Correct way for inventory adjustments

Thanks for getting in touch with the Community, NauticalJim. I appreciate your detailed information.

Before performing an inventory adjustment, you'll initially want to confirm which kind of adjustment you need.

Here's the two different kinds of adjustments that can be done:
 

• When to adjust your quantity on hand - This is how you track any kind of increase or decrease in product quantity that hasn't happened because of a sale or purchase. For example, when items break, or if you find you have fewer or more of it after doing an inventory count.
• When to adjust total value - The product's total value is its average cost multiplied by its quantity in stock. Things like seasonal demand or spoilage can affect this value.

Intuit recommends working with an accountant for advice before adjusting inventory value.

As far as which account you should be using for certain types of inventory adjustments, all adjustments should be using the adjustment account you created.

After you've confirmed which type of adjustment you need to perform, you would then set up an inventory adjustment account for tracking it.

Here's how:
 

1. In your top menu bar, go to Company, then Chart of Accounts.
2. Use the Account ▼ drop-down list and choose New.
3. From your Other Account Types ▼ drop-down, pick Cost of Goods Sold.
4. Name the account "Inventory Adjustments", then select Save and Close.

Next, you can adjust your inventory. When you reach step 5, you'll use the Adjust Account ▼ drop-down, then choose your adjustment account and continue with the steps.

If you encounter any accounting-related difficulties while working on inventory adjustments, I'd recommend working with an accounting professional. If you're in need of one, there's an awesome tool on our website called Find a ProAdvisor. All ProAdvisors listed there are QuickBooks-certified and able to provide helpful insights for driving your business's success.

Please don't hesitate to send a reply if there's any additional questions. Have a lovely Friday!

Hello thanks...how do I differentiate from an adjustment that changes inventory count compared to one that changes sales?  It appears if I do it as cost of goods sold it shows as a credit to my sales making it look like my profit is more than it actually is.  Not sure why it is doing that as all im doing is adjusting the inventory amount of product.  Can you walk me through this?  Thanks  Jim

Hello there, @NauticalJim. Thank you for bringing up your concern regarding the adjustment that changed the inventory count and its impact on your sales. Allow me to clarify the situation.

When you make an adjustment that changes the inventory count, it is typically recorded under the Cost of Goods Sold (COGS) account. This is because the adjustment affects the value of your inventory and the corresponding cost of the goods sold.

In your case, since you created an adjustment type that is categorized under the COGS account, any adjustments made will be reflected in the sales figures under the COGS category. This can make it appear as if your profit is higher than it actually is, as the adjustment is being accounted for as a credit to your sales.

I recommend consulting with a professional accountant who can assist you in setting up the appropriate accounts and adjusting your records accordingly. They will be able to provide tailored guidance based on your specific situation and ensure that your financial statements accurately reflect the adjustments made to your inventory.

Check out this article for more details: Adjust your inventory quantity or value in QuickBooks Desktop.

For future reference, read through this article to learn more about inventory assets and COGS: Understanding inventory assets and cost of goods sold tracking.

I'll be around if you need more help with your inventories and QBDT account. Please don't hesitate to leave a response. I'm always here to back you up!

Hi thans so very much for the explanation.  When I look up the chart of accounts  in the Cost of goods it has under "type" cost of goods sold but it is going to my sales instead of just adjusting inventory.  What am I doing wrong?  quite confusing.  Thanks I really appreciate your feedback

PS Now im really confused.  I set up the chart of accounts exactly as it said to do with cost of goods sold.  I checked the P&L then changed an adjustment from COG to that account but it still affects my sales.  I dont know what is wrong as its set up just as QB says to do it

HI let me add one more thing to add to my confusion.  We moved to a smaller warehouse this year and moved part of inventory to a fulfilment center.  All we did was to adjust the bin location but it appears its still coming off of sales. Not sure how or why.   I did put a call into my accountant for help as well but I appreciate any daylight you can shed on this.  Any ideas?

Hi thanks..I will see if my accountant is familiar enough with quickbooks.  When I change the product quantity adjustment to cost of goods sold instead of COG its still affecting my P&L.  Im not sure why this is happening as from everything I read here it shouldnt.  Im not talking about damaged product here.  The damaged product seems to be correct as its under an expense account.  Not sure what to do now but I appreciate everyone's help.  It feels like everything is done as mentioned but still affecting sales profits.  I also see that in adjusting you have an option of the drop down for quantity, price, and both.  Seems to change the P&L either way but which should i check it to for this to not affect sales?  Thanks again..will figure this out yet!

HI thank you..yes if I do this under Inventory asset account I see it doesnt affect my P&L.  Just a question then,,,should I click the drop down to show quantity,  or total value, or both?

Thanks looks like that will do it just want to make sure the drop down is correct.  Appreciate it!

You're very much welcome, @NauticalJim. We're glad that my colleague above was able to route you correctly to your goal. I'm here to help you clear things up.

Yes, you're correct. We'll need to click the dropdown to show the details like total value and quantity.

For future reference, we'll share these articles to help track your sales and expenses:

• Customize customer, job, and sales reports in QuickBooks Desktop.
• Add, edit, or delete accounts in QuickBooks Desktop.
• Adjust your inventory quantity or value in QuickBooks Desktop.

Please come back, @NauticalJim, if you have additional questions about managing your inventory. I'll be happy to lend a hand. Take care always, and have a good one.

Thank you...hopefully this is my last question.  I think i adjusted an amount but didnt toggle it to adjust quantity as well as value under inventory asset.  How can I locate the one I did incorrectly so I can update it?  

Thanks again glad to finally get it figured.  

Thanks for the prompt reply, @NauticalJim. I'm glad that this has helped you a lot. This time, let me help you locate the one you incorrectly entered so you can edit it up.

The best way to look for it is to run the Inventory Valuation Detail report. Then, customize it with the exact date and correct filters. Here's how:

1. On the upper navigation, choose Report.
2. Select the Inventory option, then pick the Inventory Valuation Detail.
3. Click the Customize Report of the table shown. You can edit the Display, Filters, Head/Footer. and Fonts & Numbers.
4. After that, tap OK. 
5. Look for the one you entered incorrectly, save the details, and then you can proceed to update it.

You can refer to this article on how to update the quantity: Adjust your inventory quantity or value in QuickBooks Desktop.

Additionally, check out these articles to help you manage your inventory:

• Adjust your inventory of finished goods.
• Add, edit, and delete items in QuickBooks Desktop.

We're glad to have you here, @NauticalJim. For more queries about inventory adjustments, never hesitate to reply back. We'll be happy to help. Keep safe, and have a good one.

Why are there negative numbers on Sales by Detail reports?

Thank you

Warm welcome, RochelleCG. I'm here to explain why your quantity has negative numbers when you pull up your Sales by Detail report. Let's work together to resolve this.

A negative inventory quantity occurs when sales transactions are entered before the corresponding purchase transactions. It means you are selling items that are not currently in stock. There are a few solutions to address the issue depending on the specific circumstances, 

If you've sold inventory items without recording purchases:

You may have entered Bills with accounts and not inventory items. If so, edit the Bills and change the entries from the Expenses Tab to the Item. Be aware that this may alter your inventory expenses. It is advisable to consult with an accounting professional before proceeding with this process. If you don't have one, you can find a professional through this link: https://quickbooks.intuit.com/find-an-accountant/. 

Meanwhile, if you've entered purchases or adjustments before entering sales, adjust the transaction dates such that bills are dated before invoices:

1. Hover to Reports
2. Select Inventory and choose Inventory Valuation Detail.
3. Select the Dates drop-down arrow, then select All.
4. Scroll through the report to an item showing a negative amount in the On Hand column.
5. If you can do so legitimately, adjust the bills or invoice dates so the bill dates are before the invoice dates.
6. Repeat steps 2 through 4 for each transaction with a negative amount in the On Hand column.

On the other hand, if your inventory reports display incorrect values, it could be because you have not set an average cost for your items. To rectify this, you must ensure that the earliest transaction date for an item is a bill, check, credit card charge, or Adjust Qty/Value on Hand. It will help to display the correct inventory values accurately. For the detailed steps, visit this article: Fix negative inventory issues in QuickBooks Desktop. 

Furthermore, to prevent this from happening again. It's essential to ensure you have purchased and entered your inventory items in QuickBooks before selling them. Doing so allows you to track your inventory levels accurately, avoid over-selling, and maintain accurate financial records. 

Moreover, I'll be adding articles to help you update or adjust your inventory quantities:

• Adjust your inventory quantity or value.
• Adjust your inventory of finished goods. 
• Add, edit, and delete items. 

Whenever you need further help or clarification regarding your inventory and sales report, I'm here to help. Kindly tap the reply button to enter your response.