The provision for inventory decline is mainly reflected in the "asset impairment loss" account of the balance sheet. This account records the impairment loss of all assets of the enterprise, including inventory, fixed assets, intangible assets, etc. When the carrying amount of inventory is lower than the net realizable value, the enterprise needs to make a provision for inventory decline and record it in this account.
Provision for decline in value of inventories refers to a provision for the difference between the actual cost of inventory at the end of the period and the estimated net realizable value. Its purpose is to truly reflect the asset status of the enterprise and ensure the accuracy of the financial statements. In the balance sheet, the "Provision for Impairment of Inventory" account is listed below the "Inventory" account and represents the provision for impairment of inventory.
Specifically, if the carrying amount of the inventory at the end of the period is higher than the net realizable value, the enterprise needs to make a provision for the decline in the value of the inventory according to the differenceIf the carrying amount of the ending inventory is less than the net realizable value, no provision for inventory decline is required. The provision for inventory decline that has been made is not allowed to be reversed, except in special circumstances, such as asset restructuring, debt restructuring, etc.
For the Asset Impairment Losses account on the balance sheet, it is a transition account that records impairment losses on all assets. At the end of the period, the enterprise needs to include the corresponding impairment loss in this account according to the actual situation of each asset. Doing so helps companies accurately reflect the status of their assets and avoid inflating assets and profits.
In summary, the provision for inventory decline is shown in the "Asset impairment loss" account of the balance sheet. For users of financial statements, understanding the provision for inventory decline and the resale can help to assess the asset quality and profitability of the enterprise.