Expenses & income · Level: Basics
Journal entry: Vehicle insurance premium
Insurance premiums are an expense and exempt from VAT, so there is no input VAT.
Worked example
The annual vehicle insurance premium of £1,440.00 is debited from the bank account (insurance is exempt from VAT).
Correct journal entry
Motor expenses £1,440.00 / Bank £1,440.00
Debit
Motor expenses£1,440.00
Credit
Bank£1,440.00
Why?
- Motor expenses: expense incurred → debit
- Bank: asset decreases → credit
Typical mistake
Taking input VAT out of an insurance premium.
Your turn
Three problems on exactly this case, with different numbers. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
The annual vehicle insurance premium of £720.00 is debited from the bank account (insurance is exempt from VAT).
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
Frequently asked questions
What is the journal entry for vehicle insurance premium?
Example: Motor expenses £1,440.00 / Bank £1,440.00.
How do I recognise this case?
Insurance premiums are an expense and exempt from VAT, so there is no input VAT.
What is the typical mistake?
Taking input VAT out of an insurance premium.