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Hi:
There is an Inventory Adjustments account in the cost section of the chart of accounts containing a large negative balance, because the beginning costs and quantities for the new inventory items were posted in the Item Journal earlier this month.
Since this results in a large figure in the cost section of the income statement and since this was the beginning of the posting of inventory costs and quantities for these new items, should this account be excluded from the income statement?
Thanks!
John
I didn't have purchase orders, sales orders, or any other documentation. I just knew that those items plus their quantities and costs needed to be inputted.
Anyway, from an accounting standpoint, is there a way to "write this off" so that these inflated figures do not appear on the balance sheet or income statement?
John, you can put items on purchase orders/invoices/credit memos and also on sales invoices/orders/credit memos. If you assemble or produce items, there are other features for that as well.
These are the best method for handling inventory subledger.
I didn't know how to get costs and quantities into the Inventory subledger other than by entering and posting costs and quantity in the item journal.
For future reference, what would have been a better way?
Secondly, from an accounting standpoint, is there a way to "write this off" so that these inflated figures do not appear on the balance sheet or income statement?
John
To add to Josh and MahGah. Your beginning inventory debited balance sheet and credit inventory adjustment on income statement. When the beginning general ledger balance sheet is entered it will debit balance sheet also, making your balance sheet too high. Whether you do the entry now or once your beginning balance sheet, you will need to credit inventory on the balance sheet and debit the inventory adjustment account.
Typically, the beginning inventory from the item journal should have zero accounting impact.
As Josh said this setup is sensible. You just need to talk to your accounting team and see how you can manage this case. It could be that they agree with one time transaction to fix it or add explanation to their documents.
In that posting scenario the other side is the inventory account- which is on the balance sheet. If you’re writing stock off for example it requires a representation on the P&L. I would think this setup is therefore sensible
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