Final answer:
When recording a write-down of inventory, a debit is made to cost of goods sold or inventory write-down expense and a credit to inventory to reflect the reduced value.
Step-by-step explanation:
The journal entry to record a write-down of inventory from cost to its lower market value would typically include a debit to cost of goods sold (or inventory write-down expense) and a credit to inventory. This is because when inventory is written down, the loss must be recognized in the financial statements. The entry serves to align the inventory's book value on the balance sheet with its lower market value. A debit to sales revenue would not be correct, as the write-down reflects a cost of carrying inventory rather than a transactional event.
To ensure clarity in the accounting records and maintain consistency with accounting principles, the write-down is recorded with a debit to loss on inventory write-down (which is included in the cost of goods sold or listed in a separate expense account) and a credit to inventory, reflecting the reduced value of inventory on hand. There should not be a debit to inventory, as this would erroneously suggest an increase in inventory value.