Journal Entry for Goods Lost & Insurance Claim | Loss by Fire | Loss by Theft
Arjun EP
GOODS LOST AND INSURANCE CLAIM
In the business, it is possible to goods (stock, merchandise and inventory) may loss by fire, theft or burglary.
Sometimes it may loss by accident while dispatching the goods.
This loss is abnormal loss in nature.
If goods are not insured, it is total loss to organization.
This loss is deducted from purchase of goods and debited in profit and loss account.
If goods are insured, insurance company accepts this loss.
Organization receives compensation from insurance company.
Sometimes, insurance company does not accept claim if there is suspicious circumstance.
There are three alternative solutions for goods lost by fire. They are:
Goods lost but not insured, there is total loss.
Goods lost but insurance company paid partial claim, there is partial loss.
Goods lost and insurance company accepted full claim, there is not any loss.
Goods Loss and Insurance Claim
|
Insurance claim account P&L account (loss) To Purchase account (Being- goods lost by fire and insurance …) |
Dr Dr
|
Claim accepted by insurance company Loss or claim not accepted Total loss of goods |
Increase in assets Increase in loss Decrease in asset |
Journal Entry
In the book of …………
|
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
|
Insurance claim (Insurance Company) A/c P&L account (loss) To Purchase account (Being- goods lost by fire and insurance ………) |
Dr Dr |
|
xxxx xxxx
|
xxxx |
|
|
P&L account (loss) To Purchase account (Being- goods lost by theft) |
Dr |
|
xxxx |
xxxx |
PROBLEM: 19
TS Traders has following extracted transactions:
(a) Goods loss by fire Rs 25,000.
(b) Goods loss by fire Rs 35,000 but insurance company accepted claim only Rs 15,000.
(c) Goods loss by fire Rs 40,000 insurance company does not accepted any claim.
(d) Goods loss by fire Rs 50,000 and insurance company accepted full claim.
(e) Goods loss by fire Rs 60,000 insurance company accepted only 60% claim.
(f) Goods loss by theft Rs 5,000.
Required: Journal entries
SOLUTION:
Journal Entry for American Style
|
Date |
|
|
Debit $ |
Credit $ |
|
(a) |
Income statement account (loss by fire) Purchase account To record goods lost by fire |
|
25,000
|
25,000
|
Journal Entry for European Style
|
Date |
|
|
|
€ |
€ |
|
(a) |
Income statement account (loss by fire) Purchase account To record goods lost by fire |
Dr
|
|
25,000
|
25,000
|
Journal Entries
In the book of TS Traders
|
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
a |
Profit and loss account (loss) To Purchase account (Being- goods lost by fire) |
Dr |
|
25,000
|
25,000
|
|
b |
Insurance claim account Profit and loss account (loss) To Purchase account (Being- goods lost by fire and insurance company accepted partial claim) |
Dr Dr |
|
15,000 20,000
|
35,000
|
|
c |
Insurance claim account Profit and loss account (loss) To Purchase account (Being- goods lost by fire and insurance company did not accepted any claim) |
Dr Dr |
|
Nil 40,000
|
40,000
|
|
d |
Insurance claim account Profit and loss account (loss) To Purchase account (Being- goods lost by fire and insurance company accepted full claim) |
Dr Dr |
|
50,000 Nil
|
50,000
|
|
e |
Insurance claim account Profit and loss account (loss) To Purchase account (Being- goods lost by fire and insurance company accepted partial claim, Rs 60,000 @ 60% = Rs 36,000) |
Dr Dr |
|
36,000 24,000
|
60,000
|
|
f |
Loss by theft account (P&L account) To Purchase account (Being- goods lost be theft) |
Dr |
|
5,000
|
5,000
|
Keep in Mind (KIM)
|
Here, credit in purchase means purchased goods deducted. While goods purchasing, purchase account Dr While goods deducting, purchase account Cr |
###########
|
PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 19
The following extracted information is available:
Goods worth Rs 50,000 were destroyed by fire.
Goods of Rs 36,000 lost by theft but the company refused the claim due to suspicious circumstance.
The insured stock was lost by fire Rs 50,000 but the company admitted a claim of Rs 35,000 only.
Goods worth 22,000 lost by fire insured and the company admitted the full claim.
Required: Journal entries
***********
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