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Adjust Physical Counts and Inventory Values in QuickBooks 2014

Inventory shrinkage, spoilage, and (unfortunately) theft all combine to reduce the inventory that you physically have. In order to record these inventory reductions in QuickBooks, you periodically physically count your inventory and then update your QuickBooks records with the results of your physical counts.

You presumably know what works best in your business. However, in order to record your physical count information in QuickBooks, you use a special tool. Specifically, you use the Adjust Quantity/Value on Hand command.

This command is available to you in two places. If you display the Item list, click the Activities button (which appears at the bottom of the Item List window) and choose the Adjust Quantity/Value on Hand command. You can also choose the Vendors→Inventory Activities→Adjust Quantity/Value on Hand command. Choosing either command displays the Adjust Quantity/Value on Hand window.

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To use the Adjust Quantity/Value on Hand window, follow these steps:

  1. Use the Adjustment Type drop-down list to indicate what you’re adjusting.

    You can adjust the quantity or the value of both the quantity and the value of the items you’re holding in inventory. Just select the appropriate entry from the Adjustment Type drop-down list: Quantity, Total Value, or Quantity and Total Value.

  2. Use the Adjustment Date box to record the date of your physical count.

    In other words, you want to adjust your quantities as of the day you took or completed the physical inventory count.

  3. Use the Adjustment Account drop-down list to identify the expense account that you want to use to track your inventory shrinkage expense.

  4. (Optional) Provide a reference number (if you use numbers) to uniquely and meaningfully identify or cross-reference the transaction.

  5. (Optional) Identify the Customer:Job and class.

    If it’s appropriate (in many cases, it won’t be), use the Customer:Job drop-down list to identify the customer and job associated with this inventory shrinkage. In a similar fashion, if appropriate, use the Class box to identify the class that you want to use for tracking this inventory shrinkage.

  6. Supply the correct inventory quantities.

    The Item, Description, and Qty on Hand columns of the Adjust Quantity/Value on Hand window identify the inventory items that you’re holding and the current quantity counts. Use the New Quantity column to provide the correct physical count quantity of the item. After you’ve entered the new quantity, QuickBooks calculates the quantity difference and shows this value in the Qty Difference column.

    You can actually enter a value in the New Quantity column or the Qty Difference column. QuickBooks calculates the other quantity by using the current quantity information that you supply. For example, if you enter the new quantity, QuickBooks calculates the quantity difference by subtracting the new quantity from the current quantity. If you enter the quantity difference, QuickBooks calculates the new quantity by adjusting the current quantity for the quantity difference.

  7. Adjust the value.

    If you selected the Total Value or Quantity and Total Value from the Adjustment Type drop-down list in Step 1, QuickBooks displays an expanded version of the Adjust Quantity/Value on Hand window.

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    This window lets you enter both the correct physical count quantity and the updated value for the inventory item. You enter the physical count quantity, obviously, in the New Quantity column. You enter the new updated value in the New Value column. You probably use this version of the Adjust Quantity/Value on Hand window only if you’re using a lower-of-cost or market inventory valuation method.

    For example, both financial accounting standards and tax accounting rules allow you to mark down your inventory to the lower of its original cost or its fair market value. If you’re doing this, you enter the new inventory value in the New Value column.

    Essentially, using the lower-of-cost or market inventory evaluation method just means that you do what it says. You keep your inventory valued at its original cost or, if its value is less than its original cost, at its new value. Obviously, assessing the value of your inventory is a little tricky. But if you have questions, you can ask your CPA for help.

    One thing to keep in mind, however, is that you can’t go changing your accounting methods willy-nilly without permission from the Internal Revenue Service. And changing your inventory valuation method from cost, say, to lower-of-cost or market is a change in accounting method.

  8. Provide a memo description.

    If you want to further describe the quantity or value adjustment, use the Memo box for this purpose. For example, you may want to reference the physical count worksheets, the people performing the physical count, or the documentation that explains the valuation adjustment.

  9. Save the adjustment.

    After you’ve used the Adjust Quantity/Value on Hand window to describe the quantity changes or value changes in your inventory, click either the Save & Close button or the Save & New button to save the adjustment transaction.

    As you probably know at this point in your life, Save & Close saves the transaction and closes the window. Save & New saves the transaction but leaves the window open in case you want to make additional changes.

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