Insurance payment on damaged equipment (that was rented)

Accounting and Bookkeeping
1

Taxpayer rented equipment and it was insured in case of damage.

Unfortunately, equipment was damaged and a claim was made to the insurer.

Taxpayer gave the funds received by the insurer to the owner of the equipment while expensing a small loss of $200 (Difference between the insurance payout and what was owed to the owner of the asset).

I have the following Journal Entry:

Receiving the insurance payment:
DT Cash XXX
CT Other Income -Insurance compensation XXX

Paying owner of asset:
DT Other Income -Insurance compensation XXX
DT Loss from insurance claim $200.00
CT Cash XXX

Also, for HST purposes this should have no impact on the sales number on line 101 because the income comes in and shortly after goes out.

Any thoughts/suggestions?

2

??

Something fishy about this.?
Technically, the lessee should not have been able to insure property for “property loss” per se, since he did not have an insurable interest in the property."
.

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3

When you lease [a form of rental agreement] a car, you insure it. Can you not do the same with leased equipment?

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4

Terms of lease?
Terms of insurance policy?
The owner would have a claim against the “user”.
The “user” would need insurance sufficient to pay the owner, if desired.
A bit round-about to determine what exactly is the insurable interest…

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5

I agree!

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6

The journal entry looks good to me. This is standard procedure when going to a tool rental place.
The tool was damaged when in the user’s control.
The user bought insurance to cover the tool.
The insurer paid, and
The owner of the tool was reimbursed.

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7

Also, as written, the second journal entry is out of balance by $200

Presumably the lessee was charged some additional $200 for something, known only to the lessor and the lessee…
(As per J/Es written, nothing else happened)

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8

How about a deductible?

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9

The J/Es reported as written do not record anything else as having happened.
If something else happened, it should have been recorded, including all GST/HST effects…

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10

I think there is an entry for the $200

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11

The $200 would have been the deductible.

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12

And there would be no HST on the transaction. Of course I haven’t seen the paper work.

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13

The J/E appears to not balance as posted in the OP. (XXX contras out)

The GST/ HST would be/could be in the entries that are likely currently missing

Perhaps the lessee and the lessor actually know what the $200 is - at this point, “suspense” is all I could post it to… :wink:
Without seeing the paperwork, its all speculation…

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14

Thank you everyone for all the comments - I greatly appreciate it!