Question

Merchandise inventory that cost €690,000 is reported on the balance sheet at €620,000, the expected selling price less estimated selling costs.

make a correct general journal, with an explanation

Answer 1

The journal entry will be:

Debit " Loss from decline in market value of inventory " 70,000

Credit " Merchandise inventory" 70,000

( To written down the inventory to market value. )

Explanation:

When inventory is written down to maket value, it is a loss. All losses to be debited in the journal entry. So Loss from decline in market value of inventory will be debited.

Since inventory value is reduced, Merchandise inventory will be credited. Since inventory has debit balance, to reduce it, inventory will be credited.

Alternatively, Instead of Loss from decline in market value of inventory, Cost of goods sold account may be taken.

If value of written down is very less, it is debited to cost of goods sold.

Since the value of written down is more, it is shown seperately in the income statement.