When creating an income statement for a P&C agency, it is recommended that only commission payments, broker fees and other contingent income be included as sales revenues. Any amounts paid to the insurance company from the trust account should be treated as a pass through for accounting purposes. This practice will best reflect the true operation of the agency and will eliminate common accounting errors.
Performance-based fees
We are experienced in several management systems – our Managed Accounting Services are not HawkSoft specific (although it is the preferred system). Our detailed brochure provides insights into how Remote Books Online can help you maintain accurate bookkeeping, stay tax-ready, and make informed financial decisions. Discover how our tailored bookkeeping services can support your business growth and simplify your financial QuickBooks management.
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- The finance team members should function and view themselves as business partners across all departments.
- Embracing accounting knowledge allows insurance agencies to streamline their operations, maintain transparency, and optimize their financial performance in a dynamic and regulated industry.
- With automated bookkeeping software, financial transactions are recorded and reconciled effortlessly, reducing the likelihood of errors and minimizing the need for manual intervention.
- This article aims to demystify accounting for insurance agencies by exploring essential concepts and practices, highlighting their benefits and importance in streamlining agency finances.
- The Financial Accounting Standards Board (FASB) established Accounting Standards Codification Topic 805 (ASC 805) to provide guidance on how an entity should account for the acquisition of another entity.
When choosing an agency management system, be sure to truly understand what the system’s capabilities are. When the salesperson says the accounting system is a full system, verify with proof that it actually does agency bill accounting correctly, as one example. For people who do not especially like accounting, having to deal with software that does not work for their specific needs and accountants that are a black hole relative to their accounting needs, is painful. Many agency owners just go along because they simply do not want to deal with it.
A title search provided with a title insurance policy
From a security perspective, this is inherently a better arrangement and keeps non-finance personnel at an arm’s length from potentially sensitive financial data. It is also more customizable with respect to the chart of accounts, cost centers, location tracking, and ad hoc reporting. With a two-system arrangement, all non-insurance transactions are entered into the ERP insurance agency accounting system throughout the month. At the end of each month, the monthly insurance-related and sales transaction data from the AMS are imported into the ERP system. Deciding on what system(s) to use or implement is an important first step in building out the financial reporting function for any insurance brokerage (agency).
- Accrual accounting offers a more comprehensive picture by matching revenues and expenses when they are incurred, rather than when they are received or paid.
- The reason agencies can have bad debt even on a cash basis, is because the bad debt usually involves the fiduciary money.
- By understanding essential concepts and adopting best practices in accounting, agencies can ensure financial accuracy, compliance with regulations, and informed decision-making.
- Because the agency is responsible for someone else’s money, it incurs bad debt even though it is on a cash basis.
- The same is true if you work with an annual business accountant who doesn’t have extensive knowledge of your industry.
- In the competitive insurance industry, profitability and performance are key indicators of an agency’s success.
Nuances That Make Insurance Agency Accounting Unique
Reconciliation is a fundamental step in spotting and rectifying potential mistakes, such as missing or duplicated entries. It also provides an opportunity to uncover any unauthorized transactions or fraudulent activities, helping to safeguard the agency’s financial integrity. However, as your agency grows, your time is best spent focusing on your clients. Outsource payroll to the professionals to avoid mistakes and free up time to work on your business.