What obsolete inventory is
Obsolete inventory is stock that can no longer be sold or used through the normal course of business. Common causes include a product being discontinued by the manufacturer, a newer version or model making the old one undesirable, a regulatory or safety change that makes the item non-compliant, or components that no longer fit any current product being manufactured.
The defining feature is not just "slow to sell" it is "effectively unsellable or unusable" through the channels the business normally relies on. A customer simply isn't going to buy last generation's discontinued model when a current one exists at a similar price.
Obsolete inventory vs. dead stock
Dead stock and obsolete inventory are related but distinct. Dead stock has had no recent sales or usage, but could plausibly still sell it just hasn't, perhaps due to poor placement, pricing, or seasonal timing. Obsolete inventory typically cannot sell at all through normal channels, regardless of pricing or placement, because the underlying product itself is no longer viable (discontinued, superseded, non-compliant).
In practice, dead stock is often addressed with a markdown or promotion to try to move it. Obsolete inventory usually needs a different response entirely: liquidation through a specialty channel, scrapping, or a straightforward write-off, since a markdown alone may not create enough demand for a product nobody has a use for anymore.
Accounting treatment
Obsolete inventory generally requires a write-down (reducing its recorded value to reflect realistic resale value, which may be near zero) or a full write-off (removing it from inventory value entirely) once it is clear the item cannot be sold at or near its original cost. This differs from simply discounting dead stock, which may still sell at a reduced but non-zero price.
Regularly reviewing inventory for obsolescence rather than only at year-end keeps financial statements more accurate and avoids a large, surprising write-off appearing all at once during an audit.
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