E T B

Journal entry for recording abnormal loss and insurance claim.

Goods bought for Rs.400000. While transporting goods destroyed. Insurance co agreed to pay 75%. pass journal entries.

asked Jun 8, 2015 in Journal Entries by hussain (38 points) 14,109 views

1 Answer

0 votes
Entry for purchase of goods:

Purchase A/c  Dr.  400000

  To Cash                                       400000

Entry for recording loss of goods and creating insurance claim.

Loss due to Accident A/c   Dr.  100000

Insurance Claim A/c           Dr.  300000

   To Trading A/c                                            400000

Entry for transferring loss to Profit & Loss A/c

Profit & Loss A/c                  Dr.  100000

  To Loss due to Accident A/c                     100000
answered Jun 8, 2015 by jbsclasses (3,853 points)
Sir are these entries correct:

Purchase a/c dr 400000

   to Cash a/c                       400000

 

Cash ac dr 300000

   to insurance claim a/c   300000

 

Loss due to fire a/c dr100000

   to purchases a/c                 100000

1. First entry for purchase is right.  

2. The second entry you made, means you have received cash from Insurance company on account of insurance claim.   For this you need to first make an entry for creating a claim. But in your question you have mentioned 'Insurance co agreed to pay 75%. '.  This means amount is still not received.

3. Third entry is alright only partly, now Rs.300000 will remain in Purchase A/c whereas those goods have been destroyed.  How you will deal with that?

so there can be another alternative entry:

Loss due to Accident A/c      Dr.  100000

Insurance Claim A/c             Dr.  300000

 To Purchase A/c                                         400000

Profit & Loss A/c                  Dr.  100000

 To Loss due to Accident A/c                       100000

When you receive money from insurance company, then you can put this entry:

Cash A/c                            Dr.  300000

 To Insurance Claim A/c                              300000

sir what will be the effect on trading account for purchases ?

Purchase A/c  Dr.  400000

  To Cash                                       400000
                                    First Option
Entry for recording loss of goods and creating insurance claim.

Loss due to Accident A/c   Dr.  100000

Insurance Claim A/c           Dr.  300000

   To Trading A/c                                            400000

                          Second Option

Loss due to Accident A/c      Dr.  100000

Insurance Claim A/c             Dr.  300000

 To Purchase A/c                                         400000

In both the options for all practical purposes impact of purchases on Trading A/c has been reduced to zero.

...