If a store buys something for $1 and sells it for $10 and it gets stolen, do they say they lost $1 or $10?

They would say the item is worth 10$, but for accounting purposes they would record a loss of 1$, because that's what they paid for it.

On every shrink report I've ever seen both cost and retail value are shown. Really it's the cost that would matter though, not the retail price.

When I submitted loss reports to insurance, it was done with the original invoices. So in this case, the insurance company would reimburse $1.

Normally at the lower of cost or net realisable value.

I work in retail in a rather troubling town. There's an idea called outselling the shrink.

If I get a case of product that has 10 in it, it costs 10 dollars. We sell each item for 5. Of the 10, one is damaged in shipment, and 6 more are stolen. I make 15 dollars off these items. I only paid 10 for them though. So I've actually made 5 dollars despite losing nearly an entire case of said merchandise. The place I work at averages making nearly 10 grand in profit per month (after every single expense) and they lost 100K at inventory(already accounted for when we initially purchased the items). It's how places like Walmart can talk about losing millions in shrink but turning in even higher profit margins.

If you bought a winning lotto ticket for $1 and it gets stolen, did you lose $1 or $10 million?

As a past pot dealer, this is a question I never answered. If I buy a gram for $10, but sell it for $20, which am I losing if I smoke it instead?

For insurance purposes, it's FMV: Fair Market Value.

Lower of market or cost, as per GAAP regulations

It depends on who's asking.

If the news media showed up after the theft, then the company would say that $10 worth of merchandise was stolen.

But the insurance company would only reimburse for the replacement value of the goods. The company would need to open their books and show that they ordered the merchandise for $1, and that's how much the insurance would cover. If the company tried to claim that they had lost $10, then it would be committing insurance fraud.

They lost $1 which is what they would say they lost, however when it comes to insurance there are 2 separate factors here.

For the lost stock, they would claim $1 only.

But if they had an amount of this item stolen that lost them sales, they would also be able to claim $9 (the profit amount) per unit that they weren't able to sell due to the theft.

Example:

Store sells 5 of this $10 item per day and they have 43 of them in stock. It takes them 5 days to re-stock this item.

Someone breaks in and steals all 43 units of this product.

They can claim $43 for the stock, and $45 (5 days * $9 profit) = $88 total on insurance for lost stock + lost sales, assuming they have insurance for all of this.

I just learned this in a class recently! Typically, they'd lose $1. However, if they had sold the product but still had it in store, awaiting pickup, then they may be entitled to $10, provided they could prove it was sold.

Good question. Short answer is that the company reports the loss based on the expense to them, or in other words, the cost of the product, not the sale price.

However, from an accounting stand point, you need a little more information to really know how it affects the business. Here are some interesting (at least to me as an accountant) things to note.

In accounting you have three ways you can account for the value of inventory. They are called LIFO, FIFO, and Average. to help explain them lets imagine you have in your inventory 500 dildos. You purchased 200 of them for $3 and 300 of them for $5 at a later date.

Average: Using this method you average the cost of your inventory to determine the value. That is what you would report as the loss. If you are using average you would report that one stolen dildo was a loss of $4.20, the average cost of a single dildo.

LIFO: this stands for Last In First Out. This means that the most recent inventory you purchased you show as being the first sold. This idea also applies to the spoilage (or theft in this case) of the inventory. With this method you report a loss of $5.

FIFO: First In First Out is the opposite of LIFO, in that the first inventory purchased is the first sold. In this case you would report a loss of $3.

Long story short, I have accounting on the mind and should probably go to sleep.

be gentle with the downvotes.

Years ago I heard a story about a guy who stole some goods from a store. Depending on the value of the goods it was either grand larceny or petit larceny. The lawyer tried to talk the storekeeper into putting down the lower value of the goods. The storekeeper replied "considering how he came by them goods, I'm damned if I am giving them to him wholesale".

$10. A store would value the item at retail, not at wholesale/direct

A store audit would show how much the item was bought for not how much it costs

When inventory crews count items at big box stores (such as Walmart), they record items' sale prices for any items which do not properly scan.

In other words, that item is worth the sale price to the store, not the cost itself.

It depends on how you value your inventory. The company I work for inventories at retail price. Therefore, regardless of how much we paid for the item, we count the shrink at retail price. If you inventory at cost, then the shrink would be the cost of the merchandise.

ITT: both answers multiple times.

Depends on the policy.

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This is the same concept as copyright infringement. If I would never buy a movie on blu ray, but instead I download it, watch it once, and delete it, the studio can claim a sale loss not a rental loss.

The actual loss is $1, the notional loss is $10.

As explained to me by a business owner, it depends on what their policy is with their insurance company whether it's at wholesale or at retail. When getting an insurance policy let's say a company is offering you $10,000 you'd need them to specify whether that's a wholesale price or a retail price.

I've thought of this so much at work! Depends if there's a limited supply or not. Eg., if it gets stolen, then they run out but would otherwise sell more, I'd say they've lost $10, but if the stolen one doesn't affect the amount of sales they've only lost a dollar

What 'they would say' depends on 'who they say it to' as well. Internally, middle management might say 'we lost $1' while between layers, like management to floor worker, they might say 'we lost $9 profit there' while talking to the public and other people outside the company, they say 'they stole $10 from us!'

For insurance/warehousing it counts as $1. For sales/floor expenses it probably counts as $10 against that floor manager's shift report.

Maybe they lost $9

It would actually depend on what they pay insurance for, you can insure the product cost only, or you can insure for the product and projected profit. For a store selling $10 dollar items it wouldn't make business sense to pay the increased premiums to insure the profit, but if you built and sold houses it might be worth it to insure cost plus profit, especially if you only sell a couple a year to make a living on.

I'd just say they lost $11.

In many cases, the store doesn't own that item in the first place. They will make deals with vendors so that the vendor supplies merchandise "on memo". The vendor retains ownership of the merch and the store provides the spaces and takes a cut of the sales. So when an item like this is lost, the vendor is one who takes the loss. There is no insurance involved unless it's a huge robbery of some sort. The stores and vendors account for minor losses as part of their overall planning. They call it "shrinkage".

Both. I worked lower management for a few years in a Sears store in the midwest. We'd do inventory and report to the employees what the worth of goods lost/stolen was by price point, but in managerial meetings it was shown as value by cost. The whole point is to shock the employees with huge $$$$$$ and keep them motivated to be more vigilant at basic loss prevention. Can't say I blame them.

Really though, they lost 10 dollars. One that they paid for it, 9 that they could have sold it for, and also whatever they had to pay people to deal with it being stolen.

$1... I do not know why people are arguing of this topic. When a company purchases something it goes in their inventory at the cost they paid as an asset. Whether they sell it or it is stolen it's now recorded as an expense of $1. End of story...

The "retail" value is meaningless as it is subjective and could be anything.

It's a ten dollar loss, and accounting will report it as a $10 loss as well. If you make an insurance claim as a retailer, you also claim the retail value. If UPS destroys a package, you get the retail value, not what it cost you. You have to assume you still have overhead and an investment of time.

Something something opportunity cost something. They've robbed the store of the opportunity to get $10.

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Just think of anything that appreciates in value that you may own, perhaps an old watch or a piece of art. If your house were to burn down or the item were to be stolen, you would claim its appreciated value, not what you paid for it 40 years ago.

Such a good question!!!! I have been wondering this for so long.

Such a long thread and I haven't seen anyone mention opportunity cost... The store would lose $1 on the books, but would lose the chance to make $10. It ends up being a $1 loss and a loss of a chance to get $10.

In the books it will show that $10 of floor inventory is missing. But when it comes to the expenses, it will be a loss of $1 under initial inventory.

I believe most stores have a certain protocol when it come to adjusting the books based off of stolen items. So different stores may have different methods of keeping the record

At least in all the documentation provided to employees mentioning shrink, it's listed at retail price. Realistically, including overhead used to run the store to sell the product and the shipping for it, labor to stock it on the shelf the ACTUAL loss to the company is between the two.

However for tax purposes they will report the full $10.

Technically they lost a total of $11 if you count the $10 as a loss

The markup on items is usually not that high. It's usually a $1 item sell for $2, and they make 3.5% to 8% profit on that because of overhead costs.

So, TL;DR, they mark it down as a $1 loss.

If they sell it then its not stolen

If they paid $1 for said item, then SOLD it for $10.00 after which it was stolen. The store could not claim any loss but would have made a $9.00 profit. The item was purchased already, and was someone else's at the time of the theft.