How to Recognize Obsolete Inventory in Expense Accounting

Find obsolete inventory in reports to know what products you need to move.

The importance of recognizing obsolete inventory in expense accounting lies in the need to correctly manage your company by getting rid of items that are not selling. Products which are deemed obsolete inventory have typically not sold in some time, and are at the end of their shelf life. Once you have recognized obsolete inventory, separate your goods into different categories to streamline inventory ordering.

Things You'll Need

• Expense accounting software

Instructions

1. Set up an inventory review meeting. Ask a manager and an accounting official to attend a meeting to go over expense reports. After finding obsolete inventory, team members decide how to move or liquidate the products.

2. Bring up inventory ordering information on your company’s computerized expense accounts. Under your payable accounts features, you should find the listing of products purchased by your company.

3. Find the last-used option for sorting. Potential sorting options for accounting records include the ability to arrange inventory by its last used date or where it was used, according to the Accounting Tools website. Products with no dates listed, or very old dates, are likely part of your obsolete inventory. Also, if the inventory does not have a location under the "where used" heading, it will also likely be considered obsolete.

4. Keep inventory separated into three categories. Once you review inventory and expense reports, you have the ability to categorize your inventory. Operating inventory should be sorted as either "safety," "replenishment" or "obsolete."

5. Check expense accounts on a regular basis. If you review accounts for reordering at least every two weeks, you can find inventory that has not moved since the last time you went to replenish stock.

Tips & Warnings

• If you do not have a computer-operated inventory system, obsolete inventory can be found by labeling incoming products with color-coded tags. At the end of each selected time frame, look for the oldest tags to determine obsolete inventory.

References

• Bain & Company: Inventory management: 10 Questions to Diagnose Your Inventory Health
• Accounting Tools: How Do I Identify Obsolete Inventory?
• Business Recordkeeping: Inventory Accounting