Journal Entry for Insurance Claim

by mmm
(Dubai)

Q: What is the entry for the claim recovered from fire insurance?

A: This depends on the exact asset/s that were destroyed in the fire and to what extent they were covered.

1) Let's say a storeroom and its contents, valued at $60,000, were destroyed by fire. The insurer pays your business $60,000.

In this case the entry would be:
Dr Insurer (debtor) $60,000
Cr Storeroom (asset) $60,000

Later:
Dr Bank $60,000
Cr Insurer (debtor) $60,000

2) Now let's say the agreed amount of the claim was $50,000 instead of $60,000.

The journal entry would be:
Dr Insurer (debtor) $50,000
Dr Loss $10,000
Cr Storeroom (asset) $60,000

Later:
Dr Bank $50,000
Cr Insurer (debtor) $50,000

In this second scenario we record the loss (the difference between the value of the asset lost and the amount of the claim) of $10,000.

For asset/s that were destroyed that were subject to depreciation, one would take out the accumulated depreciation account too.

3) A delivery vehicle, which had a cost of $10,000 and accumulated depreciation of $3,000, was destroyed by fire. The insurance claim amounted to $5,000.

The entries would be:
Dr Insurer (debtor) $5,000
Dr Accumulated depreciation $3,000
Dr Loss $2,000
Cr Delivery vehicle (asset) $10,000

Later:
Dr Bank $5,000
Cr Insurer (debtor) $5,000