The following question was asked via MYOB Communities: How do i use finance funding to pay for my business insurance?
Hi, Our Insurance broker invoiced us for our Annual Workers Compensation and Business Insurance, which invoices have been entered into ‘Purchases’. We entered into a finance funding agreement where the funder will pay the invoices out and we will repay the funder with 10 installments over the year, including an application fee and interest. How do I pay out the invoices from our Insurance Broker to show the premiums have been paid with the money lent through financing – the financed money didn’t come into our bank accounts at all – it was paid directly from the funder to our insurance broker. There then needs to be that account where I can enter the installments as we pay them to pay-off the loan? – Casie Hi Cassie, Simply create a new Credit Card Account in MYOB and call it Financier Loan, when paying the Insurance bills chose this Credit Card Account to create the Liability (money owed) and when the repayments come out of your Bank Account to repay the loan allocate against the Credit Card Account. Hope this helps.
This type of transaction is very common to most businesses as they will be invoiced upfront for their business insurance but will pay it off monthly using a Finance Funding Loan from their respective financier. To fully account for this transaction we need to account for a number of different transactions:
- Capitalise the Insurance Expense. This is done by creating an Asset Account called “Prepaid Business Insurance”
- Account for the Liability. Create a Credit Card Account in MYOB called “Loan A/c for Insurance Funding”.
- Firstly record the purchase of the Insurance from the Insurance Company which is done against the Asset Account created earlier.
- Record the payment of this purchase against the Credit Card Account.
- Record the payment via Direct Debit out of your Bank A/c against the Credit Card Account
- Journal the Asset Account reducing its balance and allocating to the Insurance Expense Account