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Insurance on Credit Agreement. Double entry.

TatieTatie AATQB Posts: 7
edited March 2019 in Bookkeeping
Hello,

Dear professionals, could you advise, please?
A Company received an Invoice form Insurer and separate Credit Agreement from third party to pay for insurance.
Third party company has settled the Invoice with Insurer and the Company pays to Third party company as per Credit Agreement on monthly basis.
How this should be treated in accounts, please?
Could you help, please?

Thank you in advance.

Best Answer

  • mskaatmskaat Regular Greater LondonMAAT, AAT Licensed Accountant Posts: 53
    Accepted Answer
    Tatie said:

    Hello,

    Dear professionals, could you advise, please?
    A Company received an Invoice form Insurer and separate Credit Agreement from third party to pay for insurance.
    Third party company has settled the Invoice with Insurer and the Company pays to Third party company as per Credit Agreement on monthly basis.
    How this should be treated in accounts, please?
    Could you help, please?

    Thank you in advance.

    The principle - substance over form. The company is obtaining a loan facility from the third party to pay for an insurance expense.

    Dr Insurance expense, Cr Third party, with the insurance value.

    Dr Interest expense, Cr Third party, with the cost of the facility monthly or in total at year-end.

    Dr Third party, Cr Liabilities (remember to split liabilities into current and long-term at year end), with monthly payments or in total at year-end.

    MAAT
    Tatie

Answers

  • TatieTatie AATQB Posts: 7
    Dear Mskaat,

    Thank you very much for your explanation. This is very helpful.
    Substance over form - I will remember this for future.

    Kind Regards
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