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Accounts, Starting a New Year (General Insurance Only)

General Insurance brokers should follow all the standard procedures as described in “Accounts, Starting a New Year”, after which they should advise their auditors to…

  • add to the old year’s nominals the value (as at the year end) of the two control accounts called “General Commission, in Suspense” and “General Commission, Transferable”
  • deduct from the old year’s nominals the value (as at the previous year’s end) of its two control accounts called “General Commission, in Suspense” and “General Commission, Transferable”
  • Why ?

    Unlike most other areas of business, a General Insurer broker cannot be certain of the commission on the sale of a policy until he has received the insurer’s statement. Hence all commission is initially entered in a “Suspense” control account. Once received (and corrected, if necessary) this is automatically moved (by the computer system during the Cashbook Reconciliation process) to the “Transferable” control so that the sum can then be clearly distinguished in the Client Bank Account. From there it is then automatically moved (by the computer system during the Transferable Commission process) to the normal “General Commission, Received” nominal account. Unfortunately this process has implications on the year’s figures, as discussed below.

    Essentially a year’s Profit or Loss should be the difference between the sales and purchase invoices for that year, where the values of these invoices are normally allocated to nominal accounts on the invoice dates. However in the case of the General Insurance broker, the values of the commission invoices will initially be allocated to the Suspense and Transferable controls.

    Unlike nominal accounts, which apply to specific months and years, control accounts remain open until they’re settled (e.g. the Debtor’s Control, where if you’re owed money at the end of one year, you’ll still be owed it at the start of the following one, and so on until it’s settled). So the values in the Suspense and Transferable controls will span from one year into the next.

    When a given invoice is finally settled, via the Transferable Commission routine, its value will at last be allocated to the “General Commission, Received” nominal account AT THAT DATE, NOT THE ORIGINAL INVOICE DATE. The reason for this is that…

  • you should not change nominal account values retrospectively (particularly after a “Period End”, when it is also technically impossible)
  • the value in question was already included in the Suspense or Transferable control in the reports taken at the year end, so retrospective re-allocation to a nominal account would cause double counting.
  • Hence, unless corrected by your auditor, the total value of  the “General Commission, Received” nominal account each year will be wrong by…

  • the amount of Suspense & Transferable commission missing at the end of the current year
  • the amount of Suspense & Transferable commission added from the previous year
  • Absolute Accuracy Not Essential

    One should aim to be as accurate as possible, but might fail to complete the year-end procedures and run the reports showing the Suspense & Transferable values on time. However, so long as a report is taken relatively soon after the year end, and then exactly those Suspense & Transferable figures are used for both the addition to the current year and also the reduction in the next year (when you get there), then clearly it will all balance out in the end.

    Other Suspense & Control Accounts

    If you have similar suspense and transferable controls for your brokerage’s Management Charges then they will need to be treated in exactly the same way.