The money received from an insurance company for a claim involving a loss on inventory stock is debited to Cash. Any other proceeds from disposing of the inventory items will also be debited to Cash.

In addition, the Inventory account is credited for the carrying cost of the inventory items, which is usually the original cost of the items. If the total of the debits to Cash is greater than the credits to Inventory, the difference is credited to a gain account, such as Gain from Inventory Damage. If the total of the debits to Cash is less than the credits to Inventory, the difference is a debit to a loss account, such as Loss from Inventory Damage.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

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