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Problem: How to make a reserve for

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obsolescence and then sell the item?

Solution: Make a reserve for

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obsolescence through the Other

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Expenses document, enter the Invoice, write off the reserve for

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obsolescence and settle the expense amount.

1. Create a depreciation reserve for the item obsolescence using Other expensesExpenses document with Transaction Type: Accrual


On the Expenses tab, select an expense GL account in the debit, the 2010600 Allowance for Obsolescence account in the credit column, and enter the amount of depreciation obsolescence reserve



2. Enter the Invoice document.

Note!!

• The income account will have a lower amount than the book value of the item, as the item is being sold below cost. However, the item itself is written off at its full book value

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• The expense accounts in the Other expense Expenses document and in the Invoice differ. In invoices, the COS: Goods for Resale account is used automatically to record the cost of goods sold (direct costs linked to sales, not for manual or indirect expenses) when items are sold. In the Other Expenses document, this the COS: Goods for Resale account is not available because the Other Expenses document is used for overheads, not inventory-related costs.

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3. The cost of the item in our example is 4000,00 AED but the amount of expenses written off for this item is 5000,00 AED (because there are two types of costs that are written off: Other Operating expenses + COS: Goods for Resale).

Dr Other Operating expenses - Cr Allowance for ObsolescenceObsolescence   - 1000,00 AED - the entry of the depreciation reserve creationfor obsolescence 

Dr COS: Goods for Resale       - Cr Goods                                       - 4000,00 AED - the inventory write-off

Hence, it is necessary to reduce the amount of the expense account from the invoice as the partial expense write-off for this item has already been made at the moment of the entry of depreciation the obsolescence reserve creation.

It Also, it is also necessary to remove the reserve for depreciation obsolescence on the Allowance for Obsolescence account.

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