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Hello Tutor,for inventory written down,we know that if the inventory value is not significant, it should be written down and put into the COS
but how about the significant loss incurred?“However, if the loss is significant, you should create an expense account such as “loss on obsolete inventory” that you include on the income statement. Debit this expense account instead of COGS.”
is it mean we create the loss on obsolete inventory after the line of gross profit?Thank you.
Yes – after the line of gross profit. The reason is so that the gross profit gives a proper indication of how much profit is normally being made, and the loss that has been made is highlighted separately.
For example:
If the closing inventory value is $150,000 and the value written down to $100,000,the closing inventory at the statement of profit or loss(deducted from COGS) is stated at $150,000? and the loss on obsolete inventory is $50,000,is it right?Thank you.
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