Inventory Valuation Reduction
A forced inventory reduction is formally removing inventory value. Typically this happens when inventory becomes obsolete, defective, stolen or lost. To remove inventory value, you credit the inventory account and debit the cost of goods sold account. If a company decides to remove $20,000 of an $80,000 inventory, first credit inventory $20,000 to reduce it to $60,000. Next, debit cost of goods sold $20,000 to record the lost inventory value. The balance sheet now reflects the reduced inventory asset, and the income statement shows this loss through increased cost of goods sold expense. Companies should carefully judge inventory reductions, as accounting rules require proper documentation like damaged goods reports. Consulting a qualified accountant can help assure correct financial reporting.
Closing Business Inventory Disposal
What to do with inventory after closing a business? Closing a business is complex, and handling inventory correctly is an important part of the process. If products with high demand just sit in a warehouse, consider selling them online or offering discounts to clear them faster. Unique or hard-to-find products can be sold to competitors. After officially closing, you can sell off inventory in going-out-of-business sales or at auction; a portion of the inventory can be sold at a public auction. If the company goes bankrupt, stop collection efforts, review documents, file proof of claim, and attend hearings.
When closing, asses the inventory and dispose of excess. Turn to liquidation companies, which can handle the entire process from valuing to finding buyers. Inventory includes products, tools, equipment, and supplies. Create a spreadsheet listing each asset with a photo, serial number, and description.
For a retail store, dispose of inventory by selling it, donating it to charity, or selling the store with the inventory. Selling is better financially than a charitable write-off, even if at a loss.
Liquidation Strategies When Closing a Business
How do you liquidate inventory when closing a business? First, value all items. Determine your goals: if willing to take a loss, more liquidation options are available than if needing to maximize value. Sell retail, wholesale, or donate for a tax write-off. Consider hosting a flash sale, using online auctions, or selling to a liquidator for immediate payment.
For retail stores, inventory can be sold or the entire store can be sold with the inventory. Selling at flea markets is also an option if successful.
If closing with no sales, enter $0 ending inventory and $2300 as cost of goods sold, resulting in a $2300 loss on the income statement. Look for robust inventory liquidation systems, as inventory is a significant asset that helps produce cash flow.
Liquidating assets, such as vehicles, real estate, inventory, and equipment, means selling anything of value to pay creditors when closing or restructuring. Make a list of these assets with photos, serial numbers, and descriptions, and find suitable buyers through auctions or direct deals. The distribution of the remaining balance depends on the business structure: sole proprietors, partners, or shareholders all have different entitlements.
Liquidate through your own distribution channels first, even if it may take longer. Liquidators offer a quicker, albeit financially less rewarding, alternative. Buyers often seek inventory liquidation sales for rock-bottom prices, while liquidators can be selective about the merchandise they purchase.