How to write off materials, accounting-wise
When goods are damaged, expire, or are stolen, they must leave inventory and their cost must be charged as a loss — that's a write-off. Accounting-wise it's done with a “stock adjustment decrease”: you remove the item at its cost (not its selling price) and charge it to an inventory-loss account. Let's see the correct entry, why it's at cost not selling price, and the steps as they are in Zemam.
The write-off journal entry
Writing off goods costing 8,000
Dr. Inventory Loss (expense) 8,000
Cr. Inventory 8,000
The amount is the goods' cost (from the WAC/FIFO layers), not their selling price. Inventory drops on the balance sheet, and the loss appears on the income statement.
Why at cost, not selling price?
Because you lost what you actually paid for the goods (their cost), not the profit you'd have made selling them. Charging the write-off at selling price would overstate the loss and inflate your expenses with a phantom profit that never happened. The rule: assets are removed at their book cost.
The steps in Zemam
1. Create a stock adjustment of type “decrease”
In Zemam you open “Stock Adjustment,” choose the “decrease” direction, and pick the warehouse. The adjustment is the formal tool for removing goods without a sale.
2. Select the items and quantities to write off
Add each item with the quantity to write off. Zemam checks the quantity isn't more than the actual on-hand, so you can't write off stock that isn't there.
3. Set the reason
Pick the reason: damage, expiry, theft, or other. The reason matters for control and reporting — and in Zemam you can route each reason to a different loss account for finer analysis.
4. Approve the adjustment — the entry posts automatically
On approval: stock decreases and the entry posts by itself: DR “Inventory Loss” at the goods' cost / CR “Inventory.” (If an approval workflow is enabled, it goes for approval first.)
Frequently asked questions
Is the write-off charged at cost or at selling price?
At cost — not selling price. Because you lost what you actually paid for the goods, not your expected profit on them. Zemam takes the cost from the item's cost layers (WAC or FIFO), so the recorded loss is accurate.
What exactly is the accounting entry?
DR “Inventory Loss” (an expense account) at the cost of the written-off goods, CR “Inventory” for the same amount. So inventory drops on the balance sheet and the loss appears on the income statement — with no manual entry from you.
Should I separate spoilage losses from theft?
Useful if you want finer analysis. In Zemam you can route each reason (damage/expiry/theft) to a different loss account, so you know how much you lose in each type — which helps you close the source of waste. If you don't need the detail, all reasons go to the default inventory-loss account.
Is approval required before a write-off?
Depends on your setup. A write-off reduces your assets, so control makes sense — if you enable an approval workflow for stock adjustments, the write-off goes for approval before it posts. And every adjustment is in the audit trail with who did it, when, and why.
Related reading
Write off in one action — and the entry posts correctly
In Zemam you create a stock adjustment decrease, pick the items and reason, and approve — and the system deducts stock and posts the entry (inventory loss at cost / inventory) automatically, with optional approval and a full audit trail.
Note: the tax treatment of a write-off (especially reversing input VAT on destroyed goods) and evidence requirements (disposal minutes, committees) follow your country's rules — consult your chartered accountant and the tax authority before writing off large values.