JE-131 Dec 2026Adjustingposted
Write the stock down to net realizable value.
| Account | Dimensions | Debit | Credit |
|---|---|---|---|
| 5100 Inventory write-down | 6,500 US Dollar | ||
| 1200 Inventory | 6,500 US Dollar | ||
| Totals | 6,500 US Dollar | 6,500 US Dollar | |
Balanced.
Journal entry for an inventory write-down
When inventory's net realizable value falls below its cost, debit an inventory write-down expense (often within cost of goods sold) and credit Inventory for the difference.
- Cost
- $42,000
- Net realizable value
- $35,500
- Write-down
- $6,500
- Entity
- Illustrative company
- Basis
- Accrual
- Currency
- USD
- Period
- December 2026
The worked example
At year-end a batch of last season's stock that cost $42,000 is expected to sell for $35,500 after selling costs. The $6,500 shortfall is written down.
Adjusting entry · December 31, 2026
What the entries do to the accounts
Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.
| Account | Debit | Credit |
|---|---|---|
| 1200 Inventory | 6,500 US Dollar | |
| 5100 Inventory write-down | 6,500 US Dollar | |
| Totals | 6,500 US Dollar | 6,500 US Dollar |
Why it is booked this way
Inventory is an asset because it will be sold for at least what it cost. When that stops being true, the shortfall is a loss now, not when the goods finally sell.
The write-down sets a new cost for the goods. Under US GAAP that new cost is not written back up if the market recovers.
Common mistakes
- Waiting to sell obsolete stock at a loss instead of writing it down when the decline is known.
- Writing inventory up when prices recover, which US GAAP does not allow.
Questions
- What rule requires the write-down?
- Under US GAAP (ASC 330) inventory measured at FIFO or average cost is carried at the lower of cost and net realizable value — the expected selling price less costs to complete and sell.
- Can the write-down be reversed?
- No. Under US GAAP a write-down creates a new cost basis; it is not reversed if prices recover. IFRS allows a reversal; US GAAP does not.
Terms on this page
Work with this entry
The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.
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- AdjustingEntryFormTemplated by type. Auto-reverse defaults on for accruals.Component
An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information for US companies under US GAAP, not accounting or tax advice.