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-   -   Salvage value on damaged inventory (https://www.askmehelpdesk.com/showthread.php?t=108440)

  • Jul 10, 2007, 12:16 AM
    imann
    Salvage value on damaged inventory
    I have a situation where inventory purchased on account was returned damaged. The original value of sale was $60. I am told the salvage value of the inventory is $20 and to record the inventory at its salvage value.

    1st possible way to journalize?:
    Sales Returns & Allowance debit $60
    AR - Customer acct credit $60
    Inventory debit $20
    COGS credit $20

    But I am wondering if:
    Sales Ret & Allow should be debit $20 (salvage amount)
    AR stays the same at $60
    Inventory stays the same at $20
    COGS should be credit $60

    Any help on this would be appreciated. I kind of think the 1st journal entries are correct but I started thinking about the value of the COGS & whether it should be salvaged like Inventory or the original $60
  • Jul 10, 2007, 01:24 AM
    tacramer
    1st two are right.. but that's all you got..

    When you sold it there were 2 transaction types asset and income..
    Sales +60c, AR +60d AND (assuming that you sell stuff at a profit? )
    Inventory asset +40c, and COGS +40d This generated a net profit of 20.

    Now lets reverse this...
    Sals +60d, AR 60c AND now
    Salvage asset +20d and shrinkage/breakage exp +20d and COGS 40c
    Journal the return lowering sales income and reversing the AR.

    BUT - Do Not put it back in inventory at a lower price... it isn't - it is now salvaged..

    Journal when you sold it you lowered your inventory by cost

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