Oh, that. Very droll.
Yeah, this is the correct way to see it.
- A prankster takes $100 out of a cashier’s till, and then puts it back in before anyone notices.
- Later that day, a thief takes $30 from the till and a $70 item from the shelf.
The store is out $100 total (unless you want to talk the wholesale cost of the $70, in which case we need more information to answer the puzzle).
It doesn’t matter if the prankster and the thief are the same person. It doesn’t matter how long it goes between the prankster taking the money and putting it back. It doesn’t matter whether the prankster puts it back herself or hands it to a store employee to put it back. It doesn’t matter whether the thief grabs the $30 himself or convinces a store employee to hand it to him.
Two things happen:
- $100 goes out of the till and then back in.
- $70 item and $30 cash go out.
Exactly. The store is left with exactly the same amount of money and stock in these two scenarios. The only difference is a sale transaction in the log.
Here’s another:
A store owner picked up a random, ugly rock in the street yesterday, and placed it on the counter with a $100 price tag as a joke. A thief comes into the store, holds up the cashier and steals $100. Then he buys the worthless rock from the counter with it. The owner likes his joke, so he ran out after the thief and picked up another rock to display with the $100 price tag. How much did the store lose?
From an accounting perspective, the store is losing (crediting) two assets: $30 in cash, and the inventory value of the item that was purchased. On it’s balance sheet, the store doesn’t account for the item based on its sales price, but based on how much the item cost the store.
From an accounting perspective the store didn’t lose the item at all. The register will be short $100 in cash. They wouldn’t even know the thief bought the item, and it doesn’t really matter.
It doesn’t matter that the thief bought the item. It matters that somebody bought the item. The fact that the item was bought means that it’s inventory value, presumably it’s cost, has to be taken off the balance sheet.
A more specific questions would be: What is the net balance sheet impact of the two transactions involving the thief; the theft of the $100 cash and the purchase of the $70 item? Suppose that the item had an inventory value of $60. Then the balance sheet impact is a loss of $90.
Why does the sale of the item have anything to do with the theft?
Agreed. Plus, possibly a deferred tax asset from writing off the shrinkage and theft.
Well, in both cases the question is did someone take off (the plane into the air, the thief with the money).
I enjoyed that perspective. My answer would be that, financially, the store lost nothing (except a small amount time), but that, legally, the thief should be charged with stealing $100 (and with armed robbery).
He stole a $100 rock — even though it cost the store nothing. The store’s mark-up percentage shouldn’t matter when sentencing the thief.
From the OP:
A thief steals a $100 bill from a cash register. He then uses the $100 bill to buy a $70 item, and leaves with the item and $30 in change. How much did the store lose?
The scenario has two transactions in it, a theft and a sale. So to answer the question, “How much did the store lose?”, you have to account for both transactions.
Okay.
- Theft: Store lost $100.
- Sale: Did the store lose anything through the sale? Arguably it gained something (the profit from the sale). Do we need to account for their profit in that transaction?
Absolutely you have to account for the profit. From the sale, the store will debit $70 cash and credit $70 revenue. Presuming the item sold has an inventory value, say $60, the store will credit inventory $60 and debit Cost of Goods Sold expense $60. That $10 difference between revenue and expense is the store’s gross profit on the sale.
A trickier question, also asked by tofor, is what if the item doesn’t have an inventory value? Suppose the item sold was a round of cocktails? Cocktails don’t have an inventory value. The store/bar no longer has the cocktail ingredients in inventory, but they probably won’t record them as an expense until they do a stock take. So from an accounting perspective, the store/bar has only lost $30. Hopefully, that doesn’t make RickJay want to barf.
That’s not “trickier”. It’s entirely irrelevant.
Items aren’t valueless merely because the cost of recording their depletion outweighs any possible benefit of keeping track.
Ledgers aren’t reality. They’re simply a decent attempt at tracking it.
Right. That’s why “$100 and any other answer is simply wrong” is wrong. On paper, sure, the loss was $100. But to the owner in my hypothetical, the loss is basically nothing.
It really is a matter of perspective. Legally? Sure, I think you can charge him with $100 theft. On paper, from an accounting sense? Sure, there will be a line for $100 loss from theft. But practically speaking the store isn’t out that much over the whole transaction.
Suppose the thief hadn’t purchased the cocktails. The store/bar would have lost $100 from the theft. They’d also still have the liquor, mixers and garnishes that would have been the ingredients for the cocktails. What value should the store/bar place on those ingredients? It’s not $70 because they’re intending to sell the cocktails for far more than the cost of the ingredients. They could probably work it out, but as you’ve stated “the cost of recording their depletion outweighs any possible benefit of keeping track.”
Now go back to the store/bar selling the cocktails to the thief. They gain $70 in cash and lose an unrecorded amount of value based on the cost of the ingredients that’s closer to zero than it is to $70. And because it’s unrecorded,
that’s the same as zero, even though those ingredients have some actual value.
I don’t think it’s “absolutely.” The question was what the store lost. It’s unclear if the profit from the sale needs to be applied.
I think there is a big difference between the puzzle in the OP, and the $100 rock
Any such puzzle requires making a number of assumptions. In the first puzzle, it is a reasonable, though unstated, assumption that the sold item would have sold anyway. If the thief hadn’t bought it, somebody else would have. Thus the sale didn’t increase the normal expected daily profit. Thus the sale doesn’t change the loss of $100.
In the $100 rock case, it is a reasonable, but unstated, assumption that the rock wouldn’t have sold otherwise. If the thief hadn’t bought the rock, nobody would have. Thus the sale did increase daily profit, matching the amount stolen.
In most of the stores I shop at, most of the things for sale are fungible. That is, they have 10 on the shelf, and will order more if they run out. A theft of one item is hardly going to prevent a sale of that item later. And most items don’t get bought most days. I would not assume in any way that the theft of the item in any way prevented a later sale.
I didn’t say anything about ‘preventing a later sale’ so why attack it?