How to deal with inventory scrapping, and how to account for inventory scrapping

The disposal of the inventory is as follows:

Borrow: Administrative Expenses - Inventory Scrapping.

Credit: Raw materials or goods in stock.

Borrow: Administrative expenses.

Credit: Tax Payable - Input Tax Payable (Input Tax Transferred Out).

Different companies have always had different understandings of inventory management. In summary, there are three main types:

One is to hold inventory. In general, having a greater investment in inventory leads to a higher level of customer service. For a long time, inventory, as a material support service link for the production and sales of enterprises, occupies an important position in the operation of enterprises.

Enterprises hold a certain amount of inventory, which helps to ensure that production is normal, continuous and stable, and also helps to meet customer needs with quality and quantity. Maintain corporate reputation and consolidate market share.

The second is inventory control to maintain reasonable inventory. The purpose of inventory management is to maintain the right amount of inventory, which can neither be overstocked nor shortaged. What confuses business managers is:

What are the criteria for inventory control? What is the amount of inventory control to meet the requirements? How does it make sense to configure inventory?

These are all risk planning issues for inventory management.

The third is the so-called "zero inventory" view put forward by companies represented by Toyota of Japan. The main representative is the Just-in-Time Production (JIT) method. They believe that inventory is waste, and zero inventory is one of the improvement measures for efficient inventory management, and has been widely used by enterprises.

If you don't want to scrap it, it is recommended that you find customers to sell the product at a low discount, which can reduce the cumbersome procedures for declaration and approval, and do not need to adjust the input tax.

1.Go to the local competent tax authority for approval. 2.After approval Borrow: Non-operating expenses Credit: Inventory Credit: Tax Payable - VAT Payable - Input Transfer Out.

1. Accounting entries for inventory scrapping:

1. In the event of scrapping, the book value of the relevant inventory should be reduced, the reason should be ascertained, and the relevant departments should be reported for review and waiting for processing according to the management authority.

Debit: Excess of property to be disposed of (book value of obsolete inventory).

Credit: Relevant inventory accounts (raw materials, rotating materials, goods in stock, production costs, etc.) (cost of obsolete inventory).

Tax Payable – VAT payable (input tax transferred out).

If a provision for inventory decline is made, the accumulated provision for decline in value must also be transferred. The Provision for Decline in Value of Inventory account is debited).

2. Processed after approval.

Borrow: Raw materials (residual material storage).

Other receivables (compensation receivable from the insurance company or the responsible person).

Management expenses (net loss after deducting residual materials and compensation, which is the part of operating loss).

Non-operating expenses (net losses that are extraordinary losses, such as losses caused by natural disasters).

Credit: Pending property loss and overflow.

3. If the scrapped inventory residue is directly scrapped, the income is obtained.

1) Borrow: bank deposits, etc.

Credit: Other business income.

Tax Payable – VAT payable (output tax).

2) Borrow: other business costs.

Credit: Excess of property to be disposed of (value of scrapped inventory remnants).

2. Basis: Article 21 of Accounting Standards for Business Enterprises No. 1 - Inventory: If an enterprise loses inventory, the amount of disposal income after deducting the book value and relevant taxes and fees shall be included in the profit or loss for the current period. The carrying amount of inventory is the amount of the cost of inventory after deducting the accumulated allowance for depreciation.

Borrow: Profit or loss on property to be disposed of

Credit: Taxes payable on inventory goods - VAT payable (input transfer) is processed after approval, such as borrowing: non-operating expenses of slag - inventory scrapping loss.

Credit: Pending Property Gains and Losses.

Inventory is the goods that are actually stored in the warehouse. It can be divided into two categories:

1.It is the production inventory, that is, the inventory of grass-roots enterprises and institutions that directly consume materials, and it is stored in order to ensure that the materials consumed by enterprises and institutions can be stored uninterruptedly.

2.It is the circulating inventory, that is, the inventory of raw materials or finished products of the production enterprise, the inventory of the production department and the inventory of the material department at all levels.

Accounting entries for scrapping expired inventory commodities, 1. Confirm the expiration of inventory, borrow: loss and excess of property to be disposed of - loss and excess of current assets to be disposed of, <>

Credit: inventory goods, credit: tax payable - VAT payable - input tax transferred out, 2, when the report is approved for processing, 1) if it is scrapped due to normal reasons, borrow:

Administrative expenses, credit: loss and excess of property to be disposed of - loss and excess of current assets to be disposed of, 2) if caused by natural disasters, borrow: non-operating expenses - extraordinary loss, credit:

Property loss and overflow to be disposed of - loss and overflow of current assets to be disposed of, 3) If it is caused by man-made reasons such as blind age, or mismanagement, the responsible person shall be held accountable according to the regulations, borrow: other receivables, credit: loss and excess of property to be disposed of - loss and overflow of current assets to be disposed of.

1) Write off the original value and depreciation amount of scrapped fixed assets. According to the net value of fixed assets, the "Fixed Assets Disposal" account is debited; The "Accumulated Depreciation" account is debited according to the amount of depreciation that has been withdrawn; The Fixed Assets account is credited to the original value of the fixed asset. (2) Carry-over of residual material value and sale income.

According to the value of the recovered residual materials and the income from the sale of goods, the accounts of "bank deposits" and "raw materials" are debited, and the accounts of "disposal of fixed assets" are credited. (3) Pay for the clean-up. The "Fixed Assets Disposal" account is debited and the "Bank Deposit" account is credited according to the disposal costs incurred.

4) Net profit or loss after carry-forward liquidation.

For inventory item wear or obsolescence, the following accounting treatments are required:

1.Confirmation of loss: After inventory or other verification methods, it is confirmed that the quantity of the inventory goods does not match the book quantity, and the difference is the loss.

2.Record Loss: Charge the loss to the expense account. If it is a small loss, it can be directly credited to the expense account; In the case of a large loss, you need to open a voucher and record the "Loss of Goods in Inventory" account on the debit side and the "Goods in Inventory" account on the credit side.

3.Adjust Cost: Adjusts the amount lost to the cost of goods in stock. Specifically, when the cost is carried forward at the end of the accounting period, the amount of the loss is included in the cost as part of the cost of goods in inventory for the current period.

4.Scrap disposal: Scrap disposal is required for damaged or scrapped inventory items that cannot be sold.

The specific method is to issue a scrapping document, indicating the reason, quantity and value of scrapping, and then dispose of it in accordance with internal regulations, which can be retained for the enterprise's own use, or can be disposed of.

It is important to note that the loss or obsolescence of inventory is a common situation in business operations, but control and preventive measures should be taken as much as possible to avoid similar problems. At the same time, when dealing with the loss or scrapping of inventory goods, the provisions of the accounting law and the internal management system should be followed to ensure the accuracy, materiality and legality of the accounting treatment.