[Solve] Paid Insurance Premium Journal Entry Example

Welcome back to our blog as you guys know that we are adding examples related to Journal Entries and Balance sheets for all the accounting students.

Similarly, today in our post we are going to add a paid insurance premium journal entry example, hope this example is useful for you.

Now let's start:

Note: - When a company pays an insurance premium, it typically involves a journal entry to record the payment.

Paid Insurance Premium Journal Entry

• Scenario:

Let's say "ABC Company" pays an annual insurance premium of 12,000 on January 1, 2023, for coverage from January 1, 2023, to December 31, 2023.

• Journal Entry:

Payment of Insurance Premium:

• Debit: Prepaid Insurance

• Credit: Cash or Bank

• Prepaid Insurance: This is an asset account on the balance sheet. It represents the portion of the insurance premium that has been paid but has not yet been "used" or recognized as an expense. Since the entire 12,000 premium has been paid in advance, you debit $12,000 from Prepaid Insurance to show that the company now has this prepaid coverage.

• Cash or Bank: This is the payment made to the insurance company. You deposit 12,000 in cash or a bank account to show an outflow of cash for insurance premiums.

Conclusion

Here in this post, we add a paid insurance premium journal entry example so if you are confused about making a journal entry then you should read this post till the end.