Q5Q - Intermediate Accounting (Kieso)

Question

Question: What method(s) might be used in the accounts to record a loss due to a price decline in the inventories? Discuss

Step-by-Step Solution

Answer

The two methods to record decline in the value of inventories are recording inventories loss is the cost of goods sold method and loss method.  

Step-by-step-solution Step1:

Under the cost of goods sold method, the loss related to the decline in the value of inventories are recorded in the cost of goods sold account. The decline is recorded by debiting the cost of goods sold account and crediting the inventory account. 

Step 2:

Under the loss method, the loss related to the decline in the value of inventories are recorded in the loss account. The decline is recorded by debiting the loss due to the decline of inventory to NRV and crediting the inventory account.