Final answer:
The insurance payment from Acme Kitchen's CGL policy is subtracted from the company's loss reserves, which is the liability account set aside to cover such claims. This payment will fulfill the outflow that was previously reserved for on the balance sheet.
Step-by-step explanation:
When Acme Kitchen's Commercial General Liability (CGL) insurer pays out on a claim, the amount paid by the insurer will be subtracted from Acme Kitchen's loss reserves. Loss reserves are the liability account set aside by insurance companies to pay for the settlement of claims. The CGL insurer's payment will reduce Acme Kitchen's loss reserves amount, as the company now has an obligation that has been paid out. This payment represents the fulfillment of a potential future outflow of resources, which was previously accounted for as a reserve.
Option 1, Net Income, refers to the total income of a company after subtracting all expenses, including costs, taxes, and losses, but it is not the immediate accounting entry affected. Option 2, Assets, might decrease as a result of cash or cash equivalents being used to pay the deductible if applicable, or as a result of reduced recoverable amounts, but the primary reduction is from the liability side of the balance sheet. Option 3, Deductible, refers to the amount that Acme Kitchen must pay out of pocket before their insurer covers the remaining amount of a claim, while loss reserves are affected after the deductible is considered, and the insurance payment is made.