“Excess” Inventory, often known as “dead” Inventory, is Inventory that a company no longer believes it will be able to utilise or sell owing to a lack of demand. After a given period, Inventory often becomes outdated and enters the end of its life cycle.
What Causes Obsolete Inventory?
Business failure to comprehend the life cycles of the products they carry and, as a result, overlook warning indications of goods reaching their end are common causes of inventory obsolescence. They will often be left with outdated items if they don’t properly predict a drop in demand or efficiently alter their stock replenishment parameters.
How Do I Get Rid Of Inventory?
You can get rid of Inventory by the following.
- You can get a refund or a store credit if you return the item.
- Reduce Inventory and replace it with brand-new items.
- Partnering with companies in the industry.
- Customers are sold to.
- Offer your stuff for sale on consignment.
- Excess Inventory should be sold off.
- Do your own auction.
- Don’t bother with it.
How Do You Know If Inventory Is Obsolete Or Excess?
When product and buffer stock levels are higher than anticipated demand, obsolete Inventory is stuff that has been sitting in a warehouse for a long time without any demand for it (typically for at least 12 months).
Having too much or outmoded Inventory can be a huge headache for organisations, so taking proactive measures to keep it from building up may be beneficial. Cash flow improvement, increased working capital, improved inventory turnover ratio, and decreased storage expenses all contribute to a positive profit margin.
What Can You Do With Damaged Inventory?
Even if the quantity of obsolete and damaged Inventory is small, it can be written off as a cost of goods sold or as Loss expenses. The Inventory should be written down to zero if there is no salvage value by debiting the cost of sales and crediting the inventory account.
Obsolete inventory accounting journal entry example
For instance, a business discovers $8,000 worth of unused stock. , the company believes that it may still be sold for $1,500 on the open market. A $7,000 loss on inventories has resulted in an accounting loss of $4,500, which is recorded in the journal as a drop in inventory value of $7,000.