Provision for Stock Obsolescence Accounting Entry
Provision for stock obsolescence is an allowance set aside to account for inventory that may become obsolete, damaged, or unsellable. This provision helps reflect a more accurate value of inventory on the balance sheet.
Scenario:
A company estimates that ₹15,000 worth of its inventory might become obsolete.
1. Recording the Provision for Stock Obsolescence
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-06-30 | Stock Obsolescence Expense A/c | 15,000 | |
| To Provision for Stock Obsolescence A/c | 15,000 | ||
| (Being provision made for stock obsolescence) |
Explanation:
- Stock Obsolescence Expense A/c is debited to recognize the expense related to the estimated obsolete inventory.
- Provision for Stock Obsolescence A/c is credited to set up the allowance account that reduces the inventory value on the balance sheet.
Writing Off Obsolete Inventory
When specific inventory items are identified as obsolete, they are written off against the provision for stock obsolescence.
Scenario:
Inventory worth ₹5,000 is identified as obsolete and written off.
2. Writing Off Obsolete Inventory
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-07-15 | Provision for Stock Obsolescence A/c | 5,000 | |
| To Inventory A/c | 5,000 | ||
| (Being obsolete inventory written off) |
Explanation:
- Provision for Stock Obsolescence A/c is debited to decrease the provision account.
- Inventory A/c is credited to remove the obsolete inventory from the books.
