Running a successful business is all about spending your cash wisely. Generally companies invest and block a large amount of their working capital in inventory that may comprise of either raw materials, Work-in-Progress (WIP) or finished goods. When there is a large quantity of finished goods left in the warehouse for a long period which cannot be sold, that must be written off as an expense in the books as obsolete inventory. Inventory Management Accounting is an internal business process that serves the purpose and facilitates better control on inventory by the companies. Reconciliation of inventory accounts entails an important part of the accountant’s work under which they have to review the stored information with the actual inventory status in the warehouse. Once such dead stock is identified, it has to be disposed of at the earliest. The current paper discusses the reasons for inventory obsolescence and also the accounting approach for its write-off in the books.

Inventory Management Accounting: It is an internal business process to have better control on inventory by the companies. Reconciliation of inventory accounts entails an important part of the accountant’s work, in which they have to review the stored information with the actual inventory status in the warehouse.

For the purpose of inventory management, normally companies may adopt to account for and operate inventories either on the basis of a perpetual or periodic inventory system. In perpetual system of inventory, it is required to update the status of inventory accounts every time the company makes a buy/issued to production/sell/any adjustment in the value.

Compared to perpetual system, the periodic inventory system is less intense, less accurate and does require the entire inventory status after a few weeks or months. Accountants have to create a separate record of inventory from the available records and compare it with the physical/actual inventory balance. This may require some major adjustments to correct the differences between the two balances. The difference in these two methods is that through periodic system inventory balance, it is disclosed as ‘what is in hand’, while through perpetual system, the same is disclosed as ‘what should be on hand’.

Accounting Research and Audit Practices, Work-in-Progress (WIP), Inventory Management Accounting, First Out (LIFO), First In, First Out (FIFO), Cost of Goods Sold (COGS), Inventory Management, Accounting, Obsolete Inventory