Basic Accounting, Office Practice and Entrepreneurship in Insurance
Domain 10 links simple accounting and office systems with the practical side of running an insurance agency or service business. Expect the accounting equation, double entry and record-keeping questions.
Core rules
- The accounting equation is Assets = Liabilities + Capital. Every transaction keeps it balanced.
- Double entry records a debit and a credit of equal amount. Premium collected, commission earned, claims paid and office expenses each need correct classification.
- A cash book records receipts and payments; a bank reconciliation statement explains differences between the cash book and bank statement.
- Insurance offices must maintain policy, proposal, claim and complaint records, preserve them for the prescribed period and keep premium money separate from personal funds.
- An insurance entrepreneur needs a business plan, licensed intermediary status where applicable, adequate capital, compliance systems, customer records and a service process for renewals and claims.
Worked example
A proprietor starts an agency with ₹2,00,000 cash and buys office furniture for ₹50,000 cash. After the purchase: cash = ₹1,50,000, furniture = ₹50,000, total assets = ₹2,00,000; capital remains ₹2,00,000. Reasoning: one asset (cash) decreased by ₹50,000 and another asset (furniture) increased by ₹50,000, so the equation stays balanced.
Traps that cost marks
- Recording only one side of a transaction.
- Mixing business and personal cash.
- Treating commission as premium income.
- Ignoring record-retention and compliance duties.