Profit and Loss calculation: Fake currency

Question

A store buys an item for $\$50$.

They price it then, at $\$80$ ($\$30$ profit margin).

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A customer buys the item from them with a fake $\$100$ note.

The store returns $\$20$ to the customer.

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My question is, how much loss did the store incur? Is it

(1) $\$50 + \$20 = \$70$; or

(2) $\$80 + \$20 = \$100$?

(2) seems to be correct. But what exactly is the definition of loss here? Should it be calculated on the store's selling or cost price?

Answer 1

Figured it out.

Loss = Cost Price - Selling Price

Prospective gains do not feature into loss computation

In this case,

Selling price = -$20 (which he returned)
    Cost Price = $50

Overall loss = $70

Answer 2

On the cost price. In fact you see that when he sells at \$80 he has a gain of \$30, since 80-50 = 30.