Inventory Adjustments in QuickBooks

Tiffany writes:

I need to make inventory adjustments, but do not want to alter the financial statements. I set up my Items last year in QuickBooks, but didn’t use them because I was confused about how QB computed cost of goods sold, and we didn’t show any detail on our invoices.

We want to start fresh this year, so I need to adjust the inventory correctly. Can you give me any advice? Thanks.

My reply:

The short answer is that the adjustment must impact the financial statements – there is no way around it. This is a good thing – the cost of goods sold (COGS) must show in order for your Profit and Loss to be correct for last year. Do this by using the Cost of Goods Sold as the adjustment account in the screen where you adjust your inventory.

If you have been recording your Item purchases in QB during the year, before you make the adjustment I’d like to explain a few things so you understand why. Click the links below to read more about these advanced topics:

• The definition of COGS.
• The traditional COGS equation.
• The importance of taking a year-end physical inventory.