--- layout: default_v3 language: default permalink: reorder-point-formula/inventory-adjustment.html i18n_link: 3032 updated: 2021-02-19 #--- article key-values ---# collection: default_topiccluster t_keyword: Inventory Adjustment tags: inventory management software, Inventory Adjustment type: supporting page_id: 3032 hreflang_id: 3032 parent_id: 3016 date_published: 2021-02-19 date_modified: 2021-02-19 #--- javascript schema ---# javascript_schema: - script: jquery_3_2_0_min - script: bootstrap_min - script: article_infinite_scroll - script: article_mix_infinitescroll - script: article_mix - script: article_mix_faq - script: article_mix_toc #--- section schema ---# section_schema: - section: nav-main_menu - section: article_body_v2 - section: footer - section: schedule_demo_cta #--- page key-values ---# meta_tags: t_meta_title: How to Make an Inventory Adjustment t_meta_description: Inventory adjustment is the practice of updating inventory entries on accounting records to report the difference between actual stock levels on hand to what was previously inputted. t_meta_abstract: Inventory adjustment is the practice of updating inventory entries on accounting records to report the difference between actual stock levels on hand to what was previously inputted. i_meta_image: article_body: json-ld_article: v_date_published: 2021-02-19 v_date_modified: 2021-02-19 author: p_author_id: 130 t_author: Hanh Truong p_author_url: hanh-truong.html i_author: 130.jpg t_author_description: Journalist And Reporter, Covering Culture, Music, Education, Environment, Health And Local News. Experienced In Print And Online Journalism, SEO Best Practices, Social Media Management, Content Curation And CMS. p_author_facebook: //www.facebook.com/HubWorksApp/ p_author_twitter: https://twitter.com/hubworksapp p_author_linkedin: p_author_instagram: feature_snippet: p_type: text t_title: t_description: content: heading: t_title: How to Make an Inventory Adjustment t_description: Inventory adjustment is the practice of updating inventory entries on accounting records to report the difference between actual stock levels on hand to what was previously inputted. image: i_image: how-to-make-an-inventory-adjustment-1613682408-9716.png t_image_description: adjustments to stock v_image_attribution: Pexels v_image_license: Pexels License v_video: paragraphs: - t_headline: t_text: Effective inventory management gives business owners access to the latest stock-related information, which is useful for financial, auditing, and reporting purposes. To ensure that the current stock system provides accurate metrics, inventory adjustments must be regularly performed.

By keeping inventory records up-to-date, businesses can prevent delays to their operations and save time and money. p_headline_type: h2 image: i_image: t_description: v_attribution: v_license: callout_text: - t_headline: What is an Inventory Adjustment? t_text: Inventory adjustment is the process of updating inventory level entries on accounting records to report the difference between what was originally inputted to actual, physical stock.

There are 3 main types of inventory adjustments that businesses will commonly perform.

1. Increase Quantity - The current quantity on hand is higher than what was recorded, which means executives will need to adjust the total value for the item using the current average cost or cost price.

2. Decrease Quantity - The current quantity on hand is lower than what was recorded. The total value for the item must be adjusted.

3. Revaluation - When the quantity on hand is not changed, but executives modify an item's average cost and total value.

Changes to inventory levels can occur for many reasons. For example, when businesses have excess stock products or if they introduce new merchandise into their catalog, they will need to increase their inventory quantity. p_headline_type: h2 image: i_image: t_description: v_attribution: v_license: callout_text: - t_headline: t_text: On the other hand, customer sales will usually lead to decreases in inventory quantities. Other common reasons for this type of adjustments are-

p_headline_type: h2 image: i_image: what-is-an-inventory-adjustment-1613682408-2195.png t_description: Pexels v_attribution: Pexels v_license: Pexels License callout_text: - t_headline: Overstated and Understated Inventory t_text: When making inventory adjustments, management must ensure their stock records are not overstated or understated. The former refers to when there are more inventory items on hand than the stock count. This will typically occur due to product damage, errors in counting, or fraud.

Having overstated inventory records can impact income statements by lowering the cost of goods sold (COGS), which are expenses related to producing or carrying a product. It also causes current assets, retained earnings, and total assets to be overstated.

On the contrary, understated inventory is when there are fewer goods in the store or warehouse than what is inputted in records. These differences will often arise due to poor inventory tracking and accidentally omitting products on store receipts.

When managers record lower inventory levels on their accounting records, this decreases the closing stock and increases the COGS. p_headline_type: h2 image: i_image: t_description: v_attribution: v_license: callout_text: - t_headline: Example of an Inventory Adjustment t_text: In the event that an organization experiences overstated or understated inventory records, it must promptly make an inventory adjustment. This will ensure executive teams and employees have accurate information to make decisions, such as demand forecasting and inventory replenishment.

Adjusting inventory requires careful calculations and the COGS formula, which is-



For example, if a shoewear retailer has accurate inventory counts, in which they have a beginning inventory of $4,000, purchases of $4,000, and an ending inventory of $4,000, the calculations would be-

p_headline_type: h2 image: i_image: t_description: v_attribution: v_license: callout_text: - t_headline: t_text: However, if the retailer's inventory records were overstated and they had $4,500 of ending inventory, instead of $4,000, the calculations would be-


This means the ending inventory was overstated by $500 and managers will need to reduce the cost of goods sold in their financial accounts by $500.

Conversely, if the company's inventory statement was understated and their ending inventory is $3,500, the adjustment calculations would be-


This shows that there is $500 overstated in ending inventory, which means management must increase their cost of goods sold by $500. p_headline_type: h2 image: i_image: example-of-an-inventory-adjustment-1613682593-7792.png t_description: Pexels v_attribution: Pexels v_license: Pexels License callout_text: - t_headline: t_text: Changes to stock levels can occur due to external and unexpected causes, such as miscounting, administrative errors, and inventory loss. In order for businesses to have a robust and effective inventory management system, business teams must account for any discrepancies and modifications to their stock levels.

By implementing proper and diligent inventory adjustment protocols, executives can ensure they have accurate records regarding their products and quantity levels. This will subsequently lead to improved data reporting, informed decision-making, and error-free financial statements. p_headline_type: h2 image: i_image: t_description: v_attribution: v_license: callout_text: event_body: json-ld_event: t_name: Employee Scheduling for Restaurant Managers t_description: Attendees will learn how create excellent schedules. The class teaches managers how to estimate the number of employees they need to staff their locations; how to accurately forecast their customer demand; how to quickly and accuaratly write and communicate schedules to employees; and how to evaluate the accuracy and optimization of their schedules to make adjustments. v_start_date: 2022-08-08 i_image: p_location_name: Altametrics Online Webinar Course p_address: webinar.altametrics.com?site=altametrics v_price: 10.00 t_offer_description: Priority Registration v_registration_url: webinar.altametrics.com?site=altametrics ---