05 April 2011
The Company has issued cheque to Insurance Company as on 31st March,2011 for insurance premium for the F.Y 2011-12.The Company has passed entry as follow :
United India Insurance A/c dr.-50,000 To Bank Account - 50,000
The Company wants to show the same advance to vendors for services and the same should be disclosed in advances. One of my collegue has of opinion that the same should be shown as prepaid insurance. My opinion is that the same relates to next year and the payment does not effect even signle day of current F.Y. Can you please which is right one accounting treatment in books of account ? If the same is disclosed as advances to United India Insurance Company,is it wrong accounting treatment or not ?
07 April 2011
this payment should be booked as prepaid expenses in the balance sheet because you are making payment on the basis of cover note and insurance policy which is being issued in the current year date, and this is not any kind of advance payment as normally given to the supplier and other service provider and route the entry to insurance account in next year, direct expenses can not be booked in next year since policy date pertains to current year. if the same is not the above case than the treatment is explained by you is correct.
CAclubindia
