Device Insurance.

[John R. Sowden]

On 09/13/2014 09:06 PM, William Storey wrote:
> How does one handle device insurance for example I had bought an hp laptop with 3yr protection. Also if I have a claim on that insurance where they refund me the amount paid how is that entered?
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I'll take a stab at this one.  I am a small business person with 
accounting training and interest.

First, if the premium amount is 'material' with respect to your other 
expenses, or you are a detailed person, you can amortize the expense 
over its life (3 years in this case).  If not, expense it in the period 
it was purchased:

   CR Cash
   DR Insurance Expense

To amortize it,

   CR CASH
   DR Prepaid Insurance (an asset)

then, each period in which you want detailed accounting reporting (for 
instance, I use quarterly):

   CR Prepaid Insurance
   DR Insurance Expense


Regarding the loss/replacement, if you loose/whatever the asset 'Laptop 
Computer', then you would show that as a loss:

   CR Laptop Computer (Asset-the amount would be the undepreciated 
amount (Original Value less Accumulated Depreciation) plus the Salvage 
Value)
   DR Extraordinary Loss Expense (An account set up for this purpose)

Then, if the Insurance Company pays you, if the amount they pay you is 
more than or equal to the amount of the above calculated loss:
   CR  Extraordinary Loss Expense
   CR  Other Income (any amount over the amount of the actual loss)
   DR Cash

If, on the other hand, the Insurance Company reimburses you a lesser 
amount, then:

   CR Extraordinary Loss Expense
   DR Cash

The excess loss then reduces your profit, and therefore your income 
taxes, although I would not be surprised if the IRS (USA) would require 
you to amortize the loss and reimbursement, just to make it difficult.

Hope this helps,

John Sowden
American Sentry Systems, Inc.