Insurance overpayment

[bradleyandrewdavis]

What would the entries look like if I got a credit from the insurance company for a prior year overpayment and applied that credit for current year billing? I assume I still recognize the expense for the insurance every year, but what does the other side of the entry look like?

 

[ICAEW]

Since it's a credit, it's income (overpaid), so recognise the expense as usual, along with the credit received in the same account. The net effect will be a reduction in the current year insurance expense.

 

[bradleyandrewdavis]

Since it's a credit, it's income (overpaid), so recognise the expense as usual, along with the credit received in the same account. The net effect will be a reduction in the current year insurance expense.

Would that account get set up as an income account, or a contra expense account called Insurance Refund or something?

 

[kirby]

I like your idea of a contra expense account. That way you can see the "normal" insurance expense vs the adjustments. So do that.