Inventory Obsolescence Accounting is a process of recognizing the gradual decline in the value of physical inventory stored by a business. When inventory has no further use or falls out of customer demand, it becomes obsolete and must be listed as an expense. Because obsolescence can happen in unexpected ways, businesses must carefully monitor their inventory levels and document any losses due to obsolescence throughout each financial year. Inventory Obsolescence Accounting requires accuracy and forward-planning to ensure the accuracy of the company’s financial statements over time.