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Accounting For Insurance Claim Proceeds

Esther Koch's Profile

accounting for insurance claim proceedsI am looking for someone who has practical knowledge of accounting for insurace claim proceeds for a fire loss. 

In general, it seems that assets should be written off at a loss and the cost of replacement assets written up as a gain.  Reimbursed expenses would be a wash.  Business interruption/loss of income would be a gain.

But if a claim hasn't closed and the company has not yet purchased all of their replacement assets it seems like this is a moving target.  Or if you have to make an assumption of what the payout would be and are wrong then an adjustment would be required in a subsequent period.  This would also require setting up a receivable. 

Since business interruption/loss of income relates to a period of time, does this portion of the insurance proceeds get reported during the time period it applies rather than as the time of the loss?

For cash flow reporting the insurance advances must be identified as either related to investing or operating activities.  Since advances are not defined as to coverage, any priority as to how to assign advances against replacement asset purchases or expenses or loss of income?

Also this company has a triple net lease and some of the insurance proceeds go to the landlord and it covers multiple property locations so the max policy amount will not apply - only a portion based on the properties covered and then only a portion of that since some (most) of the insurance money is for the landlord to rebuild. 

Also, any general rule for the book versus tax treatment?

Thanks so much.


Laurence Jadrych
Title: CPA, CGMA
Company: Wyman-Gordon Forgings
(CPA, CGMA, Wyman-Gordon Forgings) |

As a CPA having worked with a CPA firm which supported Insurance Adjustors, let me try to be brief about the complex issue of accounting for insurance claim proceeds from a fire loss. A) From your subject, you could have two types of losses to account for: 1. Business Interruption and 2. Content Loss. B) Have a meeting with your insurance agent and HIS company's adjuster to determine what THEIR definitions are for includable and excludable expenses AND continuing and non-continuing expenses. Your insurance company cash advances and/or reimbursements will following along the same lines. C) Set up General Ledger accounts to capture all of these types of spending and reimbursement related to these two types of losses. It will ease your "analytical pain" and assist with claim filing and claim audits. D) Timing - the claim can take many months or years to settle, so keep good records and don't expect a speedy resolution. E) Since you do not mention your firms industry, seek accounting guidance from your CPA firm. F) Tax guidance - recognition of an Involuntary Conversion, Reimbursement timing (Revenue, for IRS purposes) can be challenging also. Seek professional tax guidance from your CPA firms. There are many IRS regulations, case law, and Revenue codes involved which you will need in order to minimize tax impact or maximize loss deductions - Capital Loss versus Ordinary Loss. I hope this outline helps with a starting point. L.Jadrych,CPA


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