Loss of Business Goods

Before passing journal entries for loss of goods you need to create few basic ledger the same are as under:

Loss of Goods: (Under Purchase Group) : The ledger is required to make required adjustment in inventory items.

Loss of Goods by Fire and/or Theft (Under Indirect Expenses): you need this account to transfer your loss to profit and loss account.

Claim Receivable A/c (Under Sundry Debtors) : It is a parking account. Only acceptable claim amount should be transferred to this account.

Entry  for Loss of Goods:

To remove cost of goods lost from trading A/c to arrive at value of goods consumed for business.

Loss of Goods A/c                           Dr.                                 XX

            To Purchase A/c                                                                              XX

(Entry for loss of Goods)

Entry for transfer of loss in specific account:

If there is an insurance, pass the entry for insurance claim receivable and balance for loss :

Claim Receivable A/c                   Dr.                               XX

      Loss by fire A/c                            Dr.                               XX

            To Loss of Goods A/c                                                                   XX

At the end of the year, loss by fire and loss due to theft will appear into Profit and Loss Account under the group of extraordinary item. Insurance claim, not yet received, will be shown on the asset side of the balance sheet.

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