I am attempting to display on a financial statement (balance sheet, income statement, and retained earnings) the recording of an inventory loss, damaged goods, and theft. I am unsure how to depict this. Do I use a T-account for each? I am responsible for creating the sheets and then writing about how the accounts are affected. I just require assistance depicting how the accounts are affected. Thank you.
An inventory loss would be reported as an extraordinary loss on the financial statement. It would be reported on the income statement as an extraordinary loss under extraordinary items, which is reported on the bottom of the income statement. If you need to see where it's reported, go here and scroll down to income statement: http://www.principlesofaccounting.com/chapter15/chapter15.html
The journal entry (T-account) would be like this:
Extraordinary loss on inventory 10,000
We're reducing the balance in inventory by the amount of the extraordinary loss or inventory loss. The inventory on the balance sheet would then be reduced by that amount. In this case, you'll have a loss on the income ...
This solution explains how to record an inventory loss, damaged goods, and theft on a financial statement. A full explanation with examples is provided.