Stolen Goods Journal Entry

Stolen Goods are the inventory that company loses due to an internal or external thief. The company needs to remove these items from the balance sheet as they are no longer exist.

Goods are the items that company held for sale and they are classified as the inventory on the balance sheet. They are referred to the finished products that are ready to sell to customers.

The company requires to record the inventory at a lower cost or net realized value. They are initially recorded at the cost of acquisition. However, they need to access if the net realizable value is lower than the initial cost due to the obsolete and expiration. After they are sold, inventory needs to remove from the balance sheet and the cost record in the income statement as the cost of goods sold. As the name suggests the cost of goods sold will reduce the company revenue to arrive at the gross margin.

Besides inventory sold and impairment, company needs to remove the inventory if they are no longer under the company’s control. The company needs to remove them from its balance sheet otherwise, it will overstate its current assets. At the same time as they already pay for the inventory, they need to report a loss on the income statement.

The company needs to be careful in calculating the amount of inventory loss due to stolen. The actual quantity can be calculated by comparing the amount on the report and the actual count. However, we need to take into account the inventory sold during the accident as well to prevent the double count. The cost of inventory can be varied depending on the valuation method such as FIFO, LIFO, Weighted Average, and so on. Finally, the amount record is equal to the inventory loss unit multiplied by the cost per unit.

Stolen Goods Journal Entry

When the goods were stolen from the company, we need to remove them from the balance sheet. And yes it needs to go somewhere, inventory needs to move to income statement as the expense.

The amount of loss will equal the initial cost on balance sheet. We cannot use the selling price to calculate the amount of loss. Only the purchase price is recorded as expenses on the income statement.

The journal entry is debiting inventory loss and credit inventory.

Inventory Loss is the expense account presented on income statement. Inventory is current assets on the balance sheet. So this transaction simply moves the current asset to expense.

Stolen Goods Journal Entry Example

Company ABC is a retail store in the supermarket. One night, there was a burglar and some of their inventory was missing. After the investigation, the company lost 100 units of goods. This type of goods is purchased at $5 per unit and sold at $ 8 per unit. Please prepare the journal entry to record the goods stolen.

We already know that 100 units were stolen and the cost of each unit is $ 5. We cannot use the selling price to record the loss. The opportunity costs are not the actual cost, we only record the cost which already incurs.

Inventory loss = 100 units x $ 5 per unit = $ 500

The journal entry is debiting inventory loss $ 500 and credit inventory $ 500.

The expense will increase $ 500 and inventory decrease by the same amount. If there is the insurance cover, we need to record another journal entry which will be discussed in another article.