How to record payment from an insurance company paying for a tenants unpaid rent

Accounting
1

hi
im not sure how to correctly record this situation.

Tenant A does not pay his rent.
Tenant A leaves and also causes some damages.

Insurance company A eventually paid out for the loss in rent and damage for Tenant A.

Currently, there is an unpaid rent invoice and unpaid damages invoice in Tenants A client account.

Money has been received from Insurnace Company A to cover this.

Do i:

  1. tag the money received as payment for the outstanding invoices? this would show Tenant A client account as fully paid.

or

  1. Setup a new clent Insurance Company A. Create an invoice for the amount being claimed for. Tag the money received as for this invoice. Put this in the correct nominal associated with the rent from Tenant A.
    Then the invoice for the tenant would either need discounting to 0, credit noting, or writing off as bad debt.

or4.

  1. Something else?

thanks

2

You don’t say if you are a sole trader or limited company, VAT-registered or not. I will assume not and therefore that you don’t charge VAT on rents.
Personally, I would write off Tenant A debts, and create a new nominal for the insurance money. If you are VAT-registered, this is exempt income.

1 Like
3

Hi. Thanks for the reply.
No VAT.
There is no VAT on domestic private tenant rents.

Understood about the nominal and client for insurance.

4

Well … generally speaking rent is exempt from VAT, but there is the option to tax, hence my question. You also didn’t specify if the tenant was private or commercial. You do need to be specific when asking accounting questions as the treatment will often depend on specific circumstances.

1 Like
5

hi, thanks for the reply.
yes, totally understand, and the need to be specific, and that it was not clear.