Allowance to Reduce Inventory to Net Realizable Value

This refers to a valuation account for inventory. A credit balance in this account reflects the amount by which the net realizable amount of inventory is less than the cost reported in the inventory account. The credit entered into the Allowance to reduce inventory cost to net realizable value will mean a debit is entered into the Loss from reducing Inventory cost to net realizable value which is reported on the company’s income statement.