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Write down of Inventory Value - Does this go to COGS?

Hi, I need an answer this morning. I was writing off inventory to COGS (part of book to physical adjustment), however, in my old intermediate accounting book it shows it going to a loss account? Is the loss in COGS? Wasn't clear. Thank you.

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

You have two choices, both find there way to COGS area.

1. Write directly to COGS.
2. Write to a new account and then use a "total" account to show COGS. This way you can see what was COGS and what was the Reserve number.

Topic Expert
Scott MacDonald
Title: President/Owner
Company: AlphaMac Resources, Inc.
(President/Owner, AlphaMac Resources, Inc.) |

This is known in the business as "Shrinkage". Don't know why you don't already have an account for this. It is considered a "loss" but is in the COGS area.
Shrinkage is a cost of doing business. You should be tracking this from year to year, store to store, etc to make sure your numbers are not increasing.

You also need to get a handle on what the "normal" shrinkage is for your industry. If it is higher than your peers, you need to check into it.

Yous should use any type of book to physical adjustment to re-evaluate your internal controls and see if there is an issue.

Anonymous
(Controller) |

Perhaps I should have mentioned we are an early stage company and only have 1 year of sales behind us. And yes, this was the month (month 1) that we had a chance to evaluate our process. Thank you for input. And, I've also confirmed with accounting firm, we can do separate account but would hit COGS (makes sense).

Topic Expert
Scott MacDonald
Title: President/Owner
Company: AlphaMac Resources, Inc.
(President/Owner, AlphaMac Resources, Inc.) |

This is known in the business as "Shrinkage". Don't know why you don't already have an account for this. It is considered a "loss" but is in the COGS area.

Shrinkage is a cost of doing business. You should be tracking this from year to year, store to store, etc to make sure your numbers are not increasing.

You also need to get a handle on what the "normal" shrinkage is for your industry. If it is higher than your peers, you need to check into it.

You should use any type of book to physical adjustment to re-evaluate your internal controls and see if there is an issue. If you have "lost" inventory, it is due to:

1. Poor recordkeeping and/or controls or systems
2. Theft/fraud etc
3, Obsolescence (which can be a problem with purchasing or sales forecasting).
4. Spoilage (a potential problem with purchasing or sales forecasting)

Good luck!

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