Your Ask Joey ™ Answer

What is the journal entry to record an adjustment to inventory after a physical inventory observation?

 When a company performs a physical inventory observation, they are comparing the physical counted quantities from the warehouse floor to what the quantity is per the inventory system.

If inventory per the physical count is more than what the system has recorded, that means that not as many goods were sold and cost of goods sold needs to be reduced. The company would increase inventory by debiting inventory (increases inventory) and crediting cost of goods sold (reduces expense).

If inventory per the physical count is less than what the system has recorded, then that means that more items were sold, and the company needs to increase cost of goods sold. The company would decrease inventory and increase cost of goods sold. Therefore, the debit would be to cost of goods sold and the credit would be to inventory.

Back To All Questions

You might also be interested in...

  • Three Reasons to Become an Accountant

    If you’re someone who is intrigued by numbers, enjoys problem-solving and wants to help others, then accounting might be the perfect career for you. While some people may be put off by its unalluring reputation, accounting is an excellent career choice that has many benefits. In this article, we look at three of the reasons...

  • Qualified Retirement Planning: Tax Advantages & Disadvantages

    Home Advantages and Disadvantages of Tax-Free and Deferred-Tax Retirement Plans What are “qualified retirement plans” and how can they be effective for tax planning? Well, there are plenty of tax savings advantages to individuals contributing to tax-free retirement accounts, as well as tax-deferred retirement accounts. However, this doesn’t necessarily mean that there are no disadvantages...

  • CPA Evolution Survival Guide

    Download Your eBook by selecting the download icon in the top right-hand corner