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Fire loss of sold good by transporter.

Prashant Rawat (Accounts Trainee) (61 Points)

17 March 2021

I send good to clients by transporter. goods are destroyed in godown of transporter. loss amount is recoverable by transporter. so what will be entry of this.

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4 Replies

Spurto Consultancy Services (Consultant) (1891 Points)
Replied 17 March 2021

You have to treat it as separate supply for gst. However if you adjusting it with freight charges also.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 17 March 2021

Then risk and rewards is not passed, that means you are still the owner of goods

you have to use consignment accounting where sales cannot be recorded.

Record consignment loss initially

Finally, record insurance claim of recovered amount

but if you already made a sale on a Second thought, sry about that, record loss and record claim as credit.

Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294) (3303 Points)
Replied 17 March 2021

When goods are destroyed by transit, then the "Loss by transit A/c" is debited and "Purchases A/c" is credited. The goods destroyed by transit is considered to be loss for the business and is classified as a nominal account. Therefore, according to the rule of nominal account, all the expenses and losses are to be debited.

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 18 March 2021

I don't think purchases should be credited because the closing inventory itself is netted with purchases in COS. Here is a scenario 1 where the normal balance is 7300 when everything else is the same.

Sales	10000	PPE	4800
COS		inventory	700
purchases	2000	cash	800
closing inventory	700	bank	1000
loss on transit	0	assets	7300
gross profit	7300
claim	0	capital & liabilities	7300
profit	7300

After the loss: Scenario 2

Sales	10000	PPE	4800
COS		inventory	700
purchases	2000	cash	800
closing inventory	700	bank	1000
loss on transit	200	assets	7300
gross profit	7100
claim	0	capital & liabilities	7100
profit	7100

Finally after the claim: Scenario 3

Sales	10000	PPE	4800
COS		inventory	700
purchases	2000	cash	800
closing inventory	700	bank	1000
loss on transit	200	assets	7300
gross profit	7100
claim	200	capital & liabilities	7300
profit	7300

The above compensated the loss and brought the balance back to normal. When it comes to sales return, bank balance is reduced.

Sales	9800	PPE	4800
COS		inventory	700
purchases	2000	cash	800
closing inventory	700	bank	800
loss on transit	200	assets	7100
gross profit	6900
claim	200	capital & liabilities	7100
profit	7100