Dead stock on your ecommerce balance sheet: how to take the write-down

An ecommerce operator we work with had 400 units of a yoga mat in a discontinued color sitting in Amazon FBA for 11 months. The books carried those units at the full landed cost of $38 per unit, $15,200 on the balance sheet as a current asset.

The color had stopped selling after a competitor released a similar product at a lower price. The same mat was now clearing on liquidation channels for $8 per unit. Amazon was billing long-term storage fees. After those fees, the net amount the business could recover from those units was about $2,000, not $15,200.

That $13,200 gap was sitting in the books as an asset that had already lost its value.

Why the books stay wrong

Inventory is recorded at cost when you buy it. The accounting system does not know when demand falls. It does not check liquidation prices. It does not flag units that have not moved in nine months. Unless someone tells the books to adjust, the original purchase cost stays on the balance sheet.

This is a normal feature of how bookkeeping works, not a flaw. The fix is a deliberate quarterly process: pull the inventory aging data, estimate what each item would actually yield if sold today, and write down anything where the recoverable amount is below the current carrying value.

Four situations that produce overstatement

Slow-moving or discontinued products. A SKU that sold well during a specific season, trend, or promotion and then stopped. The units remain at full landed cost in the books. If the product is clearing at a discount, the amount recoverable is the current clearing price, not the original cost.

Returned units that cannot be resold. Customers return products for reasons ranging from preference to damage. Units that come back damaged, opened, or incomplete are often still on the inventory record at original cost. If the unit cannot be resold at full price, the carrying value should reflect that.

Discontinued bundles with components that cannot sell separately. A kit assembled from two SKUs, packaged together for a promotion. When the bundle is discontinued, the components may be physically combined and no longer sellable as standalone items. The original component cost may still be fully intact on the inventory record.

Amazon FBA aged inventory. Amazon charges long-term storage fees starting at 180 days and increasing after 365 days. When the combined cost to keep a unit in FBA and the expected return from selling it no longer justify each other, the recoverable value may be near zero. Removal costs should factor into the write-down calculation as well.

What one quarterly review found

Here is what a single inventory review found for an ecommerce client carrying four problem SKUs.

The balance sheet had been overstating inventory by $17,660 on a business with $90,000 in annual revenue. Anyone making decisions from that balance sheet, including the owner evaluating a line of credit, was working from a number that did not represent what the business actually owned.

Why this matters

Reorder decisions are based on false information. If the books say there is $15,200 in a product category, a buyer may hold off ordering a healthy SKU while waiting for the dead stock to clear. If the real recoverable value is $2,000, the business may be understocked on a working product while carrying something that no longer holds value.

Balance sheet reports misrepresent working capital. Lenders and investors reviewing a balance sheet use inventory as an indicator of current assets. Inventory that has been overvalued for multiple quarters gives an inaccurate picture of what the business can actually convert to cash.

Year-end corrections are more expensive. A bookkeeper or accountant catching a large inventory discrepancy at year-end will need to reconstruct the aging data going back multiple periods. Running this review quarterly prevents the error from compounding and reduces the time cost of fixing it.

What a quarterly write-down process looks like

For ecommerce clients, a consistent review runs on the following schedule.

Pull the inventory aging report once per quarter, showing units on hand grouped by how long they have been in stock. Flag any SKU with units older than 180 days that has had fewer than 10 sales in the past 90 days.

For each flagged SKU, estimate the net realizable value (NRV), which is the amount the inventory would yield if sold today minus any direct costs to make that sale. For FBA inventory, that means outstanding storage fees and expected removal fees.

If NRV is below book cost, record a write-down. The journal entry debits an Inventory Write-Down Loss account on the Profit and Loss report (P&L) and credits the Inventory asset account for the same amount. The balance sheet now reflects what the business would actually recover.

Keep a write-down log with the date, SKU, original cost, NRV used, and the basis for that estimate. This is the documentation if the adjustment is ever reviewed.

Best practices for staying current

A few practices that keep inventory values accurate over time:

• Pull an inventory aging report every quarter, sorted by days since last sale. Flag anything over 180 days without recent movement.
• Estimate NRV using the actual current clearing price, not the original list price. Check active eBay listings, liquidation platforms, and competitor pricing for each flagged SKU.
• Book write-downs in the quarter you identify them, not when you eventually liquidate. Recording the loss when discovered gives an accurate picture each period.
• Track returned units separately from sellable inventory from the day they arrive back. A return that cannot be resold is a loss, not an asset to be held at original cost.
• Use Amazon’s aged inventory report as a standing trigger. Any unit approaching 270 days in FBA warrants a write-down review before the escalating fee schedule makes the position worse.

Three questions worth asking

If you are uncertain how inventory is being valued in your books right now, three questions to start with:

1. When did your bookkeeper last pull an inventory aging report, and are any slow-moving SKUs still being carried at their original cost?
2. Are returned units that came back damaged or unsellable still recorded at original landed cost, or have they been adjusted?
3. Does anyone compare the current clearing price of slow-moving products to what the books say those units are worth?

If those answers are uncertain, the balance sheet is likely overstating inventory. The write-down process takes less than an hour once the aging data is in hand.

Send us a screenshot of your inventory aging report from QuickBooks or your ecommerce platform. We will tell you which SKUs need to come off the books and walk you through the journal entry if they do.