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Accounting Treatment of Settlement (Never Reached Court)

Elle Navorski's Profile

My (small) corporation's tree roots caused damage to several people's homes. The two sides' attorneys went back and forth on this for over a year. The homeowners threatened taking the corporation to court. The corporation acquired a new attorney. The new attorney advised the corporation to settle and to pay for the repairs to the homes. The corporation did so. None of the parties ever filed papers in court.

At present, the corporation's Profit and Loss statements show the cost of the settlements under an infrastructure repair line item. Some shareholders think this is deceptive. They say there should be a line item for "legal settlement" or similar. Are they correct?

My corporation uses Quickbooks.

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

That you use QB is irrelevant.

Your shareholders are basically correct, although I wouldn't use the term deceptive.

You should list the settlement as "Other Expenses", because the settlement was outside the normal course of your business. If the opposing party lost and paid you, it would be "Other Income".

Elle Navorski
Title: Anonymous
Company: Anonymous
(Anonymous, Anonymous) |

Wayne Spivak, thank you.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

You' re welcome

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