Inventory Writedown Allowance Method
When recording an inventory writedown, companies can credit the Inventory account directly or instead credit an allowance account. For example, if a company with $600 of inventory recorded a $175 writedown per the lower-of-cost-or-net-realizable-value rule, the company could debit Cost of Goods Sold (or Loss on Decline in Value of Inventory) and then credit Allowance to Reduce Inventory to Net Realizable Value for $175.
The Balance Sheet would then show:
Inventory, $600
Minus: Allowance to Reduce Inventory to Net Realizable Value, $175
Inventory, net $425
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