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How to accrued health insurance journal entries

Jenny C's Profile

We have no invoices this month for health insurance bills. We need to book the health insurance journal entries for June. Are these the correct journal entries that we need to make?
June-2017 Dr. Dental Insurance Exp 1,000
June-2017 Cr. Accounts Payable (1,000)

July-2017 Dr. Accounts Payable 1,000
July-2017 Cr. Dental Insurance Ex. (1,000)

When the health insurance bills arrive, we will book the expenses based on the invoices.
June-2017 Dr. Dental Insurance Exp 1,000
June-2017 Cr. Accounts Payable (1,000)

Are these journal entries right? Thank you.

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Do you know for certain what the Bill is? (did you have any changes to the plan?)

Then just book the bill, and use Jul 2017 as the invoice/ref number. When the bill comes in, verify and file.

BTW, your entries are wrong...

If you get two month bills (I've never seen this), In June, July goes to pre-paid, June goes to expense. Then In July you move the pre-paid to expense.

Richard Archer
Title: Principal
Company: CG Management Solutions
(Principal, CG Management Solutions) |

Wayne - I don't know for certain, but it looks like Jenny's example was an accrual for June, then a reversal in July of the June accrual, then a recording of the actual invoice when it is received. If my guess is correct, then her example entries are OK, except that I would not accrue estimated expenses to Accounts Payable. I would use an Accrued Payable account. Accounts Payable should be balanced to actual vendor invoices recorded, but unpaid, at the closing date. Posting accruals to Accounts Payable breaks the direct tie between Accounts Payable and unpaid vendor invoices.

In my experience, health and dental insurance billing is almost always retrospective, rather than prospective, unless the company pays an annual premium, which is later adjusted to actual experience. If Jenny's company's insurance is retrospective, then the accrual account is correct. However, as you properly point out, if the premium is prospective, the a prepaid account is more correct.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I think the key here is "We have no invoices this month..." Notwithstanding, pay the same amount as last month assuming no changes and deal with any difference when you receive the bill... or just call the company and ask for the correct amount...

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