Inventory count variance reconciliation for QuickBooks Online

Reconciling means explaining each difference first

Reconciling a count means deciding what each difference is before anyone adjusts QuickBooks Online. You decide this for each item that does not match the books. A difference is not a loss until you rule out everything else it could be.

The hand reconcile sums by item, compares with the books, recounts and adjusts. It is written in full in QuickBooks Online inventory limitations for warehouses. The items that still do not match after that compare need triage. The entries to check on the books side are in why QuickBooks inventory does not match the warehouse. If the count is still ahead of you, start with how to do a physical inventory count.

Start with the variance list, biggest first

List every item whose counted total differs from its book number. For each one, write down the item number and the locations you counted. Add the counted total, the book number and the moment the book number was taken. That last detail matters because a book number from Monday and a count from Friday are two different moments.

Put the differences that matter most at the top. Sort by value if you have cost data, and by units if you do not. This list is your inventory variance record. Every later step works from it.

Sort each difference into one cause before you adjust

Work through four causes in this order. A later cause is worth your time only after the earlier ones are ruled out. Do not write "shrinkage" next to a difference on the way through. Shrinkage is where a difference ends up when nothing else explains it.

First, check the comparison

An item that sits in several locations has several lines on your count sheets. QuickBooks Online Plus and Advanced keep one quantity on hand per item and none by location. So you compare the sum of those lines with the book number, never one line. Then check that the book number was taken at the same moment as the count. A difference that goes away when you sum the lines or take the number again was never a difference.

Second, check for transactions never entered or dated wrong

Look at receipts and shipments around the cutoff. Intuit's article on negative inventory lists purchase orders that were not entered or not converted to bills among the causes of a quantity that differs, along with a miscount.

Suppose you took the book number at the cutoff. Then someone made an entry dated before the cutoff after you took it. Your number is missing that entry. Add a receipt entered late to the cutoff book number, and subtract a sale entered late from it. Do this check before you treat any difference as a loss, a shortage or shrinkage.

Third, check the count itself

A skipped location, an unlabeled item, a look-alike item, a wrong unit of measure and a plain miscount all make a difference that the books did not cause. A recount is how you tell. Recount the item in every location where it could sit, not only where the difference showed up.

Last, accept that the stock is gone

Suppose the comparison holds and no late entry explains the difference. Suppose a recount by a different counter confirms the first count. Then the stock is really gone. Inventory shrinkage is one outcome. Only now is an inventory adjustment the right fix.

A worked variance list from one warehouse

This warehouse has an aisle 2 zone, an overflow zone and a returns zone. The book numbers were taken at the end of count day. The list is sorted by units.

Each difference has a different answer.

• Item 2208 was compared on one line only. The aisle 2 rack A line says 30, and the overflow zone line says 18. The sum is 48, which equals the book number, so the difference is zero. The comparison was wrong.
• Item 6342 counted 24 in aisle 2 rack C. The counter said the overflow zone was crowded, so the supervisor asked a different counter to recount the item. The recount found a carton of 12 that was on no sheet, which makes 36. The first count was wrong.
• Item 3115 counted 60 against a book number of 54. A receipt of 6 arrived before the cutoff and was entered after the book number was taken, dated before the cutoff. Adding it makes 60, so the entry was late and nothing is missing.
• Item 7701 counted 9 against 15. No late entry exists and the comparison holds. The supervisor doubted the count and sent a different counter, who did not see the first count. The recount also found 9, so the 6 units are gone.
• Item 5090 counted 35 against 40. A sale of 5 shipped before the cutoff and was entered after the book number was taken, dated before the cutoff. Subtracting it makes 35, so there is no difference.

Only item 7701 reaches the adjustment, and only because three other explanations were ruled out first.

Recount on doubt, with a different counter

A recount confirms a result you doubt. It is not a way to chase a number until it matches. The supervisor holds the book numbers, so the supervisor decides when a result is in doubt, or when a counter notes something odd about a location or an item, such as a crowded overflow zone or two look-alike items.

Send a different counter, because the person who made a mistake is likely to make it again. Give the recount counter a fresh blank sheet and show them neither the first count nor the book number. A counter who sees the first result is checking it, not counting. File the recount sheet with the first one.

Write down what was decided, and who decided

For every difference on the list, record the cause you found, the evidence for it, the decision and the name of the person who made it. The evidence is the late receipt or the recount sheet. The decision is to correct an entry, to adjust or to leave the difference alone. File the record behind the adjustment with the count sheets and the recount sheets.

The accountant chooses the account and the date for any adjustment, so write down the inventory adjustment account you select. Inventory adjustment in QuickBooks defines the term, and how to adjust inventory quantity in QuickBooks Online covers the form. The accounts, the debit and the credit are your accountant's call, and recording inventory shrinkage in QuickBooks covers writing down a confirmed loss.

If your company shows an Inventory counts option under Products and services, Intuit's instructions have you enter quantities in a New Quantity column, and finalizing creates an Inventory Quantity Adjustment. Intuit's instructions have no step for recording a location, assigning a counter, recounting or approving a variance. The record of who decided stays with you.

Where Count fits

InventoryWare Count's variance report lists each item with a variance: item number, description, the location or locations where it was counted, snapshot quantity, counted quantity, quantity variance, percent variance, cost impact when the plan has cost data, and who last counted it. A manager can reopen a location for recount from the plan audit screen.

Only a count manager or the company owner can approve a discrepancy. An approval is tied to the counted quantity it approved, so a recount that changes that quantity voids the approval and the line needs approval again.

InventoryWare Count is built for one complete physical inventory count, and posting adjustments to QuickBooks from a partial count is not available.