Accounting Entry - Insurance

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This query is : Resolved

SIDDHARTH MAHESHKUMAR SHAH (Querist)

20 July 2024 We as an Pvt Ltd Company.
Initially our Insurance Broker have paid to Insurance Company Premium.
Then after Insurance broker is claiming from us and we pay to Insurance Company.
In this case we are not paying directly to Insurance Company. We are received invoice from insurance company.

Please Suggest Correct Account Entry 1 or 2 below
as per Income Tax and Company Law:
________________________________
1.

(A) Insurance Exp Dr
To Insurance Company A/c Cr

(B) Insurance Broker A/c DR
To Bank A/c Cr

(C) Insurance Company A/c Dr
To Insurance Broker A/c Cr
__________________________
2.

(A) Insurance Exp Dr
To Insurance Company A/c Cr

(B) Insurance Company A/c Dr (No Matter payment is process to Insurance Broker)
To Bank A/c Cr

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

13 August 2025 In your situation, where the insurance broker initially pays the premium to the insurance company on your behalf, then claims the amount from you, and you pay the broker (not directly the insurance company), the correct accounting treatment should clearly reflect this flow.
Recommended Accounting Entries:
Step 1: Recognize the insurance expense and liability to the broker
(A) Insurance Expense Dr
To Insurance Broker A/c Cr
This reflects that insurance expense has been incurred, but the payment is due to the broker (since they paid upfront).
Step 2: When you pay the broker
(B) Insurance Broker A/c Dr
To Bank/Cash A/c Cr
This clears your liability to the broker when payment is made.
Why this way?
The Insurance Company A/c need not be involved on your books since you never directly owe or pay the insurance company.
The broker acts as an intermediary who pays the insurer and collects from you.
This method reflects reality: you have an expense and owe the broker, then settle the broker.
So, neither Entry 1 nor Entry 2 exactly matches this ideal flow.
Entry 1 unnecessarily involves the Insurance Company A/c in your books.
Entry 2 incorrectly records the Insurance Company A/c even though you don't pay them directly.

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