When ever a person paid his or his dependents' Insurance Premium can account in his books of Accounts for assessment of Accounts. And there are two different possible methods available for Accounting of payment transaction of Premium of an Insurance to Life Insurance Corporation of India, or other such Insurance Companies. The most common thing is that you must understand what is the nature of such transaction?
|LIC Premium shown under Investments in Balance Sheet|
How to record Insurance Premium in manual Accounting
Insurance paid is neither a Income nor an Expenditure but it is a long term Investment and it must be treated as savings so it must be shown on the Assets side in the Balance Sheet.
Premium Account Dr. To Cash or Bank Account
How to record Insurance Premium in Tally ERP 9
If you want to pass voucher entry for such a transaction in Tally ERP 9 accounting software then you need to have the following Ledgers in your Company.
- Cash or Bank Ledger under Cash-in-hand or Bank Accounts Head.
- Premium Ledger under Investments Head.
There will be a default Cash Ledger for every Company in Tally and you need to create Bank Account Ledger if you want to make payment through Bank; and a Premium Ledger needs to be created. We have discussed about ledger creation in How to Create a Ledger in Tally ERP 9 article, therefore skipping the step. After successful creation of the required Ledgers
- Select Accounting Vouchers in Gateway of Tally screen.
- Make the payment using the Payment Account Voucher Creation screen.
Note: Even you can debit Capital Account Ledger instead of debiting the Premium ledger. But there will be a drastic reduce in capital over a long period if we do this.