What is the journal entry of insurance?


Editorial team Published on

You can learn more about the complete process from the Finquery Prepaid Insurance Accounting Guide.

The accounting for insurance involves two main stages: recording the initial advance payment as a prepaid asset, and making monthly adjusting entries as the insurance policy expires.

1. Initial Payment Journal Entry

When you pay for an insurance policy in advance, you record it as an asset because you will receive the benefits over future months.

  • Debit: Prepaid Insurance (Asset increases)
  • Credit: Cash / Bank (Asset decreases)

Example: If you pay $1,200 upfront for a one-year policy:

  • Debit: Prepaid Insurance $1,200
  • Credit: Cash $1,200

2. Monthly Adjusting Journal Entry

At the end of each month, you must record the portion of the insurance that has been used up (expired). This shifts the cost from an asset to an expense.

  • Debit: Insurance Expense (Expense increases)
  • Credit: Prepaid Insurance (Asset decreases)

Example: For that same $1,200 policy spread across 12 months, you expense $100 each month:

  • Debit: Insurance Expense $100
  • Credit: Prepaid Insurance $100