STOCK ADJUSTMENT TO MATCH GL

Created by Rhizla Alexandra Poblete, Modified on Sat, 14 Sep at 11:49 AM by Rhizla Alexandra Poblete

A2000 ONLINE SUPPORT DEPARTMENT

KNOWLEDGE BASE

DESCRIPTION We want to adjust our stock to do a write-down in value. How to handle this?

1. HOW CAN I ADJUST MY STOCK VALUATION DOWN?

There are valid cases where stock are damaged, obsoleted or price had tumbled to a point where users need to write down the value so that it reflects the most realistic cost.

Example:

We have 100 pieces of Mobile Phones bought at $1000 per piece. Valuation of the stock is at $100,000. The GL reflected a value of $100,000 in my balance sheet. However at year end on 31-Dec 2022, the value of the stocks had dropped, and the market price is at $700 each.

A) We will action at the Stock Ledger, and perform the adjustment so that the values of the items are reduced to $70,000 instead of $100,000.

B) This is done via an IT transaction on 31-Dec 2022 as follow:

Issue 100 pieces of Mobile Phone (auto-costed out at $1000 each)

Receives 100 pieces of Mobile Phone (enter value of $700 each)

The resulting GL posting for this is:

DR CR

Balance Sheet Stock A/c 100,000

Stock Adjustment A/c 100,000

Balance Sheet Stock A/c 70,000

Stock Adjustment A/c 70,000

Note: Stock Adjustment A/c is a P&L item

C) When this IT transaction is posted, there is a balance of 30,000 on the debit side for Stock Adjustment A/c. This will reduce the P&L for 2022 by $30,000, while reducing the stock value by $30,000.

2. DO WE NEED TO PASS A JOURNAL ENTRY?

No, the IT transaction creates an auto-journal which will hit the P&L by that amount. A manual journal created can solve the GL side, but cannot tie the stock value to the balance sheet figure. Therefore users should not do a manual journal.

NOTE: If there are transactions already done in Jan 2023 (and above), we need to repost these transactions so that they do not carry the $1000 costing.

The user must do the following actions:

Lock the FY period as on 31-Dec 2022 so that the valuation cannot change anymore.
Perform a Recalculate Product Cost from 1-Jan 2023 onward.
After this is done, all sales from 1-Jan 2023 will recognize the Cost of Goods Sold for this Mobile Phone as $700.
Repost all 2023 sales transaction to refresh the GL posting.

3. CAN WE ADJUST THE STOCK VALUATION UPWARD?

Yes, the same method of reducing the stock value can also be used to increase the Stock Valuation. However please note that there are proper accounting standards to be followed, whether stock write-downs or write-up are involved.

Please consult your auditor or tax agent regarding this.

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