How to Account for Expired Inventory

by Kirk Thomason; Updated September 26, 2017

Expired inventory is often a problem for companies that deal in items that may spoil. Grocery stores and restaurants are among the businesses most affected by this problem. Unsold food items have a potential to spoil and become a cost on the company’s accounting books. Accountants often track inventory and account for all items, whether ready to sell or spoiled. Journal entries are necessary to update the general ledger for spoiled goods.

Step 1

Conduct a physical count and review of inventory. Look for all spoiled goods in the business. Write down the type and quantity of expired inventory items.

Step 2

Compare the expired inventory to the cost for each item. Multiply the quantity of expired goods by the individual cost.

Step 3

Prepare a journal entry to post the expired goods. Debit loss on spoiled inventory and credit inventory. This removes the spoiled goods from the active inventory account.

Tips

  • Expired or spoiled inventory adjustments are typically a monthly entry. Accountants will need to review inventory worksheets from the warehouse department and then make the adjustment prior to closing the accounting books.

References

  • "Fundamental Financial Accounting Concepts"; Thomas P. Edmonds, et al.; 2011

About the Author

Kirk Thomason began writing in 2011. In addition to years of corporate accounting experience, he teaches online accounting courses for two universities. Thomason holds a Bachelor and Master of Science in accounting.