What is the journal entry to record damaged inventory? - Universal CPA Review (2024)

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What is the journal entry to record damaged inventory? - Universal CPA Review? ›

When inventory is damaged, the company must recognize the cost of that inventory in cost of goods sold (assuming that some level of damage is normal). The journal entry would be to debit cost of good sold (a specific damage account) and the credit would be to inventory (reduce the inventory).

Set up an inventory write-off expense account to record the value of the damaged inventory. Every time you make an entry in the inventory write-off expense account, you reduce the amount of inventory carried on the books. Debit the cost of goods sold (COGS) account and credit the inventory write-off expense account.

The first adjusting entry clears the inventory account's beginning balance by debiting income summary and crediting inventory for an amount equal to the beginning inventory balance. The second adjusting entry debits inventory and credits income summary for the value of inventory at the end of the accounting period.

Final answer: To account for any damaged items in your inventory, you would create an Inventory valuation adjustment. First, determine the value of the damaged items and record a journal entry to decrease their value. This adjustment will be reflected on the balance sheet.

When inventory is damaged, the company must recognize the cost of that inventory in cost of goods sold (assuming that some level of damage is normal). The journal entry would be to debit cost of good sold (a specific damage account) and the credit would be to inventory (reduce the inventory).

Companies report inventory obsolescence by debiting an expense account and crediting a contra asset account. When an expense account is debited, this identifies that the money spent on the inventory, now obsolete, is an expense.

There are many ways products can become unsaleable: Water damage, expiration, theft, and obsoletion to name but a few. And every time this happens, an inventory write-off must follow.

A write-down reduces the value of an asset for tax and accounting purposes, but the asset still retains some value. A write-off reduces the value of an asset to zero and negates any future value.

An inventory write down is an accounting process that records the reduction of an inventory's value. This is required when the inventory's market value drops below its book value on the balance sheet. The write down will reduce the balance sheet value of inventory and create an expense on the income statement.

How do you add an inventory journal entry? ›

Inventory purchase journal entry

Say you purchase $1,000 worth of inventory on credit. Debit your Inventory account $1,000 to increase it. Then, credit your Accounts Payable account to show that you owe $1,000. Because your Cash account is also an asset, the credit decreases the account.

Examples of ending inventory journal entries

At the end of each day, your point-of-sale (POS) system tells you how many products were sold and how much stock remains. You would then calculate your ending inventory by subtracting the cost of goods sold from beginning inventory plus purchases made during that period.

Under the perpetual inventory method, we compare the physical inventory count value to the unadjusted trial balance amount for inventory. If there is a difference (there almost always is for a variety of reasons including theft, damage, waste, or error), an adjusting entry must be made.

Answer and Explanation: Costs included in the merchandise inventory account can include all of the following except d) damaged inventory that cannot be sold.

Income Statement (P&L) → The loss attributable to the inventory write-down is recognized as either cost of goods sold (COGS) or separately in the non-operating items section. The write-down is a non-recurring item not part of the core operations of the business, however, and reduces pre-tax income (EBT).

Inventory is an asset and its ending balance is reported in the current asset section of a company's balance sheet. Inventory is not an income statement account. However, the change in inventory is a component in the calculation of the Cost of Goods Sold, which is often presented on a company's income statement.

If the amount of the Loss on Write-Down of Inventory is relatively small, it can be reported on the income statement as part of the cost of goods sold. If the amount of the Loss on Write-Down of Inventory is significant, it should be reported as a separate line on the income statement.