Depreciation of inventories in accounting

At the end of an accounting period, a company must carry out an inventory, then value it and finally register it. For best accountancy training Best school of accountancy In Lahore. Accounting for inventories is very important for the preparation of annual accounts, and accounting for inventory depreciation accounts for only a part of this accounting. Here's how.

After completing the stock inventory, it can be determined whether the initial value of the inventory has lost value. This means that it has become lower than the NAV, ie the Net Asset Value. It should be noted that at the end of the accounting year of a company, it is necessary to revalue the stock which can no longer be sold as expensive at the beginning. There are a number of reasons for inventory depreciation, such as deterioration, technological change, or changing fashion. Also, if the remaining stock is depreciated, it is imperative to carry out a specific accounting of the latter by following the following rules.

How to account for inventory depreciation?

To account for inventory depreciation and thus comply with the current law, debit account 68173 Depreciation of Inventories and Work in Progress, and credit account 39 Provisions for Depreciation of Inventories and Work in Progress. However, when the provision for inventory depreciation is to be reduced, account 78173 Reversal of Provisions for Inventory and Work-in-Provisions Depreciation must be credited to Account 39 Provisions for Inventory and Work in Progress. To comply with these accounting guidelines before the annual closing of a company's accounts, it is preferable to do so with a accountant.

Inventory depreciation is an important and compulsory accounting practice for all companies that have inventories and can no longer sell them at their original price.