Lesson: Accounting for a Decline in Market Value

In this lesson, understanding how to account for a decline in market value becomes clearer as Nick Palazzolo, CPA, delves into the mechanics of fair value measurements and the implications when market value decreases. He thoroughly walks through the process of adjusting inventory values, explaining the need to credit inventory and increase the cost of goods sold to reflect this decline, without the typical corresponding cash or revenue entries found in normal sales. Furthermore, Nick breaks down the indirect or allowance method, detailing how to record the adjustment through the use of a contra inventory account and a loss entry, drawing parallels to similar practices seen in accounts receivable.