Eiteman, Dean S.||Avery, Clarence G.
M.S. (Master of Science)
Department of Accountancy
Accountants have, at various times, attempted to justify a reserve for self-insurance as: (1) an asset reduction, (2) a liability, or (3) an appropriation of retained earnings. Although most theorists recommend that accountants treat a reserve for self-insurance as an appropriation of retained earnings, other treatments have been accepted in accounting practice. The lack of total acceptance for any one treatment is caused by the various types of self-insured risks which lend themselves to different accounting treatments and the absence of sound accounting theory in this area. The purpose of this study was to discover the proper accounting treatments for reserves for self-insurance and to evaluate the possibilities for implementation of such treatments. The data for the study was derived by library research and by the use of a selective questionnaire, The data for the discussion of the theoretical aspects of self- insurance was obtained primarily through library research. A selective questionnaire was used to determine the current trends in the practice of accounting for self-insurance, the extent to which self-insurance was used in the business world, and the dollar amounts of losses sustained over the past five years by companies having adopted policies of self-insurance. Based on the results of this study, the following significant conclusions appear warranted: 1. The accrual method of giving accounting recognition to a program of self-insurance should be used when the type of risk assumed results in either predictable losses to fixed assets or predictable obligations to convey assets. a. If the risk assumed is one which results in losses to fixed assets, the periodic amount of the estimated losses should be charged to an expense account and credited to a contra asset account. b. If the risk assumed is one which results in obligations to convey assets, the periodic amount of the estimated obligations should be charged to an expense account and credited to a liability account. 2. The appropriation method of giving accounting recognition to a program of self-insurance should be used when the type of risk assumed does not result in reasonably predictable future losses. 3. Regardless of the type of risk assumed, the accounting treatment most often used in practice consisted of a periodic charge against income and a credit to a liability account.
Cvelbar, Anthony W., "A study of the accounting theory and treatment of self-insurance" (1968). Graduate Research Theses & Dissertations. 688.
vi, 57 pages
Northern Illinois University
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