085 Insurance - Buildings and Improvements

085 Insurance – Buildings and Improvements

Expenses

Fixed

Synopsis

Account 085, Insurance – Buildings and Improvements is established to record the monthly provision for the policy premium covering Buildings and Improvements owned by the dealership and used for the auto business.

Debits

Credits

Monthly provision for insurance on real estate and improvements owned by the dealership
Monthly provision for insurance on a building built by the leadership situated on leased land

Example 1

Record the monthly expense for the commercial property in the amount of $1,250 and the garage keeper’s insurance in the amount of $7,000 that had been paid in advance. Both the $1,250 and the $7,000 are distributed to each department as shown in the example below.

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

Distribution of Expenses

	Departmental Distribution
085 Insurance – Building and Improvements	New Veh.	Used Veh.	Lease & Rental	Mechanical	Body Shop	Parts & Access.	Gen & Admin.
	01	02	03	05	06	07	09
Billing applicable to several or all departments	Relative value factor	Relative value factor	Relative value factor	Relative value factor	Relative value factor	Relative value factor	Relative value factor
Billing for separate lease and rental building			Total expense
Billing for separate used car building		Total expense

Comments

The monthly provision for Insurance covering Buildings and Improvements should be pro-rated to each Department using the relative value factor method. The exception is when a Department occupies a completely separate facility such as an off-site used vehicle lot. For these exceptions, the entire monthly provision is charged to the benefiting Department.

Note:

In most cases, insurance premiums are paid in advance for annual, semi-annual or quarterly periods. When this is the case, the amount of the premium is recorded in Account 271, Prepaid Insurance. A monthly provision to “expense” the premium is applied to this account, Account 085, Insurance – Buildings and Improvements.

Departmental Distribution