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Level 1

How to record inventory adjustment?

I am new user of Quickbooks and not at all accounting savy.  I am going to try and elaborate on the situation.  In my chart of accounts I have:  Inv Asset - Other current asset; Sales - Income; Cost of Goods Sold - COGS; Inventory Adjustment - COGS.  I have been entering my bills in QB and applying the inventory to COGS-COGS account.  I realize now this is very wrong as the COGS account type is really an expense.   When I view my Chart Of Accounts there is not Value$ for any of these 4 account types.   
On my P&L the Sales-Income is listed as well as the COGS (which is really all my inventory purchases for resale).  The difference leaving the GP.  At no point does the P&L or Balance sheet note the value of the inventory assets that were not sold and remain on hand to be sold.  Also, throughout the month I have to write off inventories due to damage or shrink.  I would appreciate help in understanding how to enter this transaction so it is applied to the inventory asset account........So lets assume that:  $20,000 Sales-Income   -  $18,000-Purchases  -  $2000-GP  $1000-Inventory Value   and  $1000 for Inv Adjustment.   
I use QB POS to record purchases and track inventory value.  I am not using QB financial software to list the inventory items purchased.  I just enter the bills in that software Can anyone tell me how to record accurately?  I am sure once I get this the first time I will be able to grasp for future.   HELP APPRECIATED.
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Best answer December 10, 2018

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Highlighted
Level 15

How to record inventory adjustment?

 I have been entering my bills in QB and applying the inventory to COGS-COGS account. ... At no point does the P&L or Balance sheet note the value of the inventory assets that were not sold and remain on hand to be sold.  ...  Also, throughout the month I have to write off inventories due to damage or shrink.

Then you are expensing the full amount of the purchase and there will not be an inventory asset value on the balance sheet.
And since you are expensing the purchase, there is nothing to adjust either.

Since you are not using QB inventory, you must use the periodic inventory method.  There are two ways to do periodic inventory, choose one and stick with it, you can not mix and match

1. Create an asset account called purchases and post all purchases of item for resale to that account.  Periodically, weekly, monthly, etc value the inventory on hand, subtract that value from the amount shown in the purchases account and do a journal entry for the answer to the subtraction
debit COGS for that value
credit purchases for that value

OR

2.  Post all purchases to COGS.  Periodically, but at least at the end of the year, you value the inventory on hand and do a journal entry.
debit the asset purchases account for that value
credit COGS for that value

Print the P&L
then reverse the journal entry
debit COGS for that same value
credit the asset purchases account for that value 

This last journal entry, moves the value of what was on hand at the end of year back to COGS so the cost will be counted against the new year sales.





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23 Comments
Highlighted
Level 15

How to record inventory adjustment?

 I have been entering my bills in QB and applying the inventory to COGS-COGS account. ... At no point does the P&L or Balance sheet note the value of the inventory assets that were not sold and remain on hand to be sold.  ...  Also, throughout the month I have to write off inventories due to damage or shrink.

Then you are expensing the full amount of the purchase and there will not be an inventory asset value on the balance sheet.
And since you are expensing the purchase, there is nothing to adjust either.

Since you are not using QB inventory, you must use the periodic inventory method.  There are two ways to do periodic inventory, choose one and stick with it, you can not mix and match

1. Create an asset account called purchases and post all purchases of item for resale to that account.  Periodically, weekly, monthly, etc value the inventory on hand, subtract that value from the amount shown in the purchases account and do a journal entry for the answer to the subtraction
debit COGS for that value
credit purchases for that value

OR

2.  Post all purchases to COGS.  Periodically, but at least at the end of the year, you value the inventory on hand and do a journal entry.
debit the asset purchases account for that value
credit COGS for that value

Print the P&L
then reverse the journal entry
debit COGS for that same value
credit the asset purchases account for that value 

This last journal entry, moves the value of what was on hand at the end of year back to COGS so the cost will be counted against the new year sales.





View solution in original post

Highlighted
Level 1

How to record inventory adjustment?

Thank you very much.  Is there a benefit to distinguishing the difference between how much of inventory 'used' was actually sold/used to build assemblies and what was due to shrink such as outdated milk that is thrown out?
Highlighted
Level 15

How to record inventory adjustment?

You are expensing the purchase when you buy, so there is no way to expense outdated milk again, it is all expensed
you could keep a record off the books if you need to, but you can not get an expense twice
Highlighted
Level 1

How to record inventory adjustment?

Thank you for all the help and explaining so clearly.  I really appreciate it!
Highlighted
Level 15

How to record inventory adjustment?

You're Welcome
Highlighted
Level 15

How to record inventory adjustment?

"such as outdated milk that is thrown out"

For something with a short life, there is no reason to track this purchase as Inventory. The products such as milk and fresh produce that spoil quickly if not sold, or are sold soon, they might as well be posted as Purchases of COGS and not held as inventory at all.

You might as well make it easier on yourself and not track things as Asset on hand, when that will require micromanagement from you.

Asset value is meant for the value of stuff "on hand over time" so that the Sale is not a long time period after the entry as expense. For milk and other "quick turnaround" products, just post them to COGS directly.

Highlighted
Level 1

How to record inventory adjustment?

Sorry to be so slow, but I am still trying to figure out how to deal with inventory as an asset.  I sell wine.  I buy a container of wine at a time.  I pay a price for that wine that I had been registering as a COGS.  But the value of the asset that I own the moment I buy it is actually the price at which I will sell it--not the price I paid for it.  If there is a way I can assign that value somewhere, then as I sell the wine I can subtract, thereby decreasing the value of the asset.  I am definitely not a financial person, but that logic makes sense to me.  First--is it correct?  Then second, if so, how do I properly record everything in QB?  

Thanks!

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Anonymous
Not applicable

How to record inventory adjustment?

Thanks for joining the conversation, @traviswine,

 

I can add a bit more about the inventory management in QuickBooks Desktop and how it affects the Inventory Assets and COGS accounts.

 

When you set up the inventory item you have the option to enter the item Cost. Here's how:

  1. Click the Lists menu.
  2. Choose Item List.
  3. Locate your inventory item and double-click it.
  4. Fill out the Cost field, under Purchase Information. Enter the cost of the item when you purchased it.

QuickBooks uses the weighted average cost to get the value of your inventory and the amount debited to the COGS account once you sell your inventory. You can check this article to know more about inventory tracking: Understand Inventory Assets and COGS tracking

 

Let me know if you have any more question about inventory management. I'll be glad to help. Have a good one!

Highlighted
Level 1

How to record inventory adjustment?

I am trying to correct the COGS from last year for a company but I am not sure of the best way to do it. At the beginning of the year all purchases for resale were being recorded directly to COGS. In May someone decided to set up the inventory tracking system in Quickbooks, and recorded beginning inventory balances to the inventory asset account. For the rest of the year, the COGS was automatically recorded with each sale as the inventory asset account was simultaneously reduced. The problem is that by year-end the COGS balance is artificially high. Staff did do an inventory count at year-end, and I made adjusting journal entries to correct the inventory asset account balance. This did reduce the COGS slightly, but the amount is still too high based on the amount of sales that occurred before inventory tracking was set up in May. I need to make another adjustment that does not affect the inventory asset account, as that balance is actually correct.

Highlighted
Level 1

How to record inventory adjustment?

Hello – We had a bunch of negative (and some positive) inventory that is being adjusted.

It’s a mix of mistakes of sales receipt errors, item receipt errors, etc.

Anyways, if we “correct” these through an inventory adjustment, it really skews the cost of goods.  Is there a way to offset or zero out that adjustment so that it doesn’t show a profit or loss?

Highlighted
Moderator

How to record inventory adjustment?

I appreciate you joining the conversation, @NateP.

 

The inventory adjustment will ensure you're correctly tracking your items in QuickBooks. As long as you've posted the adjustment to their proper accounts, your inventory status report will show accurate tracking of your inventory quantities.

 

To ensure you track your COGS correctly, you can check out this article for more information: Adjust your inventory quantity or value in QuickBooks Desktop.

 

However, if you need to offset your adjustment, I'd recommend reaching out to your accountant first. This way, your accountant can decide which accounts to use to properly track your inventory. 

 

If you have additional concerns, let me know by leaving a comment. I'll be ready to pop-in and help.

Highlighted
Level 1

How to record inventory adjustment?

Thanks.  I have an inventory adjustment account that is an expense account.   I’ve also tried using a CoGS account for inventory adjustments.   They both affect profit statements.  The issue is that these are mostly drop ship items that we ever physically had in stock.  For example, a customer cancelled his order, but there was a sales receipt made for his order that never got canceled (customer never got charged/billed either). This sales receipt goes unnoticed for months.  Anyways . . . It’s a challenge and I’ll see what my accountant says.  

Highlighted
Level 1

How to record inventory adjustment?

Rustler,

I'm in need of a little more clarification for a client of mine.  I've done the three part transaction for furniture purchases, i.e. 

Purchase

dr-inventory

cr a/p

 

Sale

dr: Cash

cr:  COGS

 

Inventory adjustment

dr: COGS

cr: Inventory

 

Client is saying that I need to have recorded this in a way that the sales of products(Furniture) should not show in sales.  Am I missing something here?  There is no way to do that, correct?  The COGS will adjust his gross profit; however, we have a GL Audit coming up and client doesn't want gross sales to show the furniture sales...

Highlighted
Level 1

How to record inventory adjustment?

Hello--I noticed that my current inventory have been adjusted. I'm not sure how this occurred, the only explanation I can think of is when I was adding the expense/item for this inventory which probably caused the additional inventory quantity. My questions are below.

 

1) Should I enter the Expense/Items first before entering a new product in the Product and Services section?

2) Before I adjust my inventory quantity, how do I make this adjustment without affecting my Inventory Shrinkage account?

Highlighted
QuickBooks Team

How to record inventory adjustment?

Hello @Jshoplist,

 

You'll need to create the item first to enter a transaction or enter an initial purchase of the item. Let me guide you how.

 

  1. Go to Lists, then Item List.
  2. Scroll down towards the Item drop-down, then New.
  3. Enter the item information, under Inventory Information section type in the opening or initial quantity (On Hand).
  4. Click OK.

After entering the quantity (On Hand), you'll no longer need to use the inventory adjustment. This also applies when you create the purchase transaction of the item manually. Please see this article for more information about adjusting your inventory quantity or value in QuickBooks Desktop.

 

In case you encounter negative inventory, please check this article for details: Fix negative inventory issues in QuickBooks Desktop.

 

Feel free to comment anytime if you have other questions or concerns. I'd be around to help. Thanks for jumping in and have a wonderful day.

Highlighted
Level 1

How to record inventory adjustment?

Below is a screenshot example of the inventory. What I did was 1) Enter the inventory items from Lists/Products and Service then 2) Entered the expenses from Expenses/Expenses/Items Details. By doing this, it looks like it duplicated my inventory. How should I be entering my inventory items without making this same error? Also, how do I fix this? Thanks.

 

 

Highlighted
Level 1

How to record inventory adjustment?

Attached is an example report of my inventory. What I did was 1) Entered the products via Lists/Products and Services and then 2) Entered the expense via Expenses/Expense/Item Details. By doing this, I think it duplicated my items. How do I fix this and what should I do so that I do not make the same error next time?

Highlighted
QuickBooks Team

How to record inventory adjustment?

Let's correct the count of your inventory, Jshoplist.

 

The screenshot shows that you’re using the QuickBooks Online version, so we’ll base our steps on this platform.

 

You can create inventory items with a zero starting quantity. When you purchase them, you can record a vendor transaction with the items, and this will increase their counts. However, if you have items on hand before starting your business, you'll enter the quantity the moment you create them in QuickBooks.

 

The bottom line is you only want to enter a quantity on hand if you won't need to record your inventory purchases.

 

To correct the count, you can edit the items and update the Starting value.

  1. Click the Gear icon.
  2. Choose Products and Services under Lists.
  3. Click Edit on the item.
  4. Click Starting value in blue text.
  5. You'll get a prompt that says this step will change the starting value of the item, click Got it.
  6. Update the Initial quantity on hand.
  7. Enter something in the Memo field about the change. Something like: changed the initial qty from XXX to XX, entered an expense (ref #) instead which increased the initial count (qty) of the item.
  8. Click Save and close.

By default, the affected accounts in this adjustment are the Inventory Asset and the Opening Balance Equity accounts.

 

You can run the Inventory Valuation Detail report after correcting the initial value.

 

Feel free to reach back out if you still need with your inventory items.

Highlighted
Level 1

How to record inventory adjustment?

I opened each item and they're all showing the correct quantity on hand, see attached. But when I look in the Product/Services view, it's showing 4, see attached.

 

 

Highlighted
Level 1

How to record inventory adjustment?

it won't let me attach more than one so here's the second attachment showing the Product and Services view with 4 qty on hand.

Highlighted
QuickBooks Team

How to record inventory adjustment?

Hi Jshoplist,

 

Entering a bill or expense transactions add the quantity on hand of your items. You'll want to edit the quantity of the items. Then, enter an invoice so it will deduct from your product and services quantity on hand.

 

Here's how:

  1. Click the Gear icon.
  2. Select Product and Services.
  3. Select the item, click Edit under the Action column. 
  4. Change the Quantity on Hand value.
  5. Click Save and close

Moving forward, create an invoice if you want to be deducted from your product and services quantity on hand. Please check this article for the detailed steps: Create Invoices in QuickBooks Online

 

You can also track inventory that you're donating, please check this article for more information: Track Donated Inventory.

 

Feel me in if you have any other concerns. I'm always right here to help.

Highlighted
Level 2

How to record inventory adjustment?

Hey Jshoplist, If I'm reading your posts correctly the total quantity should be 2 not 4? If so the reason you're having this problem is that you made the initial quantity 2 and then added 2 more with the expense/purchase. If you are going to enter the 2 through the purchase then your initial quantity needs to be set at 0. If you edit the inventory item look under "Quantity on Hand" there should be a clickable "starting value" click that and adjust your starting quantity to 0. Then every time you purchase that item and expense it it will add more inventory.

 

Hope that helps.

Highlighted
Level 1

How to record inventory adjustment?

Can you help me with how set up inventory mid year in desktop.  Client has been putting all purchases to Cost of Goods and now wants to start tracking. 

 

Thanks, 

Alice Burnett

[email address removed]

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