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    LEAHAEL's Avatar
    LEAHAEL Posts: 1, Reputation: 1
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    #1

    Apr 2, 2011, 08:00 AM
    Is insurance in accounting recognised as an expense or an asset.
    Is insurance in accounting recognised as an expense or an asset?
    pready's Avatar
    pready Posts: 3,197, Reputation: 207
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    #2

    Apr 2, 2011, 09:42 AM

    It could be either an asset or an expense. It is an asset (Prepaid Insurance) if you pay for the insurance in advance like when you purchase car insurance for 6 months. As you use the insurance it becomes an expense like after the first month of use, 1 month of the insurance asset is now an expense, so you would need to reduce your insurance asset account by one month and increase your insurance expense account by one month.

    The journal entry to record the asset is:
    Debit Prepaid Insurance for the amount paid in advance for Insurance
    Credit Cash for the amount paid in advance for insurance

    To record the usage of the insurance the journal entry is:
    Debit Insurance Expense for the amount used
    Credit Prepaid Insurance for the amount used
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