Inventory adjustmenr vs cogs account3/8/2024 When an inventory reserve is created, charge an expense to the cost of goods sold for the incremental amount by which you want to increase any existing inventory reserve (or use a separate account within the cost of goods sold classification), and credit the inventory reserve account. How to Audit Inventory Accounting for an Inventory Reserve This unexpected one-time charge could have been avoided with an ongoing series of smaller charges to build an inventory reserve over the course of the year. If you were to not use a reserve and also did not make use of cycle counting to provide evidence of inventory counts, then you might be adversely surprised by a lower-than-expected inventory valuation at the end of the year, for which you would have to record a large year-end charge. The use of an inventory reserve is considered conservative accounting, since a business is taking the initiative in estimating inventory losses even before it has certain knowledge that they have occurred. ![]() There may be a variety of causes for such a write down, such as the obsolescence, spoilage, or theft of inventory. ![]() The account contains an estimated charge for inventory that has not been specifically identified, but which the accountant expects to write down the value at which it is currently recorded. An inventory reserve is an asset contra account that is used to write down the value of inventory.
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