what is obsolete inventory 
obsolete inventory is a term that refers to inventory that is at the end of its product life cycle this inventory has not been sold or used for a long period of time and is not expected to be sold in the future this type of inventory has to be written down or written off and can cause large losses for a company obsolete inventory is also referred to as dead inventory or excess inventory understanding obsolete inventoryinventory refers to the goods and materials in a company s possession that are ready to be sold it is one of the most important assets of a business operation as it accounts for a huge percentage of a sales company s revenues in the past if the inventory was held for too long the goods may have reached the end of their product life and become obsolete currently with technology the state of abundance and customers high expectations the product life cycle has become shorter and inventory becomes obsolete much faster obsolete inventory is inventory that a company still has on hand after it should have been sold when inventory can t be sold in the markets it declines significantly in value and could be deemed useless to the company to recognize the fall in value obsolete inventory must be written down or written off in the financial statements in accordance with generally accepted accounting principles gaap a write down occurs if the market value of the inventory falls below the cost reported on the financial statements a write off involves completely taking the inventory off the books when it is identified to have no value and thus cannot be sold risks associated with obsolete inventorythere are a number of reasons why a company doesn t want to hang onto obsolete inventory below is a list of some of those reasons and each company that does carry obsolete inventory may not necessarily experience each downside accounting for obsolete inventorygaap requires companies to establish an inventory reserve account for obsolete inventory on their balance sheets and expense their obsolete inventory as they dispose of it which reduces profits or results in losses companies report inventory obsolescence by debiting an expense account and crediting a contra asset account 