We recently had a judgment made in our favor against a former employee who committed fraud. When we receive payments from this employee, what should the journal entry be?
We also received a house in the judgment and need to add the asset to our books. How would we make that journal entry when no cash transaction was made, and we do not want to alter the retained earnings?
What is my company’s journal entry for a judgment against an employee who committed fraud?
Answers
While you should always confer with your CPA firm and tax professional, for “income” from a favorable outcome of a legal suit, the entry should be:
Cash $xxx
Other Income $xxx
As for the house, you received an asset with a value instead of cash. You need a fair market valuation on the house, and then the entry would be:
Asset: $xxx
Other Income $xxx
There is no way of getting out of recording income. However, presumably you have already recorded what was stolen as a loss. In addition, you have the legal expenses.
Theoretically, you have been made whole, plus/minus.
Filed Under:
Accounting