Inventory Adjustments Advice
Periodically, you will have to post manual inventory adjustments in your bookkeeping platform to ensure you have the correct and up-to-date stock statuses and inventory values on hand.
Manual inventory adjustments (corrections) can occur for a variety of reason. However, the main goal is to ensure your company financials are reporting accurate information.
- Balance Sheet (to report your overall current inventory value in your warehouse)
- Income Statement (to report your Cost of Goods (inventory) Sold)
- Inventory is not tax deductible until sold to customers
- Stock Status Report (to report EACH item’s (currently in stock) quantity and value)
If you are not actually purchasing the materials separately to build your inventory items (that you are selling), then manual inventory adjustments can be rather straightforward. However if you are tracking the individual components (such as labels, product, packaging, etc) in your bookkeeping software that make up the entire completed inventory item to be sold, then more planning and care should be taken prior to posting any type of manual inventory adjustments.
Another thing to think about is the proper way (method) of actually posting inventory adjustments.
Example: If you complete a cycle or physical inventory count and discover there are discrepancies (there usually always is for various reasons), then it is recommended that you post the adjustment for EACH item, rather than just making one adjusting journal entry that affects your Inventory Asset account in your balance sheet. A good way to detect if manual inventory adjustments were posted correctly is to simply compare an Inventory Valuation Report to a Balance Sheet and compare the overall inventory value balances on each report. You will especially want to make this reporting comparison if you migrate from one bookkeeping platform over to another.
Typically an outsourced warehouse or freight management company will be maintaining your inventory stock statuses; however you will want to always monitor this information and have your own books reflect these stock statuses; it is recommended that you perform a monthly reconciliation of your inventory stock as well.
Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.