Question

What will be the journal entry if an NBFC collects life insurance premium on behalf of its customers and pays insurance to insurance provider? What will be the entry in case of refund of insurance provider?

Answer 1

Explanation:

1. What will be the journal entry if an NBFC collects life insurance premium on behalf of its customers and pays insurance to insurance provider?

Collection of Life Insurance Preimum:

Debit: Client's Bank Account

Credit: Underwriter/Preium Suspense account (or whatever the assigned liability account with the amount paid as premium)

For transfer of cash to insurance company:

Debit: Underwriter/Preium Suspense account (or whatever the assigned liability account with the amount paid as premium)

Credit: Client's Bank Account

2. What will be the entry in case of refund of insurance provider?

Debit: Insurance Claim (asset's value)

Credit: Asset/Inventory account

If payment is sent to your account:

Debit: Client's Bank Account

Credit: Insurance Claim

Credit: Gain or loss (if there's a difference between client's bank account and insurance claim)