You\'ve been employed as the accountant for two years at Bryce Borne Boats in Bi

Question

You've been employed as the accountant for two years at Bryce Borne Boats in Biloxi, Mississippi. "BBB" of Biloxi sells small fishing boats and accessories at it's showroom.  


During a recent inventory it was found that the current dollar value of salt-water fishing lures on hand was $13,620. The current inventory for salt-water fishing lures on the balance sheet shows $14,980 and it's believed that the difference is due to several shoplifters that had plagued the area about two weeks ago.

Your assistant approaches you after the physical count and asks, "To account for the thefts of inventory should I prepare a journal entry debiting Sales Returns and Allowances, and crediting Merchandise Inventory?"

Would you agree or disagree with this solution?

Agree
Disagree

Explanation / Answer

I disagree with the solution.

Sales Returns are debited only when the sold inventory is returned.
Since the decline in value in this case if because of theft, it should be accounted in the same way

The relevant Journal Entry would be debited Loss by Theft and Crediting Inventory and then transfer the loss on theft to the Profit and Loss account by Debiting Profit and Loss account and crediting Loss by theft account.

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