General insurance is a contract that offers compensation on any loss except than death to its purchaser. General insurance includes everything except life of the policy holder. For example, house, car, scooter, bike, travel etc. are insured under general insurance. Insurance company has to compensate the loss in the form of money. General insurance companies were nationalized on 13th May, 1971 by the Ordinance of the President of India. There are various kinds of general insurance such as Energy insurance, Marine insurance, Liability insurance, Engineering insurance, Property insurance and International insurance. In this regard, each insurance company prepares separate revenue account for each individual unit.
General Insurance Accounts Preparation
Account of a general insurance company discloses both the amount of reserve to be carried forward and, the profit or loss for the year. General Insurance Accounts is prepared also under mercantile system of accounting. Profit/Loss which is revealed by a Revenue Account is transferred to Profit and Loss A/c.
General Insurance Accounts includes all expenses pertaining to assessment of claims, legal fees and fees for police report etc. It must not include any management’s expenses.
In case of deduction of any amount from this, it must be shown separately.
Under section 11 of the Insurance Act, 1938 separate amounts for claims should be paid in India and outside India together with the amount of premium taken from the business outside India.
Final account of general insurance company is to be prepared as per IRDA Regulations, 2002. It consist of Revenue Account; Profit and Loss Account; Balance Sheet.
1. Revenue Account: A separate Revenue Account is prepared for each insurance like fire, marine etc. incomes and expenses of a particular insurance business are recorded and profit/loss is transferred to Profit and Loss Account.
2. Profit and Loss Account: Under this accounts, profit/loss of different business is shown. It also records incomes and expenses of general nature.
3. Balance Sheet: It records various assets and liabilities of the General Insurance Companies. Form A is used to prepare the Balance sheet. It displays various assets and liabilities of general insurance companies. Form for Balance Sheet is same for general and life insurance companies.
It is to be seen than difference in revenue account reveals profit or loss of business. The revenue account is closed by transfer to concerned fund account like, fire fund, marine fund etc.
It may be possible that on the accounting date some of the contracts are still active representing unexpired risk. In this regard a provision is made on a generalized basis because it is impractical to create for specific policies. The revenue account begins and ends with respective value of the fund apart from recording normal revenue and expenditure. The balance sheet is prepared in vertical form and includes share capital, reserves and surplus, borrowing. Application of funds includes investment, loans, currents assets, current liabilities.