Inventory Adjustments

Adjust inventory quantities when physical stock differs from system records.

---

Adjustment Overview

INVENTORY ADJUSTMENT TYPES
─────────────────────────────────────────────────────────────────

┌─────────────────────────────────────────────────────────────────┐
│                                                                 │
│  INCREASE              DECREASE              WRITE-OFF          │
│  ┌─────────┐          ┌─────────┐          ┌─────────┐         │
│  │    ↑    │          │    ↓    │          │    ✕    │         │
│  │ On Hand │          │ On Hand │          │ On Hand │         │
│  └─────────┘          └─────────┘          └─────────┘         │
│                                                                 │
│  Use when:            Use when:            Use when:           │
│  - Found extra        - Lost items         - Damaged goods     │
│  - Donations          - Theft              - Obsolete items    │
│  - Initial load       - Breakage           - Expired product   │
│                                                                 │
└─────────────────────────────────────────────────────────────────┘

---

Inventory Increase

Add inventory that wasn't received through normal purchase flow.

When to Use

Scenario	Example
Found inventory	Items discovered during cleanup
Donations received	Free goods from supplier
Initial data load	Setting up opening balances
Correction	Prior adjustment was wrong

Creating an Increase

INVENTORY ADJUSTMENT - INCREASE
─────────────────────────────────────────────────────────────────

Adjustment #IA-001
├── Type: Increase
├── Location: Main Warehouse
├── Items:
│   ├── Widget-A: +20 units @ $10 = $200
│   └── Widget-B: +15 units @ $25 = $375
└── Adjustment Account: Inventory Adjustment

Result:
  - On Hand increases
  - GL posts adjustment

GL Impact

Account	Debit	Credit	Why?
Inventory Asset	$575		More inventory on hand (Asset ↑)
Inventory Adjustment		$575	Offset account (varies)

INVENTORY INCREASE GL EXPLAINED
─────────────────────────────────────────────────────────────────

What happened: Found 20 extra Widget-A and 15 Widget-B

Inventory (Asset)         $575  Dr
  └── You now HAVE more inventory = Asset INCREASES

Adjustment Account              $575  Cr
  └── Offset to balance the entry
  └── Could be: Income, Equity, or Adjustment account

Think: "Free inventory appeared - asset goes up"

Inventory Impact

INVENTORY AFTER INCREASE
─────────────────────────────────────────────────────────────────

Before:
┌─────────────────────────────────────────┐
│ Widget-A: On Hand: 80                   │
│ Widget-B: On Hand: 50                   │
└─────────────────────────────────────────┘

After Increase:
┌─────────────────────────────────────────┐
│ Widget-A: On Hand: 100 (+20)            │
│ Widget-B: On Hand:  65 (+15)            │
└─────────────────────────────────────────┘

---

Inventory Decrease

Remove inventory that wasn't shipped through normal sales flow.

When to Use

Scenario	Example
Lost inventory	Items can't be found
Theft	Stolen goods
Breakage	Damaged in warehouse
Spoilage	Perishable items expired
Samples	Given away as samples

Creating a Decrease

INVENTORY ADJUSTMENT - DECREASE
─────────────────────────────────────────────────────────────────

Adjustment #IA-002
├── Type: Decrease
├── Location: Main Warehouse
├── Items:
│   ├── Widget-A: -5 units @ $10 = $50
│   └── Widget-B: -3 units @ $25 = $75
├── Reason: Damaged in handling
└── Adjustment Account: Inventory Loss Expense

Result:
  - On Hand decreases
  - GL posts expense

GL Impact

Account	Debit	Credit	Why?
Inventory Loss (Expense)	$125		Cost of lost goods (Expense ↑)
Inventory Asset		$125	Less inventory on hand (Asset ↓)

INVENTORY DECREASE GL EXPLAINED
─────────────────────────────────────────────────────────────────

What happened: Lost 5 Widget-A and 3 Widget-B

Loss Expense              $125  Dr
  └── Recognize the loss as an expense

Inventory (Asset)               $125  Cr
  └── You have LESS inventory = Asset DECREASES

Think: "Inventory disappeared - expense recognized"

Inventory Impact

INVENTORY AFTER DECREASE
─────────────────────────────────────────────────────────────────

Before:
┌─────────────────────────────────────────┐
│ Widget-A: On Hand: 100                  │
│ Widget-B: On Hand:  65                  │
└─────────────────────────────────────────┘

After Decrease:
┌─────────────────────────────────────────┐
│ Widget-A: On Hand: 95 (-5)              │
│ Widget-B: On Hand: 62 (-3)              │
└─────────────────────────────────────────┘

---

Inventory Write-Off

Special type of decrease for obsolete or damaged inventory.

When to Use

Scenario	Example
Obsolete inventory	Old model no longer sellable
Severely damaged	Beyond repair or resale
Expired products	Food, medicine past date
Technology obsolescence	Old electronics

GL Impact

Similar to decrease, but often uses a different expense account:

Account	Debit	Credit	Why?
Inventory Write-Off Expense	$500		Obsolete goods expensed (Expense ↑)
Inventory Asset		$500	Inventory removed (Asset ↓)

WRITE-OFF VS DECREASE
─────────────────────────────────────────────────────────────────

Decrease (Lost/Stolen):
  Inventory Loss Expense    $125  Dr
  Inventory                       $125  Cr

Write-Off (Obsolete):
  Write-Off Expense         $500  Dr
  Inventory                       $500  Cr

Why separate?
  - Different reporting needs
  - Different approval processes
  - Track obsolescence separately from losses

---

Adjustment Accounts

Different scenarios may use different adjustment accounts:

Scenario	Suggested Account
Found inventory	Inventory Variance (P&L)
Lost inventory	Inventory Loss Expense
Damaged goods	Inventory Write-Off
Theft	Inventory Shrinkage
Opening balance	Retained Earnings (Equity)
Donation received	Other Income

---

Costing on Adjustments

Average Costing

ADJUSTMENT WITH AVERAGE COST
─────────────────────────────────────────────────────────────────

Current Average Cost: $12.50 per unit

Adjustment: +10 units at $12.50 = $125

Note: System uses current average cost for adjustment
      (unless you specify a different cost)

Standard Costing

ADJUSTMENT WITH STANDARD COST
─────────────────────────────────────────────────────────────────

Standard Cost: $10.00 per unit

Adjustment: +10 units at $10.00 = $100

Note: Always uses the item's standard cost
      Any variance would be captured separately

---

Quick Reference

Adjustment Types

Type	On Hand	GL Debit	GL Credit
Increase	↑	Inventory	Adjustment Account
Decrease	↓	Expense Account	Inventory
Write-Off	↓	Write-Off Expense	Inventory

Common Adjustment Reasons

Code	Reason	Direction
FOUND	Found inventory	Increase
DAMAGE	Damaged goods	Decrease
THEFT	Stolen items	Decrease
SAMPLE	Samples given	Decrease
OBSOLETE	Obsolete items	Write-Off
COUNT	Physical count adjustment	Either

---

Next Steps

• Transfers - Move inventory between locations
• Physical Counts - Inventory counting