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allowance to reduce inventory to net realizable value

(Dictionary)

Author:
Harold Averkamp, CPA, MBA

Definition

This account is associated/connected with a company’s Inventory account. If the Inventory account’s balance is greater than the net realizable value of the inventory, the difference is reported as a credit balance in this Allowance account. If the net realizable value of the inventory is greater than the balance in the Inventory account, this Allowance account will report a zero balance. When the Allowance account balance is credited, the income statement account Loss from Reducing Inventory to Net Realizable Value is debited.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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