How to write off obsolete inventory in quickbooks

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Last Updated: March 28, References. This article was co-authored by Michael R. Michael R. Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas.

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An inventory write-off is an accounting term for the formal recognition of a portion of a company's inventory that no longer has value. An inventory write-off may be recorded in one of two ways. It may be expensed directly to the cost of goods sold COGS account, or it may offset the inventory asset account in a contra asset account, commonly referred to as the allowance for obsolete inventory or inventory reserve. Inventory refers to assets owned by a business to be sold for revenue or converted into goods to be sold for revenue. Generally accepted accounting principles GAAP require that any item that represents a future economic value to a company be defined as an asset. In some cases, inventory may become obsolete, spoil, become damaged, or be stolen or lost.

Inventory Carrying Costs: What It Is & How to Calculate It

To create this article, 12 people, some anonymous, worked to edit and improve it over time. The wikiHow Tech Team also followed the article's instructions and verified that they work. This article has been viewed , times. Learn more
If you sell merchandise or manufacture a product, your gross profit is your net sales -- sales minus returns -- minus the cost of goods sold, or COGS. You can calculate COGS by adding the cost of purchases to beginning inventory and then subtracting ending inventory. Damaged inventory raises COGS. Companies can use the perpetual inventory system to estimate COGS throughout the year.
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