Thanks Michael and David for the helpful suggestions.
It looks like I was sort of on the right track. These write-offs will
be very irregular (have not needed to do any for the last 6 years) so I
think I'll go along the lines suggested by David. Just now need to get
my head around it.
Thanks again
Jeff.
On 26/6/23 06:15, David Cousens wrote:
Jeff,
The following treatments are generic from a basic accounting textbook and should
not be taken as accounting advice that is relevant to your specific
circumstances.
This is the direct write off method:
You write it off as an expense to the COGS account i.e credit the
Asset:Inventory account and debit the Expense:COGS account. This would usually
be used if the write off amounts are small and irregular. (Using this method can
distort the gross margin where writeoffs are significant and is not recommended
for significant writeoffs
You can also create an Expense:WriteOffs account rather than using COGS if the
amount of the write offs is significant and needs to appear as a line item in
your reports.
In the allowance method, rather than crediting the inventory account directly
you set up a contra sub account of the Asset :Inventory account usually named
something like Asset:Inventory:InventoryReserve and credit that and again debit
the expense account. This is the usual method where the inventory may have lost
value but isn't being disposed of immediately.
At actual disposal of the asset the Reserve account is debited and the Inventory
account is credited.
If the value of inventory falls below its cost, it is usually written down
rather than written off and a separate expense account Expense:Write Downs is
used instead of the Expense:Write Offs account.
David Cousens
On Sun, 2023-06-25 at 15:42 +1000, Jeff wrote:
Hi List,
This is more a general accounting question than specifically a GnuCash
one, but thought there might be better help on the list for it.
Background:
I use GnuCash for business use, and track the purchase of inventory.
This goes into an Inventory Account
When sold, the sale gets recorded against the Income Sales, and the cost
of the goods gets recorded in COG's.
Issue:
I have some stock that is either obsolete, or otherwise no longer fit
for sale. Just wondering what is the "correct" way to write this stock
off. (In case it matters, I am located in Australia).
My thoughts were:
- Have an Account called Write-offs to record the transfer of the dollar
amount from Inventory to Write-Offs.
- Also, record the cost of goods in the COG's account, just like it was
sold. This is the main bit I am unsure of.
Any other suggestions, or am I looking at this completely wrong?
Regards,
Jeff,
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