Journal Entry: Insurance Claim for Goods Destroyed by Fire

1. Date: [Enter Date]

2. Account: Insurance Claim Receivable

3. Debit: Insurance Claim Receivable - $8,000
        Credit: Goods Destroyed by Fire - $10,000

4. Description: This journal entry records the insurance claim for goods destroyed by fire. The goods had a value of $10,000, and the insurance company has accepted a claim of $8,000.

5. Explanation:

The journal entry consists of two accounts: Insurance Claim Receivable and Goods Destroyed by Fire. Here's a detailed explanation of each account and its role in the transaction:

Insurance Claim Receivable:

This account represents the amount receivable from the insurance company for the loss incurred due to the destruction of goods by fire. The claim amount accepted by the insurance company is $8,000. By debiting this account, we increase the receivable amount.

Goods Destroyed by Fire:

This account reflects the loss suffered by the business due to the destruction of goods by fire. The value of the goods destroyed is $10,000. By crediting this account, we reduce its balance reflecting the decrease in the value of goods.

6. Impact on Financial Statements:

The journal entry affects the following financial statements:

Income Statement:

The insurance claim is not recorded as income since it represents a reimbursement for the loss incurred. Therefore, the claim amount does not impact the net income.

Balance Sheet:

- Assets: The Insurance Claim Receivable is recorded as an asset on the balance sheet. After the journal entry, the amount of the claim receivable will increase by $8,000.
- Liabilities: There is no change in liabilities due to this transaction.
- Equity: There is no impact on equity.

7. Conclusion:

This journal entry accurately records the insurance claim for goods destroyed by fire. The claim amount of $8,000 is recorded as an increase in the Insurance Claim Receivable, while the Goods Destroyed by Fire account is reduced by $10,000 to reflect the loss suffered by the business.