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Inventory valuation
Accountancy
In certain questions it is given that certain sum(X) is written off of an poor selling item having cost Y during the end of previous year. Kindly explain what will be the journal entry for such write off. Thankyou.
Answers (9)
Thread Starter
Aswin Chandarwill be reduce purchases but debiting something like loss on inferior goods a/c?
correction: I meant reduce closing stock* not purchases.
Shankari C
You'll reverse the purchase account by crediting it with cost . In P&L, you'll show the written off value..so, credit purchase and P&L AC at the year end.
Yes thought so, thanks for the confirmation sister. Now my doubt is in Paper 1 {chapter-9, video-6} in our course, while preparing trading a/c for normal goods only, the entire original cost is reduced from purchases to arrive at purchases for normal goods even tough question mentions certain sum was written off already. So In this situation if we reduce the original cost from purchases wouldn't that reduction(written off value) be done twice. @Moderators please check the aforesaid video and clarify. Thanks.
CA Suraj Lakhotia Admin
As such no journal entry is passed. The closing stock is valued and directly incorporated in Trading account.
Sorry sir I couldn't get your explanation. It is given in question that "2,300 had been written off" that means purchases are already adjusted(reduced) right?
Thread Starter
Aswin ChandarSorry sir I couldn't get your explanation. It is given in question that "2,300 had been written off" that means purchases are already adjusted(reduced) right?
Inventory adjusted not purchases. Pls share exact question, I will be able to guide accordingly
CA Suraj Lakhotia Admin
Inventory adjusted not purchases. Pls share exact question, I will be able to guide accordingly
Question from Video 6 - Chapter 9 - Inter Paper 1. Thank you.
Thread Starter
Aswin ChandarQuestion from Video 6 - Chapter 9 - Inter Paper 1. Thank you.
Sorry for the confusion sir, I think I understood the concept kindly check if I am right. In Previous year no journal is passed to reduce purchases but only the closing stock was reduced to the extent of write-off value and as closing stock is not taken from any ledger there wouldn't a corresponding reduction in debit side. So the loss due to write-off will be considered in Gross profit while balancing. Thus while preparing Trading account to find maintainable GP for normal goods, original cost is reduced from purchases/opening stock and (original cost less write-off) is reduced from Closing stock.