Journal Entry for Payment of Insurance Premium by Cheque in GST

There are a few steps involved in recording the payment of insurance premium by cheque in GST. The journal entry for this transaction would be as follows:

Step 1: Identify the Accounts to be Debited and Credited

In this transaction, we need to debit the insurance premium expense account and credit the bank account.

Step 2: Determine the GST Impact

Depending on the type of insurance and whether or not the business is registered for GST, there may be GST implications. For example, if the insurance is for a commercial property and the business is registered for GST, there may be GST charged on the premium. In this case, we would need to account for the GST in our journal entry.

Step 3: Record the Transaction in the Journal

The journal entry for the payment of insurance premium by cheque in GST would be:

Debit Insurance Premium Expense Account - 20,000
Credit Bank Account - 20,000

If there is a GST impact, we would need to record the GST portion separately. For example, if the GST rate is 10%, the journal entry would be:

Debit Insurance Premium Expense Account - 18,181.82
Debit GST Input Tax Credit Account - 1,818.18
Credit Bank Account - 20,000

Step 4: Update the GST Returns

After recording the transaction in the journal, we would need to update the GST returns accordingly. If there is GST impact, we would need to report the GST on the Business Activity Statement (BAS) and claim the GST input tax credit on the same BAS.

In conclusion, the journal entry for the payment of insurance premium by cheque in GST involves debiting the insurance premium expense account and crediting the bank account. If there is a GST impact, we would need to account for the GST separately and update the GST returns accordingly.