Journal Entry for Stock Written Down

Journal Entry for Stock Written Down

In this article we would explain the journal entry for stock written down to net realizable value. It means that inventory value is lower than cost. For example stock of $8000 had come down to $ 2000. This decrease is not immediately charged to stock; rather a contra asset is created (NRV allowance) and reduction is credited to this contra account.

Date	Particular	Ledger Folio	Dr.	Cr.
	Cost of Sales		6,000
	NRV Allowance			6,000

The above transaction is reflected as under.

Stock	8,000
NRV Allowance	(6,000)
Stock	2,000

 

Journal Entry for Sale of Written Down Stock on Profit

The stock of value 2,000 was sold for 3,000/-. Thus there is a profit of 1,000; this profit is credit to cost of sales. The following journal is recorded. Cash is debited 3,000/- being increase in asset, the allowance is removed on sale of stock by debiting 6,000/-, stock is eliminated on sale by crediting 8,000/- and cost of sales is credited as balancing figure (gain).

Date	Particular	Ledger Folio	Dr.	Cr.
	Cash		3,000
	Allowance NRV		6,000
	Stock			8,000
	Cost of Sale			1,000

 

Journal Entry for Sale of Written Down Stock on Loss

Stock valuing 2,000 was sold for 1000/-, then there is a loss of 1000 and this loss is also charged to cost of sales by debiting the cost of sales. Cash received is debited 1,000 allowance removed by debiting 6,000/- , stock is removed by crediting 8,000/-. The balancing figure is debited to cost of sales as expense.

Date	Particular	Ledger Folio	Dr.	Cr.
	Cash		1,000
	Allowance NRV		6,000
	Cost of Sales		1,000
	Stock			8,000