How to Adjust Inventory in the Books
- 1). Debit the opening inventory account and credit the inventory asset account with the opening value at the beginning of the year. The opening inventory account doesn't receive any further postings until the end of the year.
- 2). Post the period adjustments. Debit the inventory asset account and credit the closing inventory account with the computed value of inventory on hand at the end of each month or quarter. Reverse the entries at the start of the next period.
- 3). Adjust the inventory following the end-of-year physical stock check. Debit the inventory asset account and credit the closing inventory account with the actual value of stock held.
- 4). Close the income and expense accounts at the end of the year and transfer the balances to the income summary account. The opening inventory amount from the start of the year plus inventory purchased or manufactured during the year, less the closing inventory, gives the cost of sales or cost of goods sold figure for the year.
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