Record a QuickBooks inventory shrinkage adjustment after a count

A shrinkage adjustment in QuickBooks Online is an inventory quantity adjustment, which changes an item's quantity without recording a purchase or a sale. Intuit describes the inventory quantity adjustment that way in its adjustment article. Your physical count supplies the number that goes on it.

What the count finds and what QuickBooks records

A count finds a difference between the total you counted and the book number for each item. When the counted total is lower, most people call that difference shrinkage. A count can just as easily find more than the books show, so check the sign of every difference before you record anything.

When you save the adjustment, Intuit says QuickBooks Online automatically records appropriate adjustments to your Inventory Asset and Cost of Goods Sold accounts, and its article puts "Inventory Shrinkage" in parentheses beside the second one. That phrase is Intuit's wording. This guide calls the account the inventory adjustment account you select on the form.

QuickBooks Online does not track inventory by location within a warehouse, and the inventory adjustment form takes one number per item. The entry therefore cannot say which location a difference came from. That detail has to live somewhere else, and the rest of this guide is about where. For the term itself, see the inventory asset account.

Choosing the account is your accountant's call

Which account takes the difference is a decision for your accountant, not for whoever keys the counts. Ask before count day, so the answer is on the table when the variance list is ready.

Intuit's set-up article says the account you select tells QuickBooks Online where the value of the missing inventory goes. It says the default is "Inventory Shrinkage". It also says you can create a more descriptive cost of goods sold or expense account for things like theft, spoilage or charitable contributions. Intuit adds that the choice affects your financial statements, so you should consult your accountant.

Intuit's negative-inventory article says that if inventory was lost or misplaced, you should reach out to your accountant, because there are special ways to handle such losses.

The adjustment guide covers who decides each field on the form, so this page does not repeat it.

Separate shrinkage from a counting error before you record it

A difference on the variance list is a discrepancy to investigate. It is not yet a loss. If you record a miscount, the books show a loss that never happened.

Recount the locations behind each difference before you adjust anything. Then check that every location the item sits in was counted. Last, look at the items nobody counted. An item with no count is a question for a manager, and it is not a loss until someone decides it is.

Here is an example inside one warehouse. The books show 120 of an item. The count sheets show 60 in aisle 4 rack B, 38 in the overflow zone and 16 in the returns zone, a total of 114, so the item is short by 6.

You recount the overflow zone and the returns zone, the two locations with the loosest counts. The overflow zone turns out to hold 41, because the counter missed one pallet of 3 the first time. The total is now 117 and the item is short by 3.

Those 3 units are the difference worth chasing. You walk the adjacent zones for stock put away in the wrong place, and you check the returns paperwork. If the units still do not appear, check whether a sale, shipment or receipt was never entered in QuickBooks, or was entered with the wrong date, and correct it first.

What is left after that, once your accountant agrees it is a loss, is the number that goes on the adjustment. Without the recount, the entry would have recorded a loss of 6, and 3 of those units were never lost.

The hand method of summing by item, comparing with the books, recounting and adjusting is written out in full in the QuickBooks Online inventory limitations guide. The year-end count guide places these steps in the order of count day. Enter one adjustment from the final totals, after the recounts are done.

Keep the evidence behind the entry

Intuit's adjustment article lists an adjustment date, an inventory adjustment account, a memo and a quantity for each item on the form. Because the form takes one number per item, the location behind a difference does not travel with the entry. The counter and the recount history are yours to keep.

File these with the adjustment:

• The variance list by location, as it stood before and after the recounts.
• The count sheets or count history that show who counted each location and when.
• Your recount notes, including what you found when you walked the adjacent zones.

Put a reference to the count plan in the memo, so anyone who opens the entry later can find that file. The adjustment guide covers memo habits.

Your accountant will want to see why the entry was made. The files above answer that without anyone having to remember count day.

Where Count fits

InventoryWare Count connects to QuickBooks Online. Counters record each quantity against a location, and Count sums an item's counted total across the plan's locations.

The variance report lists each item with a variance. For each item with a variance, it shows the location or locations where the item was counted and who last counted it.

The count history by location report shows the count plan, the date counted and who counted, with the item's snapshot, counted and variance quantities. Variance and count reports export to Excel and PDF.

To send, Count creates one Inventory Quantity Adjustment in QuickBooks Online, with a line for each approved item that is linked to a QuickBooks Online item. You choose the inventory adjustment account for the send from the company's Cost of Goods Sold and Expense accounts in QuickBooks Online. Count writes the memo itself, with the count plan's name, its completed date and the counters' names, the first three and then how many more.

Nothing posts while the count is running, and nothing posts until a manager approves the discrepancy; only approved lines post; nothing nobody counted is zeroed automatically; posting from a partial count is not available.

An approved line drops out of the send if a later sync makes its counted total match the QuickBooks quantity. A line that is still a discrepancy keeps its approval.

Items that QuickBooks shows in stock and nobody counted are listed as possible missing items, and each goes as zero only after a manager approves it as zero. A manager can also ignore an uncounted item so that it stays out of the adjustment.