He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University. Email: admin@double-entry-bookkeeping.com. Instead, it may make sense to hold onto the inventory, in hopes that its value will increase over time. However, it believes there is a market for the roasters through a reseller in China, but only at a sale price of $20,000. Milagro Corporation has $100,000 of excess home coffee roasters it cannot sell. For example, subtract $3,000 from $5,000, which equals $2,000. This reduces your inventory account, which is a balance sheet account, and creates a loss, which you report on your income statement similar to an expense. It is not acceptable to write off inventory at a future date, once you become aware of such an item, nor can you spread the expense over several periods. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. The amount to be written down should be the difference between the book value (cost) of the inventory and the amount of cash that the business can obtain by disposing of the inventory in the most optimal manner. Accounting for Inventory How to Audit Inventory, Accounting BestsellersAccountants' GuidebookAccounting Controls Guidebook Accounting for Casinos & Gaming Accounting for InventoryAccounting for ManagersAccounting Information Systems Accounting Procedures Guidebook Agricultural Accounting Bookkeeping GuidebookBudgetingCFO GuidebookClosing the Books Construction AccountingCost Accounting FundamentalsCost Accounting TextbookCredit & Collection GuidebookFixed Asset AccountingFraud ExaminationGAAP GuidebookGovernmental Accounting Health Care Accounting Hospitality Accounting IFRS GuidebookLean Accounting Guidebook New Controller GuidebookNonprofit Accounting Oil & Gas Accounting Payables ManagementPayroll ManagementPublic Company Accounting Real Estate Accounting, Finance BestsellersBusiness Ratios GuidebookCorporate Cash ManagementCorporate FinanceCost ManagementEnterprise Risk ManagementFinancial AnalysisInterpretation of FinancialsInvestor Relations GuidebookMBA GuidebookMergers & AcquisitionsTreasurer's Guidebook, Operations BestsellersConstraint ManagementHuman Resources GuidebookInventory Management New Manager Guidebook Project ManagementPurchasing Guidebook. That concludes the journal entries for the basic transfer of inventory into the manufacturing process and out to the customer as a sale. For a fuller explanation of journal entries, view our examples section. Write “Loss on inventory write-down” in the accounts column on the first line of the journal entry and the amount of the write-down in the debit column on the same line. Home > Inventory > Write Down of Inventory Journal Entries. The write down of inventory journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting of inventory write downs. If management wants to separately track the amount of inventory write offs over time, it is also acceptable to charge the amount to a separate inventory write offs account, rather than the cost of goods sold. Principles of Accounting; Chapter Eight: Inventory; Larry Walther; 2010, CliffsNotes: The Valuation of Merchandise. As Journal Entry 7 shows, to record the obsolescence of a $100 inventory item, you first debit an expense account called something like “inventory obsolescence” for $100. (adsbygoogle = window.adsbygoogle || []).push({}); Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. Writing off inventory involves removing the cost of no-value inventory items from the accounting records. For example, if you are recording the journal entry on December 31, write “12-31” in the date column of your accounting journal. The inventory write off journal entry is as follows: The journal entry above shows the inventory write-off expense being debited to the Loss on inventory write off account. Inventory should be written off when it becomes obsolete or its market price has fallen to a level below the cost at which it is currently recorded in the accounting records. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. Determine the cost you incurred to initially acquire or manufacture your obsolete inventory and the lower current market replacement cost, which is the price for which you could acquire or manufacture the products today. Write “Inventory” with an indent in the accounts column on the second line of the entry and the amount of the write-down in the credit column on the same line. This reduces your inventory account, which is a balance sheet account, and creates a loss, which you report on your income statement similar to an expense.

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