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

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.

| improve this answer | |

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.

| improve this answer | |
  • 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

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.