Best Prepaid Health Cards in the Philippines: Price and Features

This blog covers the ins and outs of prepaid insurance, its importance, advantages, examples, ways of recording, calculations, and much more. Some insurers prefer that insured parties pay on a prepaid schedule such as auto or medical insurance. Expenses are considered incurred when they are used, consumed, utilized or has expired. This one-time use health care voucher provides up to Php 100,000 worth of coverage for emergency cases due to accidents and viral and bacterial illnesses and specific conditions. It is undeniable that we Filipinos prefer to have a prepaid account for any types of services as stated in this Manila Bulletin article.

What is prepaid insurance?

A prepaid expense is carried on an insurance company’s balance sheetas acurrent assetuntil it is consumed. That’s becausemost prepaid assets are consumed within a few months of being recorded. As mentioned above, the premiums or payment is recorded in one accounting period, but the contract isn’t in effect until a future period.

Freedom fromdown payments

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• As the insurance policy term progresses, the prepaid asset is gradually used up.
• A prepaid asset is a type of asset that has economic value to the business because of its future benefit.
• However, if in case the company pays for more than a year, then the prepaid expense will no longer be a part of the current asset.
• In these scenarios the portion of the prepaid obligation which exceeds 12 months is recognized as a long-term or noncurrent asset.
• The adjusting entry will always depend upon the method used when the initial entry was made.

Instead, it is recorded as an asset and gradually expensed as coverage progresses. This approach aligns with regulatory requirements and prevents financial misstatements that could mislead investors, creditors, or regulators. Most calculations dealing payroll with prepaid insurance involve determining how much of that prepaid insurance expense is recognized in each accounting period. This is usually done by dividing the total premium paid by the coverage period, which may be expressed in months or years.

• Prepaid insurance is also considered an asset because of its redeemable value.
• The company usually purchases insurance to protect itself from unforeseen incidents such as fire or theft.
• This same adjusting entry will be prepared at the end of each of the next 11 months.
• In plain English, you’re increasing your expenses (debit) and decreasing your asset (credit).
• Prepaid insurance is usually charged to expense on a straight-line basis over the term of the related insurance contract.

Financial Reconciliation Solutions

Kids from 1 to 17 years old and adults from 18 to 64 years old can take advantage of this one-time use health plan. Prepaid insurance is important because a business should correctly record all of its transactions and resources to have accurate financial statements. In exchange, the insurance company usually offers the customer a discount on the premium price, so the business saves money on the policy.

• The initial entry debits the prepaid insurance account and credits cash or accounts payable, reflecting the outflow of funds.
• This ensures financial statements reflect the company’s financial position by recognizing expenses only when incurred.
• Concurrently, we are also amortizing both the long-term and short-term balances of the prepaid subscription.
• Note that in this example we established a short-term and long-term prepaid component because the initial payment was for a two-year subscription.
• Based on this, the first component is the current year’s expense, since it is relevant to the timeline for which the financial statements are being prepared.

Payment

When the insurance coverage comes into effect, it is moved from an asset and charged to the expense side of the company’s balance sheet. In this case, the prepaid insurance company’s balance sheet may show corresponding charges recorded as expenses. Because prepayments they are not yet incurred, they should not be classified as expenses. Rather, they are classified as current assets, readily available for use when the company needs them. It is also important not to confuse a prepaid expense with an accrued expense. Accrued expenses, such as accrued rent, are the result of receiving a service or goods before payment is made.

• The adjusting entry for prepaid expense will depend upon the initial journal entry, whether it was recorded using the asset method or expense method.
• The company will record the payment with a debit of $12,000 to Prepaid Insurance and a credit of $12,000 to Cash.
• Common prepaid expenses may include monthly rent or insurance payments that have been paid in advance.
• In relation to such diseases, ECG and 2D echo may also be prescribed by your doctor, which is of course covered by your card.
• The “Service Supplies Expense” is an expense account while “Service Supplies” is an asset.
• The amount of the insurance premiums that remain prepaid at the end of each accounting period are reported in the current asset account, Prepaid Insurance.

Prepaid Insurance: Definition, How It Works, Benefits, And Example

For example, on September 01, 2020, the company ABC Ltd. pays $1,200 for one year of fire insurance which covers from September 01, 2020. Any money you spend with a prepaid card is deducted from your card balance, not your bank account. You don’t need a bank account to use prepaid cards, which is why they appeal to people who are unable to access traditional banking. For the past 52 years, Harold Averkamp (CPA, MBA) hasworked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, Online Bookkeeping university instructor, and innovator in teaching accounting online. Company-B paid 60,000 rent (5,000 x 12 months) in the month of December which belongs to the next year and doesn’t become due until January of the following year.