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I'm trying to help out a friend with their bookkeeping for a real estate investment they just purchased. I'm pretty sure I have categorized all the closing expenses properly except for one thing. The bank messed up some things during the closing process and then mailed a check a week or two after closing to apologize. How would one categorize this transaction (e.g. revenue, a negative expense)? My friend is in TX, USA.

  • I tried to answer the best I could. If you stated your country and/or state, it could get into more detail. – Mindwin Apr 27 '17 at 16:08
  • My friend's transaction was in TX, USA – Rich Apr 27 '17 at 20:26
  • This question is a perfect fit for the Accounting site (currently a proposal in Area 51: area51.stackexchange.com/proposals/113560/… ) – Jacob Sep 20 '17 at 1:20
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It might be an indemnity depending on your jurisdiction (that you don't state at the time of this writing).

From investopedia:

Indemnity is compensation for damages or loss.

So the bank probably caused a loss (of time, etc) to your friend, and compensated with that check.

You should check with an accountant if Indemnity is taxed differently from other sources of income, or not.

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I believe that any corrections would be a negative expense as it was a honest mistake by the bank provided the jurisdiction was the United States.

  • A few comments: (1) The question does not state a request for tax advice, just accounting. (2) There is no indication of jurisdiction in the OP, so providing broad tax advice like this may be wrong in a particular jurisdiction, even if it is correct in your own. – Grade 'Eh' Bacon Apr 27 '17 at 15:13
  • @Grade'Eh'Bacon I've corrected my answer. Any other comments? – Morrison Chang Apr 27 '17 at 15:32
  • It is good that you provided a proviso for jurisdiction, but note that accounting principles (which the OP asked about) do not necessarily follow tax principles. – Grade 'Eh' Bacon Apr 27 '17 at 15:34
  • @Grade'Eh'Bacon IANAA so I will defer on the tax implication but believe I'm still on good ground with respect to accounting practice (and if not - please elucidate in an answer or a comment to the OP for more info) – Morrison Chang Apr 27 '17 at 15:38

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