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Describe the entry to adjust from cost to net realizable value for inventory write-downs. What effects does this adjustment have on (a) assets, (b) liabilities, (c) stockholders' equity (or retained earnings), (d) revenues, (e) expenses, and (f) net income?
Adjustment of inventory costs down to net realizable value is recorded by debit of cost of goods sold account and credit of inventories account. This adjustment reduces asset, increases expenses and further decreases retained earning and net income. Liabilities and revenues are not affected.
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