![]() ![]() ![]() Every time you make an entry in the inventory write-off expense account, you reduce the amount of inventory carried on the books. Set up an inventory write-off expense account to record the value of the damaged inventory.This amount may be lower than the original purchase price. The damaged stock is valued at fair market value, which is the current purchase price for the same inventory items.Calculate the value of the damaged inventory at the end of the accounting cycle to write-off the loss.Prepare a damage report for each damaged inventory item. Examine the stock when it arrives to identify goods that might have been damaged and place it in a designated area.While most businesses do an inventory write-off at the end of each year, if you have a large inventory, you should account for significant changes once every month. Items such as technology products with high market value can become obsolete after a few months.Damage due to inadequate storage and handling.Inventory, such as fruits and flowers, maybe spoilt due to their short shelf life.Inventory is stolen by shippers, shoplifters or employees.This could happen due to the following reasons: This is why it’s important for businesses to account for inventory write-off when the value of inventory changes significantly. The accurate value of inventory is crucial in calculating gross profit or loss. The problem with this is that it distorts the gross margin of the business, as there is no matching revenue entered for the sale of the product. If the inventory write-off is inconsequential, the inventory write-off is charged to the cost of goods sold account. The reduction in retained earnings, in turn, decreases the shareholders’ equity in the balance sheet. ![]()
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