Hello all!
I am am trying to determine how to account for repairs and insurance proceeds resulting from property damage caused by Hurricane Ida. We have a strip mall that was damaged enough that the tenants are unable to operate until major repairs are made. As such, we have filed insurance claims for property damage & business interruption (loss of income).
Accounting for the payment from the insurance company for lost revenue seems simple:
DR Cash $$$$
CR Insurance proceeds - lost revenue $$$$
My real question is how to properly account for insurance proceeds and repair bills for the property damage. We have been paying vendors as repairs are made and have received an advance from the insurance company until the claim has been finalized and a final check is issued.
Here is how was going to account for property damage repairs & insurance proceeds:
Payments from insurance co.
DR Cash $$$$
CR Insurance Proceeds $$$$$
As we pay for repairs I was going to code the repairs to Insurance Proceeds:
Repair Bills
DR Insurance Proceeds $$$$$$
Cash$$$$$
The possible problem with this method is if the insurance proceeds are less than the repairs (which will probably be the case because of the deductible) I will end up with a negative in the insurance claim proceeds account. Should I just make a expense account "Insurance Damages"? I was hoping to keep everything in one account to easily show what the actual loss is after everything is all said and done. Also, its looking more and more likely that repairs will be finished (vendors paid in full) in early 2022. If we don't use the whole advance in 2021 and end up with a gain at the end of the year will have to pay taxes on that? I know we will use the entire advance in addition to final payment from the insurance company when its all said and done.
Sorry for all the questions we are a little overwhelmed by it all! Any advice / guidance will be greatly appreciated.
J
