USA AJE for writing off merchandise inventory

[MadonnaLynne]

Hello,

When writing down merchandise inventory to market value using the lower of cost or market rule, you debit COGS and credit merchandise inventory. I understand why you credit the inventory, since it is being written down. But why do you debit cost of goods sold? Nothing is being sold in this transaction.

Sorry if it's kind of a dumb question, but my brain is just not clicking on this one!

Thanks.

 

[Triest123]

Hello,

When writing down merchandise inventory to market value using the lower of cost or market rule, you debit COGS and credit merchandise inventory. I understand why you credit the inventory, since it is being written down. But why do you debit cost of goods sold? Nothing is being sold in this transaction.

Sorry if it's kind of a dumb question, but my brain is just not clicking on this one!

Thanks.

=> It is subject to prudent concept (i.e. the impairment of stock to be expense off)