InventoryAdjustment

InventoryAdjustment is the process of correcting discrepancies between the inventory quantity recorded in an organization’s system and the actual physical stock on hand. It is a common function in inventory management and accounting systems used to maintain accurate stock levels, valuation, and financial reporting.

Causes of inventory adjustments include errors in receiving, picking, or counting; shrinkage from theft or damage; damaged or obsolete goods; supplier discrepancies; and returns processed differently from the system records. Adjustments are typically identified through cycle counts, regular reconciliations, or exception reports that flag variances between on-hand quantities and system records.

The adjustment process generally involves verifying the discrepancy, determining the appropriate reason code, and posting the adjustment in the accounting system. This often requires authorization and is documented to maintain an auditable trail. Journal entries associated with adjustments affect inventory accounts and related expense or reserve accounts, in accordance with organizational policy. Negative adjustments decrease on-hand quantity and may be recorded as a loss, shrinkage, or write-off, while positive adjustments increase on-hand quantity and may be offset by a gain, reserve release, or reclassification.

Types of adjustments include negative adjustments (reducing stock), positive adjustments (increasing stock), and write-downs or write-offs for damaged or obsolete items. The net effect is to align the balance sheet value of inventory with the physical stock and to reflect accurate cost of goods sold and profitability.

Best practices emphasize timely posting, clear reason codes, strong documentation, segregation of duties, and regular cycle counting to minimize discrepancies. See also inventory management, cycle counting, and perpetual inventory systems.