Question

How do you report a write-down in inventory? provide an example!

Answer 1

Inventory write down means charging a certain amount of the inventory asset to the expense in the accounting period. An inventory charge to the income statement represents that the inventory is obsolete, unusable, damaged or their value is declined. Inventory write down is treated as an expenses and it impacts the net income for the year. If the write down is insignificant it will be charged against the expenses, if the write down is significant it is shown on the face of the income statement.

Inventory worth $10,000. At end of the year management estimates $2,000 worth inventory is no more in a saleable condition. Management at year end passes the following entry:

Debit Inventory write down (P&L). $2,000

Credit. Inventory (Assets) $2,000