Level 7

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How to record inventory adjustment?

Forum|Forum|7 years ago
December 11, 2018
3 replies
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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.

QuickBooks Desktop

Best answer by Rustler

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.

RustlerAnswer

Level 15

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.

L

lindak1119Author

Level 7

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?

qbteachmt

Level 11

"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.

T

traviswine

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!

A

Anonymous

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:

Click the Lists menu.
Choose Item List.
Locate your inventory item and double-click it.
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!

J

Jshoplist

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?

S

ShiellaGraceA

Level 9

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.

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

J

Jshoplist

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.

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