What is the Journal Entry for an Insurance Claim?

by mmm
(Dubai)


Q: What is the journal 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. 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) $60,000

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

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.

Good luck!

- Michael Celender
Founder of Accounting Basics for Students


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Comments for What is the Journal Entry for an Insurance Claim?

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Insurance Claim - Damage to Equipment
by: Anonymous

My company was reimbursed by Insurance co for damage by vandalism to equipment. What would the journal entries be?

It depends on how much you were reimbursed for by your insurance company.
Did they reimburse the full value of repairing the equipment or just partially reimburse this?

And was the equipment usable still or you had to write it off in full?

Let's say the equipment was fully written off, its cost was $2,000 and accumulated depreciation of $500. The insurance company reimbursed this in full.

The journal entry would be:

Dr Insurance company (debtor) $1,500
Dr Accumulated depreciation $500
Cr Equipment $2,000

Dr Bank $1,500
Cr Insurance company $1,500

Hope that helps.

Best,
Michael C.
Founder of Accounting Basics for Students
Loss due to Fire - Insurance Adjustment (Insurance Recovered)
by: Anonymous

Sir,

In my factory an accident happened and all assets were destroyed by fire. I entered this journal entry:

Loss of assets......dr
accumulated depreciation......dr
Insurance claim receivable....dr
To Fixed Assets

Due to this entry my balance sheet went into loss but now we have received insurance claim in bank. How to pass entry so that claim adjusted and my balance sheet also come into profit because I have got complete compensation.

Please help me....Thank you.

Hi there. So it sounds like the insurance company fully compensated the assets that were lost. In this case, you need to reverse the loss that you recorded originally and increase the debtor (insurance company receivable) by the additional amount you received.

So let's say you originally expected to receive $50,000 insurance payout and now it actually was adjusted to $60,000, which is also the value of the assets that were lost. So the original loss was $10,000.

Insurance claim receivable....dr $10,000
Loss of assets......cr $10,000

The above journal entry means the loss due to the fire is cancelled out and the insurance claim is $10,000 more, now a full $60,000.

And then you just do the usual entry to record the final payment by the insurance company:

Bank....dr $60,000
Insurance claim receivable....cr $60,000

Hope that makes sense!

Best,
Michael C.
Founder of Accounting Basics for Students
Journals for Insurance Claim on a Repaired Vehicle
by: KINGS

What is the journal to be passed for an insurance claim on a vehicle that was in an accident but was repaired?

Is it:

WHEN CLAIM IS AGREED:
DR INSURANCE DEBTOR
CR OTHER INCOME

PAYMENT RECEIVED!
DR BANK
CR INSURANCE DEBTOR?
CR PROFIT ON MAINTENANCE


DR BANK
DR LOSS ON MAINT
CR INSURANCE DEBTOR

PLS CLARIFY. THANKS.

If you feel that the value of the vehicle is the same after the accident and the repairs, then you wouldn't record a loss or a profit here. And you also wouldn't record a change in the value of the vehicle (asset) or accumulated depreciation - because you are still using this vehicle and its value is the same as before the accident.

In this situation you could record the following:

Dr Repairs
Cr Bank
(I'm assuming your business paid for the repairs)

And also:

Dr Insurance company (debtor)
Cr Insurance income

And when you receive payment from the insurance company:

Dr Bank
Cr Insurance company (debtor)

Hope that helps!

Best,Founder of Accounting Basics for Students
Insurance Claim with a Deductible Amount on Repaired Asset
by: Anonymous

Hi,

Insurance claim against a damaged laptop, we have forwarded the cost (supplier quotation) to repair the damaged laptop to the insurance company. As per insurance policy, we have to pay the cost first and then later we can claim the expense. Question: what would be my entry? Can I record A/R & A/P at the same time? Please note that a deductible amount of 500 is applicable. Laptop repair is 5000. Thanks.

Yes you can record Accounts Receivable and Accounts Payable at the same time.

I am assuming in this question that the value of the laptop does not change after the damage and then the repairs - that it's value is the exact same as before. If not, one would have to adjust it's value.

But assuming the same value for the asset as before, I would record this as follows in separate entries:

Dr Repairs $5,000
Cr Accounts Payable / Bank $5,000
(this is for your business paying for the repairs)

And then for the insurance reimbursement, record this separately:

Dr Insurance receivable (debtor) $4,500 ($5,000-$500)
Cr Insurance income $4,500

So you have insurance income of $4,500 (credit) versus the repair cost (expense) of $5,000, which means your business lost $500 on this whole thing.

Hope that makes sense. Good luck!

Best,Founder of Accounting Basics for Students
Insurance Claim - Replacement Cost Basis
by: Anonymous

What if our equipment are insured on a replacement cost basis?

My Net Book Value of the equipment is $10,000 but when the insurance company replaces the equipment, the equipment value is $25,000. What will be the entry for this situation?

As far as I understand you just record the replacement cost value as owed to you by the insurer and then in this situation record a profit:

Dr Debtors $25,000
Cr Equipment $10,000
Profit on insurance claim $15,000
Regarding Workcover Compensation Received
by: Anonymous

Can you please tell me what should be the journal entry for Workers Compensation Claim Received?

Not sure about Workers Comp - because I'm not sure if your company pays the injured employee directly or the insurer pays the employee directly.

Only make an entry if your company pays the employee and then receives insurance payment back from an insurer. If the insurer just pays the injured employee directly then it does not affect any of your business assets so then I don't think any journal entry would be needed.
Accounting treatment for lost motor vehicle with insurance claim
by: Anonymous

If a motor vehicle of a company with cost of 2,000,000 Naira (Nigerian currency) and accumulated depreciation of 800,000 had an accident insurance claim of 1,500,000 for the lost motor vehicle, what will be the accounting entry?

Dr Accumulated Depreciation 800,000
Dr Debtor 1,500,000
Cr Vehicle 2,000,000
Cr Profit (balancing figure) 300,000
Loss in Business without Insurance
by: Robiu

If there is no insurance claim insured on a loss.. The company will bear the whole loss by recording it as an expenses in Profit/Loss account..
Excellent
by: Anonymous

Your explanation of Journal is very useful and prompt solution. Thanks.

Welcome!
fire insurance
by: Anonymous

hello sir
w. y. sheikh
if we have early asset and half of the year some part of the assets are be burn so what action will be take, and remember insurance are be available
and claim received
opening balance of assets 200000
burned assets 50000
depreciation on assets 2500
claim received 45000

Dr Accumulated Depreciation 2,500
Dr Debtor/Bank 45,000
Dr Loss (balancing figure) 2,500
Cr Assets 50,000
pending insurance claim at the end of the financial year
by: Anonymous

if stock loss thees in any of the financial year and the claim could not be settled at the end of the financial year then the effected stock should be included as normal stock or under the head as stock under insurance claim and final adjustment entry should be passed in the year in which the claim settled
Entry For Difference in Loss By Fire And Partial Insurance Claim Received
by: Anonymous

If a company bear losses of assets and stock by fire 500,000 Rupees for Stock And 2,000,000 Rupees for assets but company received only 300,000 Rupees for stock and 1,500,000 for assets what would be the relative entries in P& L and Balance Sheet of the company in the year when loss is incurred and supposing the insurance claim is received in the next FY?

A: If during the first financial year they already expect to receive the insurance claim for 1,800,000 total, they can record a receivable for this amount.

First financial year:

Dr Insurance receivable 1,800,000
Loss 700,000 (2,000,000 + 500,000 - 1,800,000)
Cr Stock 500,000
Cr Assets 2,000,000

2nd year:

Dr Bank 1,800,000
Cr Insurance receivable 1,800,000

If they were not sure in that first year if they were going to receive any insurance then they would record the full loss in that year. And the next year they would record it as an income.

First financial year:

Dr Loss 2,500,000
Cr Stock 500,000
Cr Assets 2,000,000

2nd year:

Dr Bank 1,800,000
Cr Insurance received (income) 1,800,000

Hope that makes sense.
Entry For Difference in Loss By Fire And Partial Insurance Claim Received
by: Teekam Rai

A company bears losses of assets and stock by fire - 600,000 Rupees for Stock And 2,000,000 Rupees for assets. The company received only 300,000 Rupees for stock and 1,400,000 for assets.

What would the entry be?

Dr Bank 1,700,000
Dr Loss (balancing figure) 900,000
Cr Purchases 600,000
Cr Assets 2,000,000
Journal - Insurance Company Only Pays Half
by: Anonymous

When the insurance company admits the claim and only pays half the money?

Record the money received, the full value of asset destroyed (credit) and the loss (half the value of the asset - debit)

Dr Bank
Dr Loss
Cr Asset
What is the journal entry for receiving the compensation?
by: Anonymous

What is the journal entry for receiving the compensation?

For example:
I have purchased a car 36,000, during the transport between the car factory to my garage.

The transporter has crashed my new car and have been written off.

We have received the compensation from the transport company 39,250.

So we have profit of 3,250

how do I treat the journal for sage?

Regards
Liz


Hi Liz,

Quite an unusual situation. I would record it as follows:

Dr Bank 39,250
Cr Vehicle 36,000
Cr Profit on vehicle insurance 3,250

Hope that helps.

- Michael Celender
Founder of Accounting Basics for Students
what if there is no insurance claim
by: Anonymous

i want to know the journal entry for the loss by accident of lets say $1000 and there is no insurance at all.

Dr Loss $1,000
Cr Asset $1,000
service insurance claim
by: Anonymous

how to made entry for part service amount paid by customers another part amount paid by insurance company
Insurance Claim by employee
by: Anonymous

Hello..
what if the employee was injured and requested for compensation. the company has forwarded the compensation claim to the insurance company.
is there any journal entry? and if yes what is the journal entries...

Not sure about this. I'd say that if your company pays the injured employee directly then you should do an entry.

But if the insurer pays the employee then I don't think you would need to make any entry as no assets of the business have been affected (you are not making payment and you did not lose any recorded assets).
periodic inventory
by: Anonymous

But what do we do under periodic inventory system? Say, an insurance claim is receivable against a loss of inventory by fire. I debit insurance claim receivable, which account do I credit???? I cannot credit inventory as I will just record closing balance in P&L. Please help

A: Credit Income or gain (Insurance recovered)

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What is the Entry for the Claim Recovered From Stolen Goods?

by Philip Kahoro
(Nairobi, Kenya)

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?

insurance claim theftA: The journal entries for the stolen goods and insurance claim:

DR Insurance company (receivable/debtor)
CR Purchases / Cost of Sales
Insurance claim approved.

DR Bank
CR Insurance company (receivable/debtor)
Insurance company pays out.

Hope that helps!

- Michael

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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)

Required:
Journalize the insurance claim.

Comments for Insurance Claim Journal Entry Question

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LIFT INSURANCE - Repairs and Maintenance
by: Anonymous

There was a lightning strike in my area. It caused the lift in the building to broken. There was insurance regarding this.

1) The lift component such as PCB (printed circuit board) was broken and the cost for replacement is $15,000 (the component record does not shown in any asset).

2) The insurance provides $14,000 only but 75% before the repair and last 25% when the job done.

How do I record for this transaction?

For your information, my company is handling building management business handling management etc.

Hi there,

Since a component of the lift (not the whole lift) is simply being replaced, this could be treated as "repairs and maintenance" expense - a cost of keeping the lift working.

In chronological order, I would record the transactions as follows:

Dr Insurer (debtor) $14,000
Dr Loss $1,000
Cr Repairs (expense) $15,000

This entry is usually a later entry. But since you are getting paid out by the insurance company before doing the repairs, you would probably record it first - record that the insurer owes your company the money.

The repairs expense is a debit entry usually and we will debit it in a later journal, but here it is a credit.

Dr Cash/bank ($14,000 x 0.75) $10,500
Cr Insurer (debtor) $10,500
Insurer pays out the 75%.

Dr Repairs (expense) $15,000
Cr Cash/bank $15,000
Repair work is done - record the usual debit to the repairs expense.

Dr Cash/bank ($14,000 x 0.25) $3,500
Cr Insurer (debtor) $3,500
Insurer pays out the remaining 25%.

I hope that makes sense.

Best,
Michael C.
Accounting Basics for Students
Journal of Insurance Claim Received for Repairing Vehicle
by: Gagan

Wind glass of office vehicle was broken by stone during riot. Insurance company was informed about this. Insurance company asked for quotation or original bill of glass repair. Vehicle was sent to showroom for repair and showroom was paid Rs. 10000. and original bill of repairing cost was sent to insurance company. After one month, insurance sent the cheque of Rs. 8000. Is the below journal right?

Payment of Repairing bill
Dr. Vehicle Repair 10000
Cr. Bank 10000

When insurance cheque received
Dr. Bank 8000
Cr. Vehicle repair 8000 (cost credit)

From this journal, 2000 is appeared as vehicle repair cost in P/L rest is cost credited

Hi Gagan,

Yes these entries you wrote above are correct. From these 2 entries there will be a debit balance of 2000 for vehicle repair, which is the difference between what the repair cost us (10000) and how much the insurance paid us (8000), which leaves us with a 2000 loss or expense which will be recorded in the profit and loss.

Well done on getting it right!

Regards,
Michael Celender
Founder of accounting-basics-for-students.com

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