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Since inventory loss by fire is a non-recurring loss it will not be included in budgeting. But at the time of reporting variance has to be highlighted as unusual loss ( due to abnormal loss)
In cash flows inventory loss by fire included in operating activity . It has to be added back to the net profit since it is a non cash expense.
Financial managers report inventory damage losses in operating cash flows, which is the other name for cash flows from operating activities. They add merchandise losses back to net income when calculating operating cash flows, because the business incurred the expense but didn't dole out cash for it in the first place. This accounting treatment -- that is, adding non-cash charges back to operating cash -- is important to guide corporate leadership in liquidity management. Other non-cash expenses include depletion, amortization and depreciation. Liquidity management consists of tools, strategies and approaches a business relies on to make money, keep it, invest it and run a solvent operation -- meaning, one that produces more assets than debts at the end of a given period.
To record inventory damage, a corporate bookkeeper debits the merchandise damage account -- part of the "unusual losses" master account -- and credits the inventory account. The bookkeeper, in effect, writes off the damaged inventory's worth, and this constitutes a loss for the company. Merchandise write-off reduces an organization's net income and goes into a statement of profit and loss, also referred to as an income statement.
I agree with Mr. Khaled answer
I agree with the answers suggested by Ms. Sreedevi sunilkumar and also Mr. Khalid Mohy
Inventory lost by fire and its was not insured, it is non recurring loss.
i agree with Ms. Sreedevi Sunil kumar's answer.
AGREE WITH Ms. Sreedevi sunilkumar and also Mr. Khalid Mohy
