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[Darth_Popsicle]

We had a vehicle totaled via the insurance company. We had a liability on our books for say $10K for the vehicle, the blue book value of the truck was $20K. The insurance company sent a check to the loan holder for $10K to payoff liability and then sent a check to our company for proceeds on the totaling of the truck for $10K - how to represent the $10K sent to the loan holder to payoff the liability on our books?

 

[kirby]

First record a receivable from the insurance company in the amount of the book value of the vehicle. Also remove the vehicle and its accumulated depreciation. There is also a $10K debt on the vehicle but that is dealt with in a later entry
Example
DR Insurance Receivable 25,000
CR Vehicle asset acct 30,000
DR Vehicle accum. deprec acct 5,000

When insurance company pays off lienholder the $10,000 (GET WRITTEN PROOF OF THIS PAYOFF!!!!!!!!!)
DR Loan payable to vehicle lender 10,000
CR Insurance Receivable 10,000

When insurance company pays you the rest of the claim- let's say $12,000 you clear out the receivable. There may be a gain or loss depending on how much you were given.
DR Cash 12,000
DR Loss 3,000
CR Insurance receivable 15,000