compensation insurance premiums in the amount of $18,000.

Journal: Cash Disbursements and Purchase

Example 2

Record the monthly expense for the commercial property and garage keeper’s insurance that had been paid in advance in the amount of $8,250.

Journal: Standard Entries Journal

Entry:		Debit	Credit
Account 085-01	Insurance – Buildings & Improvements – New Vehicle Department	$225
Account 085-02	Insurance – Buildings & Improvements – Used Vehicle Department	$188
Account 085-03	Insurance – Buildings & Improvements – Lease & Rental Department	$88
Account 085-05	Insurance – Buildings & Improvements – Mechanical Department	$225
Account 085-06	Insurance – Buildings & Improvements – Body Shop Department	$187
Account 085-07	Insurance – Buildings & Improvements – Parts & Accessories Department	$175
Account 085-09	Insurance – Buildings & Improvements – General & Administrative	$162
Account 088-01	Insurance – Other – New Vehicle Department	$1,470
Account 088-02	Insurance – Other – Used Vehicle Department	$1,050
Account 088-03	Insurance – Other – Lease & Rental Department	$140
Account 088-05	Insurance – Other – Mechanical Department	$1,330
Account 088-06	Insurance – Other – Body Shop Department	$700
Account 088-07	Insurance – Other – Parts & Accessories Department	$1,260
Account 088-09	Insurance – Other – General & Administrative	$1,050
Account 271	Prepaid Insurance		$8,250

Example 3

Record the monthly expense of workers’ compensation insurance that was paid in advance in the amount of $5,500.

Journal: Standard Entries Journal

Entry:		Debit	Credit
Account 027-01	Employee Benefits – New Vehicle Department	$1,430
Account 027-02	Employee Benefits – Used Vehicle Department	$605
Account 027-03	Employee Benefits – Lease & Rental Department	$165
Account 027-05	Employee Benefits – Mechanical Department	$1,375
Account 027-06	Employee Benefits – Body Shop Department	$825
Account 027-07	Employee Benefits – Parts & Accessories Department	$715
Account 027-09	Employee Benefits – General & Administrative	$385
Account 271	Prepaid Insurance		$5,500

Comments

A debit balance represents the unexpired portion of insurance premiums paid in advance, such as:

a. Building Insurance

b. Garage Liability Insurance