Does Insurance Expense Go on the Balance Sheet?

The amount your business spends on insurance will affect the numbers on your balance sheet, but your balance sheet will not include a specific line or category for insurance expense, or any other category of expenditure for that matter. Rather, your balance sheet shows how much money you have left after your insurance expense (and all your other expenses) have been factored into your company's overall financial position.

Tip

Insurance expense does not go on the balance sheet because it reflects a specific amount you have spent, rather than an asset or liability at a particular moment in time.

Balance Sheet vs Income Statement

Your balance sheet is a summary of how much your business owns and how much it owes on a particular date. It is divided into a column or section that reflects assets and another column or section that reflects liabilities. Each of these columns or sections is further broken down into categories.

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Liability categories might include:

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An income statement portrays the specifics of how your business arrived at the financial situation reflected on your balance sheet. While the balance sheet loans shows your financial position at a specific moment in time, your income statement shows your financial activity over a more extended period, such as a month or a year. It is broken down into sections for income and expenditures, and each section is further broken down into categories.

Income categories might include:

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Expense categories might include:

Insurance Expense on the Balance Sheet

Your balance sheet shows how much money you have, and that amount is contingent on how much you've earned and how much you've spent. Your business pays for insurance, and that payment leaves you with less money in the bank. This insurance expense will show up on your balance sheet as part of a lower bank balance; however nothing on the balance sheet specifically will indicate that you spent the missing money on insurance.

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The accounting treatment of car insurance and product liability insurance will show up on your income statement rather than your balance sheet. Insurance expense will be one of the categories that your income statement lists as an expenditure. Because the income statement reflects business activity over a period of time, this line on your income statement will aggregate any insurance payments your business made during the period that the statement covers.

Prepaid Insurance: A Special Case

If you prepay for a period of time on your business insurance policy, this payment is a type of asset, or something you own. This prepayment has value because it frees you from having to make additional payments during the period for which you have prepaid, and if you cancel your policy or close your business, you should be able to get your prepaid premiums refunded. For this reason, prepaid insurance plays a part in the equation showing your company's net worth, which is the subject of your balance sheet.

If your company has made other prepayments, such as for accounting support or software licenses, your balance sheet will include a line summarizing these prepayments but not specifically naming prepaid insurance expense. If your insurance prepayment is the only prepayment your business has made, you might include it on your balance sheet on its own line tagged as "insurance prepayment."

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