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General Accounting Discussions: insurance receivable

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    • CommentAuthorMaryAnn
    • CommentTimeOct 7th 2008
     
    How to post money received from insurance company for damages yet completed. Money was received from insurance company for storm damage.
    Thankful People: divyangtrivedi123
    • CommentAuthorMaryAnn
    • CommentTimeOct 7th 2008
     
    How should I post this transaction to a Profit and Loss Statement
    • CommentAuthormfargen
    • CommentTimeOct 9th 2008
     
    Insurance proceeds are not revenue, and are applied against expenses incurred as the result of a loss.
    For a nominal $5000 insurance check, you could do the following:

    DEBIT CASH $5000
    CREDIT REPAIR AND MAINTENANCE $5000

    When you complete the repairs, use the following transaction:

    DEBIT REPAIR AND MAINTENANCE $5125 (OR ACTUAL AMOUNT)
    CREDIT CASH $5125

    The proceeds from the insurance, therefore, partially offset the repair expense incurred as the result of the storm. When you reconcile the cash at the end of the period, be sure to handle the insurance proceeds with the appropriate tax status (generally nontaxable as they are not revenue). If the insurance proceeds were not used to pay repair expenses (i.e. if you did the work yourself), you may be liable for income tax on this revenue for your business. Consult a tax attorney to get an opinion if you are not sure.
    • CommentAuthormfargen
    • CommentTimeOct 11th 2008
     
    I am waiting for an expert's opinion for you, meanwhile you bring up an interesting point. If your equipment assets have depreciated well below replacement cost, yet your insurance will reimburse you the full replacement cost, one might argue that you have a taxable capital gains with this transaction, with resulting higher price on your equipment assets after the repairs. However, if your insurer paid directly for the repairs and equipment replacement, you might not have that on your books at all. You did imply that you were receiving a cash settlement. In that case, you would be subject to question if you had an IRS tax audit and your bank account showed this large cash flow not declared as revenue. I would only advise you to proceed with caution and get legal tax advice, if possible, before receiving the insurance settlement.

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