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payment from insurance company for damaged vehicle

In 2017 a vehicle we had been using for 9 years was in an accident(obviously been depreciated to zero). The insurance company sent us a partial check in 2018 then they totaled it in 2019 and sent us the remaining amount. In 2019, we turned over the title to the insurance company because they finally totaled it.

1)How do I record the check received in 2018?

2) How do I record the check from 2019?

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Best answer 06-17-2019

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Re: payment from insurance company for damaged vehicle

1)How do I record the check received in 2018?

 

deposit the check and use other income as the source account for the deposit

 

2) How do I record the check from 2019?

 

create an income account called gain/loss on asset

use that income account as the source account for the deposit

then clear car cost and depreciation to that same gain/loss income account with journal entries

 

debit gain loss, credit asset cost

debit accum depreciation, credit gain loss

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Re: payment from insurance company for damaged vehicle


@Rustler wrote:

1)How do I record the check received in 2018?

 

deposit the check and use other income as the source account for the deposit

 

2) How do I record the check from 2019?

 

create an income account called gain/loss on asset

use that income account as the source account for the deposit

then clear car cost and depreciation to that same gain/loss income account with journal entries

 

debit gain loss, credit asset cost

debit accum depreciation, credit asset cost


You just credited original asset value twice - ostensibly accumulated depreciation on a fully depreciated asset should equal original cost so the second line in the JE is what zeros the cost and removes the value from the books. I don't see prior to that where there was a debit to asset cost equal to gain/loss that needed reversal

 

I would have recorded the check in 2019 as sale of the asset, which would credit the asset equal to the check. Then a JE of debit asset = credit gain/loss. I would also add to the JE a reversal of the income recorded in 2018 from the first insurance check to more properly reflect all proceeds related to the write-off of the asset and turnover of title to insurance company

Established Community Backer ***

Re: payment from insurance company for damaged vehicle

crediting the asset account washes out the value, acct is now zero

debiting the accumulated depreciation account washes out that value, acct is now zero

both of the wash entries hit gain loss

as does the insurance payment

 

I don't understand where you get that I am posting to the asset twice

Established Community Backer ***

Re: payment from insurance company for damaged vehicle


@Rustler wrote:

crediting the asset account washes out the value, acct is now zero

debiting the accumulated depreciation account washes out that value, acct is now zero

both of the wash entries hit gain loss

as does the insurance payment

 

I don't understand where you get that I am posting to the asset twice


debit gain loss, credit asset cost

debit accum depreciation, credit asset cost

 

Accumulated depreciation already equals in this case original asset value so debit a.d. cr asset by itself zeroes the asset but just before that you are crediting the asset equal to the gain. That is where I got confused

Established Community Backer ***

Re: payment from insurance company for damaged vehicle

debit accum depreciation, credit asset cost

 

I did not write that

I said

debit accumulated depreciation, credit gain loss

 

Depreciation should never post to the asset cost account, which is why I move each individually to the gain loss account

7 Comments
Established Community Backer ***

Re: payment from insurance company for damaged vehicle

1)How do I record the check received in 2018?

 

deposit the check and use other income as the source account for the deposit

 

2) How do I record the check from 2019?

 

create an income account called gain/loss on asset

use that income account as the source account for the deposit

then clear car cost and depreciation to that same gain/loss income account with journal entries

 

debit gain loss, credit asset cost

debit accum depreciation, credit gain loss

Established Community Backer ***

Re: payment from insurance company for damaged vehicle


@Rustler wrote:

1)How do I record the check received in 2018?

 

deposit the check and use other income as the source account for the deposit

 

2) How do I record the check from 2019?

 

create an income account called gain/loss on asset

use that income account as the source account for the deposit

then clear car cost and depreciation to that same gain/loss income account with journal entries

 

debit gain loss, credit asset cost

debit accum depreciation, credit asset cost


You just credited original asset value twice - ostensibly accumulated depreciation on a fully depreciated asset should equal original cost so the second line in the JE is what zeros the cost and removes the value from the books. I don't see prior to that where there was a debit to asset cost equal to gain/loss that needed reversal

 

I would have recorded the check in 2019 as sale of the asset, which would credit the asset equal to the check. Then a JE of debit asset = credit gain/loss. I would also add to the JE a reversal of the income recorded in 2018 from the first insurance check to more properly reflect all proceeds related to the write-off of the asset and turnover of title to insurance company

Established Community Backer ***

Re: payment from insurance company for damaged vehicle

crediting the asset account washes out the value, acct is now zero

debiting the accumulated depreciation account washes out that value, acct is now zero

both of the wash entries hit gain loss

as does the insurance payment

 

I don't understand where you get that I am posting to the asset twice

Established Community Backer ***

Re: payment from insurance company for damaged vehicle


@Rustler wrote:

crediting the asset account washes out the value, acct is now zero

debiting the accumulated depreciation account washes out that value, acct is now zero

both of the wash entries hit gain loss

as does the insurance payment

 

I don't understand where you get that I am posting to the asset twice


debit gain loss, credit asset cost

debit accum depreciation, credit asset cost

 

Accumulated depreciation already equals in this case original asset value so debit a.d. cr asset by itself zeroes the asset but just before that you are crediting the asset equal to the gain. That is where I got confused

Established Community Backer ***

Re: payment from insurance company for damaged vehicle

debit accum depreciation, credit asset cost

 

I did not write that

I said

debit accumulated depreciation, credit gain loss

 

Depreciation should never post to the asset cost account, which is why I move each individually to the gain loss account

Established Community Backer ***

Re: payment from insurance company for damaged vehicle


@Rustler wrote:

debit accum depreciation, credit asset cost

 

I did not write that

I said

debit accumulated depreciation, credit gain loss

 

Depreciation should never post to the asset cost account, which is why I move each individually to the gain loss account


Then someone is messing with what you wrote. See where I quoted your response. Certainly still looks like two thins to to do both affecting asset cost. I hear you that it is not correct, accumulated depreciation , as on Schedule D (I think) is a recapture to gain or loss  but I only read what I see.

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Re: payment from insurance company for damaged vehicle

my apologies, I went and corrected it, can not imagine how that happened unless I really had a senior moment