How do I deal with a stock write down?
From Catalyst
Summary
The following article explains how to deal with parts, accessory and clothing stock write downs.
More Information
It is good business practice to assess the stock value on your balance sheet regularly, and consider whether the value should be written down. This could be due to a number of reasons, e.g. obsolete stock, or items that have not sold for a period of time. Generally you or your accountant will have decided on a stock write down policy which you will find in your year end accounts for HMRC.
Setup
- Decide on the figure by which you wish to write down your stock. Ideally, you would run an Aged Stock Report to help you decide what this figure should be and which items it will affect based on your write down policy.
 | In a perfect world, you would go through the individual items that you want to write down, and adjust them out of stock at their existing value, and then adjust them back into stock at their new written down value. This will reduce your Stock Value and post the other side to the Stock Adjustments code on the profit and loss automatically, however this can be very time consuming if there are a lot of items. It will give you the correct profit margins. |
If adjusting every item is not practical, then the following method is a reasonable compromise.
- Create a new nominal code to sit alongside the one for Stock Value (typically 'Z922') and call it 'Stock Provision'. 'Z9221' would be suitable. The centre will be a Balance Sheet centre and should be flagged as a Current Asset.
- Reduce the new code, 'Z9221', by the figure decided above and journal the other side to 'Z923', Stock Adjustments.
Monthly Routine
- Run a stock profit report for the month and check if any of the items that you wanted to write down have been sold.
- Journal the cost of sale of these items as a positive figure to 'Z9221' Stock Provision with the other side to 'Z923' Stock Adjustments. This has the effect over time of reducing your stock provision if the items do actually sell.
See also
