Recently I purchased a large quantity of fruit from one of my suppliers. However, I was ordering through an agent who mixed up the money or goods somewhere. All inventory units but 1 arrived. I know that that 1 is not going to come, as the supplier claims they have completely filled the order. I now need to write off that undelivered stock as a loss, what is the best way of going about that? I’m pretty sure inventory write-offs won’t work, as I have to have received the goods to write them off…
since the supplier has issued their invoice for the full inventory quantity, you will have to record the purchase invoice for the same and then you write-off the inventory.
Per the terms of the order, the supplier will definitely claim payment for the delivery of Inventory wether you have them or not.
This means you have to recognise the inventory in your accounting system and write it off as said earlier by @sharpdrivetek.
You have to really ensure you don’t make such a loss again. You can use insurance deals or pay a little more to the supplier to relieve the risk to you upon receipt of goods in your warehouse.
You can see a law person who knows order/shipping terms (incoterms) to help you. This shouldn’t happen again.
@sharpdrivetek and @Abeiku, thank you. Although I never received the goods, I guess considering the supplier thinks I did, that would be right way to go.
Yes, I should more careful, but in this instance there wasn’t much I could do about it because of complications regarding who the agent was.
The deciding factor, @Eagle5, should be whether you paid for the goods. It sounds like you did. Therefore, from an accounting perspective, you own them no matter where they are. Suppose you had taken ownership at the supplier’s warehouse and been responsible for transportation yourself. If you had unloaded one less item than you counted upon loading, you would write that off. Likewise, if you counted 100 in your warehouse last month, haven’t sold any since, but count only 99 this month, you would write off the difference. A write-off is appropriate for any non-revenue reduction in inventory. The write-off is just a way of making an accounting adjustment. Don’t let your frustration over mistakes by others enter the picture, however well-founded they may be.
Yes, I paid for the goods. My main purpose in opening this thread was to find out if I could write-off the goods without issuing a goods receipt for them, and if so, how to do it. The answer seems to be ‘no’, so I have issued a goods receipt for them and then written them off.
Since you are using goods receipts, you do not own the items until one is issued. If you were not using goods receipts, you would own them as soon as the purchase invoice was created.
Does that mean I’ve used the wrong method of writing them off?
No
My point in mentioning the sequence when using goods receipts was only to emphasize why you had to issue the goods receipt. If you weren’t using goods receipts, you could have written off the inventory as soon as your purchase invoice was issued.
As valuable as goods receipts can be, they impose an extra step on every purchase in return for extra information about goods status.