Loss of goods in transit.

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

29 May 2015 Let's assume that I (Bhakti Enterprise) have sold goods to Chandan Enterprise of 10000(Quantity).
at the time of delivering the goods, 2600 Quantity lost in Transitby whatever causes(by theft, damaged), due to this m/s chandan enterprise repudiate/ canceled his order. in the above case, what should be the accounting treatment in the books of account's of Bhakti Enterprise. is it possible sale entry need to reverse in the above case or loss may be disclose seperatelty in the books of accounts.

If possible then give your opinion by passing journal entry in the books of accounts of m/s bhagti enterprise.

Querist : Anonymous

Querist : Anonymous (Querist)

30 May 2015 Please give your opinion as soon as possible.
I am waiting for your response on the above mentioned matters.

kindly brings yours answer as soon as possible.

Thanks and regards

Krishna Joshi

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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03 August 2024 When goods are lost in transit and the buyer repudiates the order or cancels it, the accounting treatment needs to reflect both the loss and the impact on the sales transaction. Here’s a step-by-step guide to handling such a situation in the books of Bhakti Enterprise:

### **1. Reversal of Sale Entry:**

Since the buyer (Chandan Enterprise) has canceled the order due to the loss of goods, the original sale entry should be reversed.

**Journal Entry for Reversing the Sale:**
```plaintext
Dr. Sales Account 10,000
Cr. Accounts Receivable (Chandan Enterprise) 10,000
```

This entry reverses the original sale amount and removes the receivable from the books.

### **2. Recording the Loss:**

The loss of goods in transit needs to be recorded separately to reflect the financial impact of the loss. You should consider whether this loss is covered by insurance or if it will be absorbed by the company.

**Journal Entry for Recording the Loss:**
```plaintext
Dr. Loss on Goods in Transit 2,600 (Cost of lost goods)
Cr. Inventory 2,600
```

This entry records the cost of the lost goods as a separate loss account. If the loss is due to damage or theft and is not covered by insurance, it will be treated as an expense.

### **3. Insurance Claim (if applicable):**

If the loss is covered by insurance, you should also record the expected insurance claim.

**Journal Entry for Insurance Claim (if applicable):**
```plaintext
Dr. Insurance Receivable X (Insurance claim amount)
Cr. Loss on Goods in Transit X
```

This entry records the amount expected from the insurance company as a receivable and offsets it against the loss recorded.

### **4. Final Journal Entries:**

Summarizing the journal entries:
1. **Reversing the Sale:**
```plaintext
Dr. Sales Account 10,000
Cr. Accounts Receivable (Chandan Enterprise) 10,000
```

2. **Recording the Loss:**
```plaintext
Dr. Loss on Goods in Transit 2,600
Cr. Inventory 2,600
```

3. **Insurance Claim (if applicable):**
```plaintext
Dr. Insurance Receivable X
Cr. Loss on Goods in Transit X
```

### **Disclosure in Financial Statements:**

In the financial statements, you should disclose:
- **The Loss on Goods in Transit:** Clearly state the loss in the notes to the accounts, explaining the reason for the loss and any insurance claims if applicable.
- **Reversal of Sales:** Ensure that the sales figures reflect the reversal due to the order cancellation.

By following these steps, Bhakti Enterprise can accurately reflect the financial impact of the lost goods and ensure proper accounting treatment.

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