Perform General Ledger Adjustments According to Inventory Variations (Cost and Quantity)

1. Combined Adjustment: Increase/Decrease in Quantity and Cost

Example: A physical inventory reveals that an item is surplus to requirements (receiving error). The actual quantity is higher, but the unit cost is lower than that recorded.

• Quantity added: +10 units
• Recorded cost (initial): $15
• New actual cost: $12

GL entries:

• Debit: Inventory (Stock) → $120 (10 units × $12)
• Credit: Inventory cost adjustment → $150 (removal from stock at old cost)
• Debit: Inventory adjustment difference → $30 (cost correction)

2. Quantity adjustment only

Example: Damaged products removed from inventory with no impact on unit cost.

• Quantity removed: -5 units
• Unit cost: $20

GL entries:

• Credit: Inventory (Stock) → $100
• Debit: Loss on inventory/expense → $100

3. Cost adjustment only

Example: A revaluation of the cost of certain items (e.g.: supplier price entry error) with no change in quantity.

• Quantity: 100 units
• Old unit cost: $8
• New unit cost: $10

GL entries:

• Debit: Inventory (Stock) → $200 (positive adjustment)
• Credit: Cost adjustment (unrealized gain or reevaluation) → $200