Goods in stock worth 800 are destroyed by fire and the Insurance Co. is accepted the claim for 600. Adjustment would involve
Correct answer: E. Debit of 600 and 200 to insurance company and Profit and Loss Account respectively and
- A. Debit of 800 to Trading Account and credit of 600 and 200 to insurance company and
- B. Profit and Loss Account respectively
- C. Deduct the 800 from closing stock in the Trading Account
- D. Credit insurance company for 600
- E. Debit of 600 and 200 to insurance company and Profit and Loss Account respectively and
- F. credit of 800 to Trading Account
Explanation
The full loss of goods costing 800 is removed from the Trading Account, while the accepted insurance claim of 600 is recovered from the insurer and the uninsured loss of 200 is charged to Profit and Loss Account. Thus the entry is Insurance Company Dr 600, P&L Dr 200, and Trading Account Cr 800.
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About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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