How do I record money received for an insurance claim on inventory loss?

Definition of Money from Insurance Claim for Inventory Loss

Let's assume that a company has insurance on its inventory and its inventory is destroyed by a fire in the company's warehouse. The insurance policy states the insured company will be paid the cost of the inventory lost minus the amount of the insurance policy deductible.

Example of Recording Insurance Claim for Inventory Loss

Assume that a company received $105,000 from its insurance company as a settlement for the inventory lost in a fire. The inventory lost in the fire is in the company's general ledger accounts at a cost of $106,000. The insurance policy deductible was $1,000 per occurrence.

The journal entry for this transaction is:

  • Debit Cash for $105,000
  • Credit Inventory for $106,000
  • Debit Fire Loss regarding Inventory $1,000