ACCTG 101 Lecture Notes - Lecture 18: Income Statement, Commodity Broker, Profit Margin
Document Summary
In periodic, the decline to nrv is accounted for when calculating. In perpetual, the decline to nrv is accounted for right away by. Debiting cogs and crediting inventory: the indirect, or allowance, method does not change the inventory account and instead keeps the inventory account at cost and established a contra-asset account to inventory on the statement of financial position. Allowance to reduce inventory to nrv is the contra-asset account. A loss account is recognized in the income statement to record the write-off (this is loss under cogs, so it increases cogs) Loss on inventory due to decline in nrv. In periodic, the allowance to reduce inventory to nrv is credited at the end and loss on inventory due to decline in nrv is debited. In perpetual, the same thing is done but when it happens and not at the end. The decline in nrv is charged to cost of goods sold, increasing the cogs on an income statement.