Here are Inventory revaluation journal entry. Inventory revaluation is the process of adjusting the book value of inventory to reflect its current market value. This is often done to comply with accounting standards or to reflect significant changes in market prices.
Example Scenario
Let’s assume a company has inventory recorded at ₹1,00,000, but the current market value of the inventory has decreased to ₹90,000 as of 30-09-2024. The company needs to revalue its inventory to reflect this decrease.
Journal Entry Format:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 30-09-2024 | Inventory Revaluation Loss | 10,000 | Write-down of inventory to market value | |
| 30-09-2024 | To Inventory | 10,000 | Adjustment to reflect market value |
Explanation:
- Inventory Revaluation Loss (Debit): This increases the expense account, reflecting the loss incurred due to the decrease in inventory value.
- To Inventory (Credit): This decreases the asset account, reflecting the reduction in the value of the inventory.
If the Market Value Increases:
If the market value of the inventory increases, say from ₹1,00,000 to ₹1,10,000, the company needs to revalue its inventory to reflect this increase.
Journal Entry Format:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 30-09-2024 | Inventory | 10,000 | Adjustment to reflect market value | |
| 30-09-2024 | To Inventory Revaluation Gain | 10,000 | Increase in inventory value |
Explanation:
- Inventory (Debit): This increases the asset account, reflecting the increase in the value of the inventory.
- To Inventory Revaluation Gain (Credit): This increases the income account, reflecting the gain incurred due to the increase in inventory value.
Conclusion
Accurately recording inventory revaluation is essential for reflecting the true financial position of a company. It ensures that the inventory is reported at its fair market value, providing more accurate financial statements.