EOY – Reconcile Inventory (May 2015)
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EOY#7 Reconcile Inventory
Two types of inventory methods
1. Perpetual Inventory System which is continual track of additions or deletions in materials,
work-in-process, and cost of goods sold on a day-to-day basis. Physical inventory counts are
usually taken at least once a year in order to check on the validity of the book records. Cost of
goods sold therefore is kept on a day-to-day basis rather than being determined periodically.
Within the accounting system the inventory items are setup as ‘I Inventory’ to track the
purchases and sales of the item.
The accounting posting when buying stock using perpetual inventory is:- (Note no cost is
allocated to the profit and loss at this stage)
DR
Stock on Hand
$
CR
Creditors
($)
The accounting posting when selling stock using perpetual inventory is:DR
Debtors
$
CR
Sales
($)
DR
Cost of Goods Sold $
(using average cost of the item)
CR
Stock on Hand
($)
2. Periodic Inventory System does not require a day-to-day record of inventory changes. Costs
of materials used and costs of goods sold cannot be calculated until ending inventories,
determined by physical count, are subtracted from the sum of opening inventories and
purchases (or costs of goods manufactured in the case of a manufacturer). Therefore the
accounting posting is as follows:
The accounting posting when buying stock using periodic inventory is:DR
Purchases
$
CR
Creditors
($)
The accounting posting when selling stock using periodic inventory is:DR
Debtors
$
CR
Sales
($)
Reconcile Perpetual Inventory System
Purpose of reconciling the inventory is to bring in line the inventory system with the Balance Sheet
and a check of average cost used for cost of sales for each item.
© The Institute of Certified Bookkeepers
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EOY – Reconcile Inventory (May 2015)
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Process for Reconciliation
1. Stocktake counted and entered into accounting software
2. Review Average Cost or Fixed Cost when posting the stocktake journal after count to ensure
no zero or incorrect costs for each item.
3. Display and Print Stock on Hand at 30th June. It’s imperative the value of stock on hand is
equal to the value of stock on hand on the Balance Sheet.
Item #
100
110
120
130
140
Item Description
Cooler Large
Cooler Medium
Cooler Small
Filter Kit Large
Filter Kit Medium
TOTAL STOCK ON HAND
STOCK ACCOUNT BALANCE
OUT OF BALANCE:
Qty on Hand
1000
989
545
20
20
2,574
Avg Cost Value $
15.00
$15,000
12.00
$11,868
10.00
$5,450
35.00
$700
25.00
$500
$36,092
$36,092
$0
4. Reasons for out of balance:





Adjustment made to Account Stock on Hand outside of the inventory items.
Incorrect Average Cost
Stock Returns handled incorrectly
Damaged or soiled stock handled incorrectly
Samples stock handled incorrectly
5. Correcting Journal if out of balance
DR or CR Stock on Hand (Asset Account)
DR or CR Stock Adjustment (COGS account)
Reconcile Periodic Inventory System
Periodic Inventory system
There are no checks unless the owner of the business specifically wants to see adjustment stock at
the end of each month or quarter adjusted for their management reports
The inventory accounts are adjusted by a manual general journal entry at the end of each period
following stocktake. See journal sample below:
Reverse Stock on Hand from prior year
DR
Opening Stock (COGS Account)
CR
Stock on Hand (Asset Account
$
($)
Bring in Stock at end of year
DR
Stock on Hand (Asset Account)
CR
Closing Stock (COGS Account)
$
($)
© The Institute of Certified Bookkeepers
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EOY – Reconcile Inventory (May 2015)
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Reconcile Receipt of Inventory Liability Account
Some Accounting Software may allow receipting of stock without the supplier invoice to enable the
stock to be brought in at an estimated value and then sold.
Upon receipt of the stock the inventory journal will increase stock value and leave a liability value on
the Balance Sheet to be reversed once the supplier invoice has been provided:DR
CR
Stock on Hand (Asset Account)
Inventory Receipt Liability
$
($)
At an end of year, it’s important to understand this value and which supplier invoice/s it relates to and
provide the accountant with a breakdown, as this value could potentially affect cost of goods sold and
the gross profit margin of the business.
Ideally at end of year, if the supplier invoice can be obtained and processed leaving a nil value of the
inventory receipt liability it is preferable.
© The Institute of Certified Bookkeepers
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