You may have to collaborate with your accounting department to get the information for these calculations.įind the monetary amount of all purchases for that period and add it to your total inventory.ĭetermine the monetary amount of inventory in your company for the end of this time period. Here's how to use this formula to calculate your own inventory adjustments:ĭetermine the amount of your company's beginning inventory for the period you're calculating. The basic formula for calculating the cost of goods sold is:īeginning inventory + purchases - ending inventory = Cost of goods sold (COGS) Reevaluation is when the amount of stock doesn't change, but management manually changes an item's cost and total value. Increasing quantity is when a company adjusts the total value of an item when there is a higher quantity in stock than originally recorded. There are three main types of inventory adjustments that a company may make:ĭecreasing quantity is when a company adjusts the total value of an item when there's a lower amount in stock than originally recorded. Related: 14 Effective Accounting Performance Measures Types of inventory adjustments You would then record this on an income statement and use it to calculate your company's gross profits. The cost of goods sold (COGS) comprises expenses and effort that went into selling inventory during a selected amount of time. An accurate representation of inventory stock can help your company have a proper view of gross and net profits, income statements and the company's overall wellbeing.Ĭalculating inventory adjustments can also help calculate gross profits. These adjustments maintain accurate pricing on products, such as making sure the cost of an item doesn't increase or decrease because of miscalculations of the item's stock. Inventory adjustments are important because they can help your company reflect changes that may not be in official records and also maintain responsible accounting practices. Related: Guide to Physical Inventories Why are inventory adjustments important? Your accounting team may use these adjustments to calculate your beginning inventory versus your ending inventory when finalizing records for the current year. Inventory adjustments usually detail which product is missing, how much it costs and how many a company lost. Internal use, like products used in the company Inventory adjustments also may come from other areas besides sales, such as: Sometimes, companies may see these changes during annual inventory counts or periodic accounting entries. Related: Inventory: Definition and Methods for Management What is an inventory adjustment?Īn inventory adjustment is an increase or decrease in a company's inventory to explain theft, broken products, loss or other errors. In this article, we discuss what inventory adjustments are, why they're important, how to calculate inventory adjustments and examples and tips to help you adjust your own inventory. There are specific resources you can use to measure and adjust your company's inventory adjustments. It's important to determine the source of these differences and adjust financial records to calculate your company's wellbeing and maintain accurate business records. Sometimes your company may notice differences in stock numbers when making annual inventory counts.
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