Accounting For Insurance Proceeds Deloitte
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How to fill out Contract With Accountant To Audit Corporation's Group Medical, Disability, And Life Insurance Program?
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FAQ
Reimbursement for a loss: If the insurance proceeds are intended to reimburse the company for a loss or damage (e.g., property damage, theft, or loss of inventory), the proceeds are typically recorded as a reduction of the related loss or expense.
Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren't includable in gross income and you don't have to report them. However, any interest you receive is taxable and you should report it as interest received. See Topic 403 for more information about interest.
If the gain is recorded prior to cash receipt, the offsetting debit to the gain is a receivable for expected insurance recoveries. A gain from insurance proceeds should be recorded in a separate account if the amount is material, thereby clearly labeling the gain as being non-operational in nature.
For example, if $10,000 of inventory is damaged in a fire and the proceeds are $7,000, the transaction should be recorded as a $7,000 debit to cash-fire damage reimbursement, a $3,000 debit to loss on insurance proceeds, and a $10,000 credit to inventory.
If $10,000 of inventory is damaged in a fire and the proceeds are $7,000, record the transaction as a $7,000 debit to Cash-Fire Damage Reimbursement, a $3,000 debit to Loss on Insurance Proceeds, and a $10,000 credit to Inventory. If the proceeds check is larger than the loss, the surplus is recorded as a gain.