Incomplete Records

Stolen Cash and Missing Inventory

Stolen Cash

When cash has been stolen, the amount is unknown. Reconstruct the cash account — the balancing figure is the stolen amount.

Cash Account
Dr                              Cr
Bal b/d              x    Drawings (cash)           x
Takings (revenue)    x    Wages (cash)              x
                          Banked                    x
                          Stolen cash (balancing)   x
                          Bal c/d                   x
                         ──                        ──
                     x                              x

Formula:

Stolen cash = Bal b/d + Takings − Drawings − Cash wages − Banked − Other cash payments − Bal c/d

Worked example:

Bal b/d £165, takings £53 790, banked £21 895, cash drawings £13 600, cash wages £17 840, bal c/d £145

• Stolen cash = 165 + 53 790 − 13 600 − 17 840 − 21 895 − 145 = 475

Treatment in the Income Statement

• Stolen cash is an expense (reduces profit)
• If an insurance claim has been submitted: deduct the claim from stolen cash → show the net as the expense
• If the insurance claim has not yet been paid: the claim is also recorded as accrued income (current asset in the SoFP)

Missing Inventory

When inventory is stolen or missing, use mark-up to calculate what the closing inventory should have been, then compare to what is actually on hand.

Steps:

1. Use mark-up or margin to find cost of sales
2. Use trade payables account to find purchases
3. Calculate expected closing inventory: Opening inventory + Purchases − Cost of sales
4. Stolen inventory = Expected closing inventory − Actual closing inventory

Stolen inventory is shown as a deduction within cost of sales (or as a separate line) in the income statement — it reduces gross profit.

Worked example — Greg Indurain (year ended 31 December 2013):

Sales £240 000; mark-up 25%; opening inventory £17 995; actual closing inventory £12 500 Payments to trade payables £189 375; opening payables £16 380; closing payables £15 490

• W1 Cost of sales = 240 000 / 125 × 100 = 192 000
• W2 Gross profit = 240 000 / 125 × 25 = 48 000
• W3 Purchases = 189 375 + 15 490 − 16 380 = 188 485
• W4 Stolen inventory = 192 000 + 12 500 − 188 485 − 17 995 = (1 980)

Full Example Including Both Cash and Bank — Claudio Bugno

Where a business has separate cash and bank records:

• Reconstruct the cash account first (find stolen cash or total wages paid from cash)
• Reconstruct the bank account (find credit purchases, credit sales collected)
• Combine bank and cash figures for total revenue and total purchases

Key workings from Claudio Bugno (year ended 30 September 2014):

• W1 Revenue: Credit sales (bank receivables receipts) + cash takings minus stolen cash
• W2 Purchases: Credit purchases (bank payables payments formula) + cash purchases
• W3 Stolen cash: Using the cash account balancing figure, then deduct £3 000 insurance claim → net expense = £55
• Insurance claim not yet paid → shown as accrued income £3 000 in current assets on SoFP