When inventory is used to make a product that expense is recorded under the COGS.
Apr 22 2013 12:35 PM
However, there are instances when inventory level changes other than when used to make the company's products. Inventory could have been damaged, stolen, gone bad, expired etc. When such a thing happens you will have to reduce your inventory item on the balance sheet by a proportional amount. When you reduce inventory on the balance sheet you need to reduce a corresponding expense account on the income statement. This account is typically called the "decrease and increase in inventory"