Worker compensation insurance costs (also referred to as worker comp) should appear on the income statement and also on the balance sheet.

If a company is a manufacturer, the costs of worker compensation insurance for the employees in the manufacturing operations should be included in the costs of the products manufactured. The products that have been sold will have their costs (including their share of worker compensation costs) reported as the cost of goods sold on the income statement. The costs associated with the unsold products (including their share of worker compensation costs) will be reported as inventory in the current asset section of the balance sheet. The worker compensation costs associated with selling and general administration should be reported as an expense on the income statement.

Any worker compensation insurance costs that have been prepaid should be reported as a current asset (such as Prepaid Insurance) on the balance sheet. Any worker compensation premiums that have been incurred, but not yet remitted to the insurance company, should be reported as a current liability.