Accounting Treatment of Insurance Compensations (Claims / Incidents) in Qoyod
When receiving compensation from an insurance company for an incident (vehicle, equipment, or any asset), it is recorded in the system via a manual journal entry depending on the situation:
First: Adding the Account to the Chart of Accounts
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Create a sub-account under Other Income with the name: “Insurance Compensations” (or “Insurance Compensations – Vehicles” if you want more detail).
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Path: Accounting → Chart of Accounts → Navigate to the Revenue account in the chart of accounts → then to Other Revenue account → Add a new account by clicking the “+” option next to the account
Note: Insurance compensation is classified under Other Income, not Operating Income, because it is not a result of the entity’s core business activity.
Second: Accounting Entries by Scenario
Scenario 1: Receiving Cash Compensation Directly
Manual journal entry:
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From Bank or Cash Account (Debit)
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To Insurance Compensations Account (Credit)
Scenario 2: Compensation Reduces a Previously Recorded Repair Expense
This is only used if there is an actual repair expense recorded for the same incident and the compensation does not exceed the expense amount.
Manual journal entry:
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From Bank or Cash Account (Debit)
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To Vehicle Repair Expense Account or “Repair Expense Recovery” account under Expenses (Credit)
Scenario 3: Compensation is Due but Not Yet Received
Upon accrual:
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From Other Receivables Account – Due Insurance Claims (Debit)
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To Insurance Compensations Account (Credit)
Upon collection:
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From Bank or Cash Account (Debit)
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To Other Receivables Account (Credit)
Scenario 4: Complete Asset Damage (Total Loss)
If the asset is completely damaged (for example, a vehicle is a total loss), the fixed asset must also be removed from the records:
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Close accumulated depreciation
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Record the difference between the book value and the compensation amount as a gain or loss on disposal
It is recommended to coordinate with the company’s accountant in this case to accurately determine the book value.
Third: Tax Treatment (Value Added Tax)
Insurance compensations for incidents are not subject to Value Added Tax because they are not consideration for supply, and are recorded without tax, provided that any services or repairs related to the compensation may be subject to tax independently.
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