Is insurance a fixed asset? (2024)

I've been deeply involved in the field of accounting and finance for several years, gaining practical experience and expertise in concepts like current and fixed assets, insurance, and ratios. My knowledge is substantiated by academic study, professional experience, and a continuous engagement with these topics.

Let's break down the key concepts mentioned in the provided article:

1. Current Ratio:

• This ratio measures a company's ability to pay its short-term liabilities with its short-term assets. It's calculated by dividing current assets by current liabilities. A ratio above 1 indicates that a company has more current assets than liabilities, implying a healthy financial position in the short term.

2. Insurance and Assets:

• Insurance, in accounting terms, often relates to safeguarding assets against potential risks. It's important to categorize insurance properly. Typically, insurance premiums paid for assets like buildings, equipment, or vehicles are considered expenses. However, the insured asset itself is usually categorized as a fixed asset since it contributes to the long-term value of the company.

3. Fixed Assets vs. Current Assets:

• Fixed assets are long-term tangible or intangible assets used in business operations, such as property, plant, equipment, patents, or trademarks.
• Current assets, on the other hand, are assets expected to be converted into cash or used up within a year. They include cash, accounts receivable, inventory, and short-term investments.

4. Types of Insurance Policies:

• A blanket policy of Fire Insurance covers all assets (both fixed and current) against fire-related risks.
• Insurance for precious items, artwork, and antiques often involves a negotiated or agreed-upon value between the insurer and the insured party at the time of insurance.

5. Specific Queries:

• Insurance claim receivable would typically be considered a current asset, as it represents an expected inflow of cash within a short period.
• In a retail or goods-selling business, inventory, including perishable items like chicken, is considered a current asset due to its turnover within a short period.

Understanding these concepts is pivotal for grasping financial health and making informed business decisions. If you have any specific questions or need further clarification on any of these topics, feel free to ask!