What is Contra Inventory Account
Contra Inventory Account has a Credit balance which is unusual or negative balance as Inventory has normal debit balance. It is due to the obsolence or damaged of inventory or merchandise. The journal entry to record contra inventory account may be as shown below: Damaged / Obsolete Inventory a/c XXX Provision / Allowance For Damaged / Obsolete Inventory a/c XXX For Example, if the net realizable value of inventory is Rs. 10000 for the accounting period. During the period, the market value of inventory is reduced to Rs. 7000. now there is loss of Rs. 3000 to the company’s business. The Company would record the following entry as shown below: Obsolete Inventory a/c 3000 ...