Three things you must remember about insurance and accounting
When you enter into an insurance contract, the accounting treatment of insurance costs is the same as when you account for any other costs in your business. But insurance has a few peculiarities you need to know... And by failing to know about these - and account for them correctly - you could make dangerous errors!
We asked the experts at the Practical Accountancy Loose Leaf
to explain the three most important things that businesses should keep in mind about insurance.
Take note of these three things when it comes to accounting for insurance
1. Insurance contracts are normally prepaid accounts.
This means you'd typically pay your premiums forfuture periods, normally 12 months long. Ensureyou spread the insurance costs over the cover periodappropriately. Don't fall into the trap of writing upthe full expenses in a single period as you could beincorrectly overstating you expenditure in certainperiods.
2. On renewal dates, be careful of adjustmentcalculations and always keep a record of youradjusting calculations.
Your auditors always need togather evidence to substantiate values in youraccounting systems. You'll save time and effort byjust having a proper filing system of yourcalculations.
3. When you make claims, ensure you keep all yoursupporting documents.
Keep filing your accountingrecords properly because one mistake could costyou thousands of ands. Or land your directors andprescribed officers in jail for up to 10 years –according to the 2008 Companies Act!
There you have it – three things every business needs to remember when it comes to accounting for insurance.