Business Theft & Account Recording

[Terry D EA]

One of my clients (used car dealer) had a break in (robbery) where cash was stolen. The total amount stolen is recorded as 11,819.00. Their bookkeeper has recorded this as a bad debt expense which it clearly is not a bad debt. One item for 3000.00 was a check whether this was a check written to someone or written to the car dealer, I haven't determined that yet. They have created an undeposted cash clearing account (Asset Account) in QB. I do see the 8819.00 deposited to the undeposited cash clearing account and then reduced by debiting the bad debt account. I am confused as to why they did this and did not setup a theft expense account. Should I report the theft on form 4684 or just take the theft expense? I am willing to listen to anyone's opinion on what accounts should be used to reflect these transactions. Here is my take:

Credit Cash - 8819.00 Debit Owner's Equity 8819.00

Debit Theft Expenese 8819.00 Credit owner's Equity 8819.00

OR

Credit Cash 8819.00 Debit Theft Expense 8819.00

What to do with the "Undeposited Clearing Account"? It doesn't look like these funds ever made it to the cash account. Geez this is the worst time of year to deal with this.

[schirallicpa]

Just did a theft loss and worked thru the theory. I wanted to deduct from income (this was a schedule C) so he wouldn't be SE taxed on it. But - heres the thing. It is earnings. Whether it was banked, lost, stolen, whatever - it was earned and is SE taxable. The loss goes on 4684.

In my case we had a copy of the police report and used that figure. And he also received about 1/2 back from insurance, which offsets the loss on 4684.

And when you efile the 4684, for some reason it requires both pages of the form to be attached.

[jklcpa]

Yes, this would be reported on 4684.

At this point, before any of your adjustments it sounds like the Quickbooks "Undeposited cash account" is -0- and the loss of cash is in bad debts expense. I don't know why you would want to go through the equity accounts at all, or seem to want to reverse the entries made by the bookkeeper. Why not just credit B/D expense and debit the theft loss account. If you are trying to leave a trail, your journal entry description should suffice: "reclassify theft loss out of B/D expense".

[Terry D EA]

Judy your thoughts were my first initial approach. However, I got to reading some other methods of recording the loss which suggested using the OE account. Like, you. and other than creating a trail, I can't really see the need to do that route. Also, I will use the 4864 to report this. There is so much loss here that not deducting any of the loss wouldn't impact the SE tax.

[kcjenkins]

I would handle it just like Judy. Nothing in the Equity account, just get it out of BD Expense into Theft Loss.