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Home /  Journal Entry
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  • Journal Entry for Goods Lost & Insurance Claim | Loss by Fire | Loss by Theft

  • Arjun EP
  • Published on: June 20, 2020

  •  

     

    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

    ***********

    Thank for investing your time.

    Please comment on article.

    You can help me by sharing this article at your social media platform.

    Jay Google, Jay YouTube, Jay Social Media
    जय गूगल, जय युट्युब, जय सोशल मीडिया

     

     

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