Manage Quantity on Hand

How to change quantity on hand?

If you are asking how the quantity normally changes, that is in response to purchases, sales, goods receipts, and delivery notes (if the last two are being used). For complete information, start here:

If you are asking how to adjust the quantity based on differences between Manager’s records and a physical count, use an inventory write-off (for reductions) or a journal entry (for additions). Write-offs are described here: Write-ons debit Inventory on hand and credit either an inventory adjustment income account or an inventory losses account (as a contra entry). On the journal entry’s debit side, use the current average cost as the unit price.

@tut, noted your suggestion for write-ons items using journal entry (for additions). You have asked to credit whatever account but on the debit side, enter only quantity not unit price. However, we still need to enter the corresponding value of the inventory item same as in the credit side, right? This is just clear my confusion.


Yes. Perhaps items fell behind a bin during the previous physical count and were written off. Now you have found them and need to add them back. Meanwhile, there will not have been any sales or purchase transactions that affected the missing items. But, since you transferred their cost to some expense account when you wrote them off, you must transfer it back in when you add them.

It’s very clear now, thank you.

Any write on of inventory transaction must be the opposite of the write off transaction.

Using the comment:
“Perhaps items fell behind a bin during the previous physical count and were written off”.
Therefore they have been expensed, the investment in the inventory has been reduced.

Therefore, if they are subsequently found, the quantities along with the inventory valuation are then re-instated, otherwise you have claimed an expense (tax deduction) for assets you still own.

Inventory adjustments affects the value of the inventory on hand
Lets assume you only have one inventory item with a quantity of 1 in stock at a value of 100.00.
If that item gets written off then you have reduced your investment in inventory to zero as you can’t have zero quantity inventory with a valuation of 100.00.

If you have suffered fire or flood damage to the inventory, then you can’t possibly have the same investment value sitting on the shelf. The average cost does NOT get changed due to either a write off or a write on.

Furthermore, if your Inventory on hand account has a balance of 10,000 prior to a physical stocktake and it results in a number of write offs and write on, then you wouldn’t expect that account balance to remain at 10,000 afterwards, otherwise you aren’t taking up the physical stocktake valuation .

@sonicgroup you need to value your journal using the average cost of the inventory if it’s an internal inventory adjustment.

@Brucanna, what you advised, we have been exactly doing that. That’s why I asked again and again if my understanding was right about what @Tut had suggested. We had been following the process if an excess stock were found, we would adjust by crediting miscellaneous Income with corresponding valuation based on average cost of the excess stock item. But, we always remained puzzled with the question: which account to credit??? Whether we adjust to Capital Account (credit) as contra and debit inventory on hand average cost or are we doing correct by crediting miscellaneous income Account?

On the sideline, we have one more question relating to inventory management in case of goods returned by a customer. We had been following the process of crediting the customer by credit note for the inventory item and quantity returned at the price sold. Then, we receive the inventory items against Delivery Note with minus quantity (we use both delivery note and goods receipt). Is it the correct way?

You are absolutely right. I don’t know why I went down the rabbit hole I did. For some reason, the further I went, the more I got locked into my erroneous thinking. And the example I was working in a test company kept making sense. But I never took it to the limit like you did.

I’m going to edit/delete all my mistaken comments in this thread. Some of @sonicgroup’s posts will no longer make sense, so I will delete them, too. You can decide whether to edit your own accordingly to leave a correct and coherent trail.

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@tut @Brucanna, so the uncertainty about which way to handle write-off & write-ons is resolved. Thanks to both of you.

However, going back to my last post, there are two questions remained unanswered. It will be appreciate if we can get your views, thank you.

Best Rgds / M. Sultan

#1: Capital accounts is not appropriate because no one has invested more in the company. You can credit miscellaneous income, a dedicated inventory adjustments income account, or even the expense account where you write things off (as a contra entry).

#2: Why a delivery note? I would use a goods receipt with a positive number. The mathematical result will be the same, but the event you are recording will be clearer.

Generally speaking, for inventory adjustments resulting from stock counts I would use the same account for both write on & offs and locate that account within the COGS section of the P&L (if you operate that way) as it’s a component of your overall “Inventory - Cost” rather than being an income.

@Tut, thanks for your suggestion but this will not work. When a credit note is created for goods return from a customer, then in customer tab, the quantity would show up as quantity to invoice. If we go by your suggestion to use goods receipt, since there is no customer name (only supplier name) so we cannot specify the customer. Thus, although the goods can be received (ignoring the supplier column), the quantity to invoice would still continue to display. On the other hand, if we use delivery note with the minus number, we can specify the customer. In that case, the quantity to invoice would clear up against the concerned customer in customer tab.

So, I think that for credit note, in case of goods return, the correct way would be to use delivery note with minus figure to receive the goods.

What do you think about it?

Rgds / M. Sultan

I forgot about that. So your approach is the only one that will work. And, in fact, if you use Copy to from the credit note, that is the only option land the negative quantity is entered automatically.