Inventory Write-off

Posted in Finance, Accounting and Economics Terms, Total Reads: 264
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Definition: Inventory Write-off

Inventory write-off is an accounting term, where due to lack of demand or other reasons, the stored inventory loses its value completely then it is written off from the company’s accounting records. Inventory is the excess amount of goods manufactured according to the future expectations of demand for that particular product.

There are two ways in which it can be enclosed into the company’s accounting records,

• First one is, the amount of inventory which has lost its value can be charged on the cost of goods sold.

• The second one is to counterbalancing it with the obsolete inventory allowance.

The inventory written off journal entry would be as follows,

Account

Debit

Credit

Loss on Inventory Write off

10,000

 

Inventory

 

10,000

Total

10,000

10,000

 

This obsolete inventory can be written off from the separate inventory account if a company wants to track the amount of inventory being written off or it can also be deducted from the cost of goods sold account.

These inventory written offs can be small or large varying from company to company however a few reasons which can be common for losing the value of inventories are mentioned below,

• Deterioration of the product in the warehouse due to less overall demand.

• Loss from theft of goods.

• Damage during the transportation of goods.

• Misplacement of the products.

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