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I wanted to be sure whether is this the correct entry for inventory write-down.
DR Cost of sale
CR InventoryBut why the retained earning was deducted? The write-down of inventory entry does not impact on retained earning but it was deducted but why?
There is a past question Sep/Dec 19 which states:
In Jan 20X8, it was decided to discount some slow-moving seasonal inventory which had a selling price of $1.5m. Under normal circumstances, these products have a gross profit margin of 20%. The inventory was sold in Feb 20X8 for 50% of what it had cost to produce.Hi,
An inventory write down will reduce the value of the closing inventory. We tend not to process a journal for it and instead just record a smaller closing inventory figure when we DR Inventory (SFP) CR Closing inventory (C’o’S – SPL).
As one side of the adjustment will impact profit or loss then it will automatically feed into retained earnings as the profit for the year is added to the retained earnings brought forward.
Thanks
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