What is the Journal Entry for an Insurance Claim?
Q: What is the journal entry for the claim recovered from fire insurance?
This depends on the exact asset/s that were destroyed in the fire and to what extent they were covered. Let's take three examples.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
And later when the insurer makes the payment:Dr Bank $60,000
Cr Insurer (debtor) $60,0002) 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
And later when they make the payment: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
There you go. Hope you enjoyed our answer for What is the Journal Entry for an Insurance Claim?
For more insurance claim questions, check out the comments section below and even more questions further below that.
- Michael Celender
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What is the Entry for the Claim Recovered From Stolen Goods?
by Philip Kahoro
Q: In the case of claim receivable from Insurance for stock stolen from a shop, where would the credit be posted and under what group of accounts in Tally?
A: The journal entries for the stolen goods and insurance claim:
DR Insurance company (receivable/debtor)
CR Purchases / Cost of Sales
Insurance claim approved.
CR Insurance company (receivable/debtor)
Insurance company pays out.
Hope that helps!
Insurance Claim Journal Entry Question
An asset of Mr. X's was destroyed by fire on 1.08.09. the following particulars are ascertained from the book and records:
- Stock at count as on 31.3.08 rs.18948
- Stock at cost on 31.3.09 rs. 9660
- Purchases during the year rs. 29550
- Sales during the year rs. 47160
- Purchases from 1.04.09 to 1.8.09 rs.38460
- Sales from 1.04.09 to 1.8.09 rs.42360
In valuing the stock as on 31.3.09, goods to the value of rs. 1110 was written off as damaged. But this had been sold during the period of 1.4.09 to 1.08.09, for rs. 660. Apart from this transaction, the rate of gross profit has remained unchanged during the entire period of 1.4.09 to 1.08.09.
(rs. = Rupees = Indian currency)
Journalize the insurance claim.