accounting question
[prepare journal entries for the year end adjustment]
A fire broke out in the office during the year. the insurance company agreed to pay compensation of $3000 to the company in December 2009.No entries for this compensation were made at the year end.This compensation of $3000 was finally received in January 2010
* the year now is 31 dec 2011
To prepare the journal entries for the year-end adjustment, you would need to account for the compensation related to the fire incident that was received in January 2010 but pertains to the previous year, December 2009.
Here's how you can prepare the journal entries:
1. December 2009:
Dr. Insurance Receivable: $3,000
Cr. Unrealized Insurance Compensation: $3,000
Explanation:
Since the insurance company agreed to pay compensation in December 2009, you would record the amount receivable from the insurance company as Insurance Receivable. The corresponding entry goes to the Unrealized Insurance Compensation account, representing the compensation that has not yet been received.
2. January 2010:
Dr. Cash: $3,000
Cr. Insurance Receivable: $3,000
Explanation:
When the company finally receives the compensation from the insurance company in January 2010, you would debit the Cash account for the amount received. The Insurance Receivable account should be credited to reduce the balance since the amount is now realized and received.
These journal entries reflect the accrual of the compensation in December 2009 and the subsequent receipt of the funds in January 2010. Remember to consult with an accounting professional specific to your situation to ensure accuracy.