Inventory adjustment refers to adjustment entries made in periodic accounting to account for differences between recorded and actual inventory items.
Aside from shipment of orders that will be recorded in Cost of Goods ledger account, you might want to see in your Profit & Loss report the changes of stock due to other reasons such as:
- Damaged Goods (e.g. can no longer be sold as a new product)
- Shrinkage (e.g. inventory due to theft or clerical errors)
- Wastage (e.g. expired or obsolete inventory such as food)
- Internal Use (e.g, consumed for Marketing Promotion purposes)
In order to have a track of these in a ledger account, you can do a stock adjustment with a reason and set up that reasoning to send it to the designated ledger account.
If a stock adjustment is created with the reason ‘Damaged Goods’ as shown below:
You can then set up the stock adjustment reasoning to send to a designated account in Xero’s integration Settings page.
When you create a new custom stock adjustment reason, you can also choose to link up the inventory adjustment account.
During the installation of Xero integration, you will also be prompted to link up every stock adjustment reason to its designated ledger account.
Once the stock adjustment reason is set up, journal entries for the respective stock adjustments will reflect the linked ledger accounts accordingly. 🥳
