Pass a journal entry - paid by cheque rs. 6000 as fire insurance premi...
Journal Entry for Payment of Fire Insurance Premium
On July 1, 2017, we paid a fire insurance premium of Rs. 6000 for a period of 12 months. The financial year ends on March 31 every year. Below is the journal entry for this transaction:
Journal Entry
- Debit: Fire Insurance Expense - Rs. 6000
- Credit: Bank Account - Rs. 6000
Explanation
The above journal entry is a simple transaction where we paid for fire insurance coverage for the next 12 months. The entry has two parts, a debit and a credit, which are explained below:
Debit: Fire Insurance Expense - Rs. 6000
Fire Insurance Expense is an expense account that records the cost of insurance coverage against fire damage. In this transaction, we paid Rs. 6000 for 12 months of coverage, which is recorded as an expense. The debit entry increases the expense account balance, which reduces the net income.
Credit: Bank Account - Rs. 6000
The credit entry records the payment made for the fire insurance premium. We paid the amount through our bank account, which is credited for an equal amount. The credit entry increases the bank account balance, which is an asset account.
Conclusion
The payment of fire insurance premium is a routine transaction for businesses to protect their assets from fire damage. The journal entry for this transaction is simple and involves the Fire Insurance Expense and Bank Account. It is important to record such transactions accurately to maintain the financial records and comply with the accounting standards.