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NauticalJim
October 6, 2023
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Correct way for inventory adjustments

  • October 6, 2023
  • 1 reply
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Hello...we have QB enterprise desktop and have been having issues with inventoy adjustments.  We had some changes with a warehouse move and had to adjust some inventory in as well as out.  Most of the inventory we had to adjust out was damaged.  In was mostly ierms that either were not received properly before or just not counted before.

1 What is the proper way to do an inventory adjustment on a damaged piece we need to discard?

2 If we find inventory that wasnt in QB what is the way to enter it in so that it doesnt show as a credit on sales?  

SO far we had done it under cost of goods, but it seems its showing as a credit on sales which is making it look like our profits are better on sales than they actually are?  What are we doing wrong?  Appreciate any help.

Best answer by Kevin_C

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?


Hello there, @NauticalJim. Let me clarify a few things about managing your inventory adjustments in QuickBooks Desktop (QBDT).

 

I've read the thread above and noticed that you mentioned that your item(s) are damaged pieces that you need to discard. That said, you'll have to use an expense account for that specific inventory adjustment to record this correctly, and it will not affect your sales. Please remember to locate and delete all the adjustment entries that used the Cost of Goods Sold (COGS) account instead of an expense.

Moreover, you can create an inventory adjustment using an inventory asset account for items you don't want to show as a credit on your sales.

 

On top of that, I highly recommend consulting with your accountant to get accurate advice on setting up or selecting the correct accounts for your inventory adjustments.

 

For your additional concern, can you please provide some screenshots of how you recorded/transferred your bin locations and how they showed up in your report?

 

Kindly check out this article to seamlessly track inventory, how QuickBooks handles inventory assets, average cost, and COGS: Understand inventory assets and cost of goods sold tracking.

 

You can also run and customize sales reports in QBDT to gain valuable insights into the items you buy and sell and the status of your inventory. This way, you'll know your overall sales for each product and stock if you do it this way.

 

Feel free to get back to this thread if you need further assistance managing your inventory items. I’ll be more than happy to work with you again.

1 reply

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rvrfrf
October 6, 2023

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!

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NauticalJimAuthor
October 9, 2023

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

A
AbegailS_
October 9, 2023

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!

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