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
|
