Write off expired inventory journal entry
Introduction
In merchandising business, we may have some merchandising inventory that passes the expiration date and can no longer be sold out. In this case, we need to dispose of those expired inventory goods from our stock.
In accounting, this disposal means we need to make the journal entry to write off the expired inventory in order to remove them from the balance sheet as well as to record the loss to the expense account on the income statement as a result of the inventory expired.
Likewise, the journal entry to write off the expired inventory will decrease the total assets on the balance sheet as a result of getting rid of the expired inventory. And at the same time, it will also increase the total expenses on the income statement as a result of the loss that occurred.
Write off expired inventory journal entry
We can make the journal entry to write off the expired inventory by debiting the loss on inventory write-off account and crediting the merchandise inventory account.
Account | Debit | Credit |
---|---|---|
Loss on inventory write-off | xxxx | |
Merchandise inventory | xxxx |
This journal entry will remove the expired inventory goods from the balance sheet as well as record the loss to the income statement as an expense for the period.
This journal entry is necessary to avoid overstatement of total assets on the balance sheet as well as to prevent understatement of total expenses on the income statement. Likewise, if we do not make this journal entry to write off the expired inventory, the total assets on the balance sheet will not reflect their actual net realizable value.
Write off expired inventory example
For example, after performing the periodic inspection of our merchandise goods, we found that $5,000 worth of merchandise goods has passed the expiration date. Hence, we need to dispose of them and remove them from our records with the writing off of the merchandise inventory.
What is the journal entry to write off the $5,000 expired inventory above? How does it affect the balance sheet and income statement in our accounting records?
Solution
As the $5,000 merchandise inventory has expired, we can make the journal entry to write off the expired inventory by debiting the $5,000 amount to the loss on inventory write-off account and crediting the same amount to the merchandise inventory account.
Account | Debit | Credit |
---|---|---|
Loss on inventory write-off | 5,000 | |
Merchandise inventory | 5,000 |
This journal entry will remove the $5,000 expired inventory from the balance sheet as well as record the $5,000 loss on inventory write-off to the income statement as an expense for the period.
Likewise, this journal entry of writing off the $5,000 expired inventory will affect the balance sheet and income statement as below:
– the total assets on the balance sheet will decrease by $5,000 as a result of removing the expired inventory from the balance sheet.
– the total expenses on the income statement will increase by $5,000 as a result of the loss on inventory write-off.