 zero accounting software inventory adjustment get ready to be an office hero with zero here we are in our custom zero home page we started up in a prior presentation gonna zoom in by holding control down scrolling up support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page we also include added resources such as excel practice problems PDF files and more like QuickBooks backup files when applicable so once again click the link below for a free month membership to our website and all the content on it on the scroll wheel currently at 175% zoom in we're gonna be opening the demo file but before we do I'm just gonna reset the data resetting the data in the demo file that will open up the demo file as well I'm gonna hide this first item here and then we're gonna open up the major financial statement reports the balance sheet and the income statement I'm gonna do that by right clicking the tab up top to duplicate it you're gonna duplicate it again right clicking again and duplicating it again let's go back to the first tab accounting drop-down reports we want to open up our major financial statement report of the balance sheet and then second tab or third tab we're gonna go to the accounting drop-down reports and this time open up the income statement and then I'm gonna go back to the balance sheet tab change the dates put it on up with a custom date to December of 22 for this practice problems so that is it and update it let's go back to the first tab so we've been thinking about the items that are typically in what you might call the vendor cycle the purchase of cycle the expense cycle if I hit the plus button that will typically include a bill form and that will include if you have inventory the purchase order form and that might include the payment form when we spend money like a spend money form which would be like a check or form that decreases in essence the checking account now let's just do a quick recap on those and now we're gonna look at inventory adjustments which you can think is of course kind of related to the purchasing side of things in this cycle so let's just look at that cycle in a flow chart so just to consider the flow chart typically we're talking about money going out here at the end of the day for purchases of goods services inventory expenses we might just pay them electronically or with a check that we looked at we might have an accrual component where we enter the bill increasing the accounts payable and then later paying off the bill in essence a check form at that point if we have inventory then we might have a purchase order which doesn't actually have a financial transaction to it but is a request for inventory when we receive the inventory then we would enter the bill at that point in time so as we introduced this process we talked about the tracking of inventory within the system so when we enter inventory in the system and purchase inventory then we're gonna have to if we're tracking it within the accounting system which we don't have to do we could use a periodic inventory system in which case we track it outside of the accounting system and we just record the increases in inventory on the account on the general ledger account and then adjust it periodically with accordance to the worksheets we use outside that would be a periodic kind of system a little bit easier to set up within the zero software but then you don't have that perpetual system and a perpetual system we record not only the account when we enter the bill purchasing the inventory but also the sub ledger tracking the units of inventories that we're purchasing then when we sell the inventory we're reducing the inventory account and recording the cost of goods sold automatically rather than periodically now in that kind of system you still are gonna have these adjustments to inventory because that doesn't mean that we do not do a physical count we still need to do a physical count from time to time and then adjust the inventory in accordance with whatever the physical count is which could be different due to things like shrinkage spoilage or whatever so to do that let's close this back up and let's just give a quick recap of entering the inventory so for example if we go through the inventory process we might first enter the purchase order like we did last time let's just do a quick recap purchase order I'm just gonna say this is gonna be for an AAA I'll set up our contact and so it's gonna be the item I'm gonna use for the example are they gonna be these t-shirts at the bottom so that t-shirt we have $120 t-shirt that we're gonna purchase and let's do that that looks good zoom in a bit here and then I'm gonna go ahead and approve that and remember the flow that happens is that if I go into the drop-down and go into the purchase orders that put it into the approved purchased order right there and then I can go into here and create a bill from it imagining now we received the inventory and I'm gonna go into the options drop-down and copy it to a bill so we'll go to a bill form and I'm gonna mark the purchase order as being fully billed after that create the bill and so now we've got our bill this will actually record the increase in the accounts receivable the sub ledger of AAA the vendor that we purchased from and the inventory account as well as the sub ledger of inventory tracking the inventory we're putting on hand let's approve that and just check that out so I'm gonna go ahead and approve that and then if I go back into the business drop-down purchase orders we can see that it's moved to a build item so it's build if I go into my build items by going to the business drop-down pay bills then we can see in the awaiting payments section we've got the bill item here what happened to the financial statements if I go to the balance sheet update the balance sheet we should have the inventory on hand there's the $20 in inventory on hand that was recorded by the bill and the other side is increasing the accounts payable okay so then we have another sub ledger if I'm going to go to the next tab over right click and duplicate this tab now it doesn't look like the zero the practice file has the beginning balance is in there but just let's just take a look at this sub ledger to get a feel for it and we'll practice more on this in the demo problem but I'm gonna go into the reports here and then I'm gonna go I could type in here like inventory for example and I might want to have the inventory item list let's look at the inventory item summary report so now we've got a sub ledger giving us the actual units of inventory that we're tracking so we're not only tracking the amounts but the units of inventory now I don't believe on the balance sheet they have these beginning balances that have been included so you would think the bottom of this report you could you could tie out the total inventory to the balance sheet will work more on this in the second half of the course when we kind of set this whole thing up from scratch but you could see the item we added was the $20 here that is included in the inventory now let's make believe we did a physical count of the inventory because we're tracking inventory here on a perpetual inventory system as we purchase as we make sales but the physical count might be typically less for example because we might have sold some inventory or there might be spoilage or something like that so then to do that I'm going to go back to the first tab and let's go to the business drop down and let's look at our product and services now I'm looking at the types of services where we're or the products and services which are going to be the products the things that we actually sell that we're tracking so if I go down I'm looking at these t-shirt items down here and if I say let's just say that we had one a t-shirt item and let's say we did a physical count and instead of having the quantity of eight on hand we had seven on hand right so we got to reduce the inventory so there's the activity for the inventory down below we might then have to do an adjustment so we'll have a new adjustment and I'm going to say that 20 let's say let's actually make it an increase just to just to practice let's say for whatever reason the amount was actually higher on the physical count so I'm going to increase it by let's say let's say two units so it should go up to then 10 so that's going to be new quantity will be 10 and the adjustment account note that you might just put it to cost of goods sold or you might have a expense account called like shrinkage or spoilage or something like that because this what is this going to do in this case it's going to increase if it was a decrease it would be decreasing the inventory account the asset account and the other side needs to go somewhere which could go to the cost of goods sold or you might make another account called spoilage or shrinkage or changes or adjustments or something like that typically on the income statement an income statement type of account an expense account where cost of goods sold so it will roll over to the income statement at the end of the period and of course it'll adjust the sub account here for the units that we have so I'm just going to put adjustment down here for the for the here adjust to count to the physical count let's say and then I'll say next and then here it is so that is the adjustment inventory and cost of goods sold that's going to be in essence the journal entry let's post it and check it out so now if I go to my balance sheet and I'm going to update the balance sheet then we've got our inventories at 60 now after that adjustment that we increased it on if I go into it then we're zooming down to the source information and we got in essence a general ledger and activity type report there's the what did we record here we recorded then this $40 items was was the adjustment that we made here's the here's the payable invoice that we created which was in essence a bill a purchase of the inventory and then that's a different inform type here there's no actual form it's just an adjustment here so we don't have that source icon because this is actually kind of relating to an a standard data input form this is more like kind of a journal entry or adjustment it's not a normal hopefully part of the process all the time it's a periodic adjustment that might be necessary from time to time therefore it gives us basically in terms of the detail kind of like a journal entry kind of type of form instead of like a a bill or an invoice or a check normal data input forms let's go back and back and then the other side we put to invent an income account let's go to the income account update it and that should be going to the cost of goods sold so the cost of goods sold has been adjusted here going into that and let's bring it all the way down to the bottom where we had that adjustment right there so there it is going back up now you might not want it in the cost of good sold you might say hey look i'd like another account again you might call it shrinkage you might call it spoilage or something like that that maybe you put down here as kind of a normal expense or as another kind of cost of good sold type of account depending on how you want to set that up but clearly even if you're doing a perpetual inventory system tracking purchases and sales within the zero accounting software you're still going to need to do a physical count and will most likely at some point need to make an adjustment in order to have your books tie out to the physical count so that you can rely on your inventory tracking now if i go then to my report on the right which is our inventory summary report now we can see that we have our adjustment here so here's the adjustment that we made so we got the purchases and then the adjustment once again those beginning balances aren't pulling over to the balance sheet because i think they kind of refreshed their books probably to try to roll over the accompanying file but in any case the activity that we put in place the 40 and the 20 adds up to 60 which is what we've added here which is now on our balance sheet so we'll dive more into tracking inventory in the second half of the course when we set up those items and then we track the items on the purchasing and selling just note here that when we're thinking about the cycle of inventory that you might have first the purchase order then of course you're going to have the bill which will put the inventory on the books and then you might sell the inventory possibly with invoices which will decrease the inventory your tracking inventory on a perpetual inventory system within the zero software but you might still need to do that those adjustments that will tie out your inventory in the system of zero to the physical inventory that you've counted in the system most likely the physical inventory often being lower due to things like shrinkage, spoilage, theft and so on