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Inventory Adjustments & Physical Counts

This guide explains how to synchronize your system's inventory levels with the actual physical stock in your warehouse. Whether you're doing a full annual count or a quick correction, this document covers the procedures and accounting impacts of inventory adjustments.

What is an Inventory Adjustment?

An Inventory Adjustment is a transaction used to correct the quantity on hand in the system to match the quantity found during a physical count. Discrepancies often occur due to:

  • Damaged items not recorded
  • Theft or shrinkage
  • Data entry errors during receipts or deliveries
  • Unrecorded internal usage

[!CAUTION] Inventory Adjustments (Physical stock) are different from Adjustment Documents (Manual journal entries). Use this module for stock quantities, and the Accounting module for purely financial corrections.

Where to find it in the UI

  1. Quick Adjustment: Navigate to Inventory → Stock Quantities. Select a record and use the Edit action to update the quantity directly.
  2. Formal Movement: Navigate to Inventory → Stock Movements. Create a movement with Type Adjustment.

The Adjustment Process

Step 1: Performing a Physical Count

Before entering data, perform a physical count of your products in their respective locations.

  • Use a "Count Sheet" (you can export your Stock Quantities to Excel as a starting point).
  • Record the System Quantity vs. the Actual Physical Quantity.

Step 2: Recording the Adjustment

Method A: Direct Quantity Update (Best for simple fixes)

  1. Navigate to Inventory → Stock Quantities.
  2. Find the Product and Location you want to adjust.
  3. Click Edit.
  4. Update the Quantity field to match your physical count.
  5. Save the record.

Method B: Adjustment Movement (Best for audit trails)

  1. Navigate to Inventory → Stock Movements.
  2. Click Create Stock Movement.
  3. Set Movement Type to Adjustment.
  4. If quantity increases: Set the "From Location" to a Virtual/Adjustment location and the "To Location" to your Warehouse.
  5. If quantity decreases: Set the "From Location" to your Warehouse and the "To Location" to a Virtual/Adjustment location.
  6. Enter the Quantity difference.
  7. Add a clear Reason (e.g., "Found 2 extra units during cycle count").

Accounting Impact

When you finish an adjustment, the system automatically creates a Journal Entry to reflect the change in value.

If Stock Increases (Positive Adjustment)

  • Debit: Inventory Asset Account (Increases your assets)
  • Credit: Inventory Adjustment/Loss Account (Recorded as a gain or recovery)

If Stock Decreases (Negative Adjustment)

  • Debit: Inventory Adjustment/Loss Account (Recorded as an expense/loss)
  • Credit: Inventory Asset Account (Decreases your assets)

Note: For products using FIFO or AVCO, the system uses the current unit value to calculate the adjustment amount.

Best Practices

1. Identify the Cause

Don't just fix the numbers. If you are constantly adjusting stock for a specific product, investigate why. Is it a theft issue? A packing error? Or a vendor shipment mistake?

2. Use Cycle Counting

Instead of counting everything once a year (which stops operations), count a small category of products every week. This keeps the system accurate year-round.

3. Clear Descriptions

Always write a specific reason for the adjustment. "Correction" is not enough. Better: "Sofa damaged during warehouse reorganization" or "Typo in previous receipt #402".

4. Zeroing Out

If a product is no longer in stock, adjust it to 0 rather than deleting the record. This maintains historical traceability.

Troubleshooting

Q: I adjusted the quantity but the valuation didn't change. A: Check if the product is set as a Storable Product. Only storable products create valuation entries during adjustments.

Q: Why can't I edit a Stock Quant record? A: Check if the stock is currently Reserved for a pending delivery or transfer. You must cancel the reservation or complete the movement before you can adjust the total quantity.

Q: Which account should I use for adjustments? A: Usually, a "Stock Variance" or "Inventory Loss" expense account is used. Consult your accountant for the specific GL account mapping in your Chart of Accounts.