There are three possible reasons to create inventory adjustments. The value of the item is wrong, the quantity of the item is wrong, or both the value and the quantity of the item are wrong.

Adjusting Item Quantity - Affecting Value

1. Choose Index to Reports from the Reports menu. Select Items List (Summary) from the report list and click Display. Verify the current quantity of the item you want to change and the current value of that item.
2. In the Inventory Command Center, click the *Adjust Inventory* button.
3. Enter the item’s number in the Item # column. In the Quantity column, enter the quantity of the adjustment, not the new quantity. For example: if your Items List (Summary) Report currently shows 10 units on hand, and you want to change it to 15, enter 5 in the Quantity column. Or, if the Items List (Summary) Report shows 10 units on hand and you want to change it to 8, enter -2 in the Quantity column.
4. Enter either the cost per item in Unit Cost or the total cost of all items you are adding or subtracting in the Amount columns.
5. Enter the correct Location, if you use Locations
6. In the Account # column, enter the account that you would like to assign the dollar value to (generally an expense or cost of sales account).
7. Click Record.
8. Display an Item List (Summary) Report to verify the change to your items quantity.

Adjusting Item Quantity - Not Affecting Value

1. Choose Index to Reports from the Reports menu. Select Items List (Summary) from the report list and click Display. Verify the current quantity of the item you want to change.
2. In the Inventory Command Center, click the Inventory Adjustments button.
3. Enter the item's number in the Item # column. In the Quantity column, enter the quantity of the adjustment, not the new quantity. For example: if your Items List (Summary) Report currently shows 10 units on hand, and you want to change it to 15, enter 5 in the Quantity column. Or, if the Items List (Summary) Report shows 10 units on hand and you want to change it to 8, enter -2 in the Quantity column.
4. Enter $0 in the Unit Cost and Amount columns.
5. In the Account # column, enter the item's asset account number. It was assigned to the item when you created it.
6. Click Record.
7. Display an Item List (Summary) Report to verify the change to your items quantity. You'll also notice that the average cost of the item has changed - since we've updated the quantity but not updated the cost.

Adjusting Item Value - Not Affecting Quantity

To adjust the Current Value and Average Cost of an inventoried item without affecting its Quantity on Hand requires two separate adjustments.

First Adjustment

1. In the Inventory Command Center, open the Item List, and select the Item to be adjusted.
2. In that Item's Card select the Profile tab and take note of:
   • Quantity on Hand
   • Current Value
   • Average Cost
   • Asset Account for Item Inventory
3. In the Inventory Command Center, click the Adjust Inventory button
4. Enter the Item's Number into the Item Number Column
5. Enter the Item's Quantity on Hand into the Quantity Column as a negative value
6. Enter the Item's Current Value in the Amount Column (it will calculate as negative based on negative quantity)
7. Check that Unit Cost (on adjustment) is equal to Average cost (on item card)
8. Enter the account you would like to assign the expense to in the Account Column
9. Enter any Notes or Memos for your records and click Record
10. Check the Item Card again by following steps 1 & 2; Quantity on Hand, Current Value, and Average Cost should all be 0

Second Adjustment

1. In the Inventory Command Center, click the Adjust Inventory button
2. Enter the Item's Number into the Item Number Column
3. Enter the Item's original Quantity on Hand into the Amount Column as a positive value
4. Enter the correct Current Value of the Item in the Unit Column
5. Check that Amount calculates what the correct value of that item should be.
6. Enter the same account as entered in the previous set of instructions in the Account Column
7. Enter any Notes or Memos for your records and click Record
8. Check the Item Card again by following steps 1 & 2; Quantity on Hand, Current Value, and Average Cost should be the original Quantity on Hand, with updated Current Value and Average Cost

If Multiple Locations are being used and affected by these adjustments, then each location needs to be recorded on a separate line in the adjustment, and the Quantities on Hand must properly match the amounts at each location. To find out more about the distribution of Inventory between locations, in the Item Card click the Locations tab towards the right.

Update Inventory Value for Additional Expenses

It may sometimes be necessary to update the value of an inventory item to include shipping, handling or other charges. (The result will be the full replacement cost.) Whether or not this is necessary is a question that should be answered by your accounting professional. This note addresses how to implement the update.

To apply expenses (freight, handling, etc.) to the inventory item, follow the 2 steps below:

1. Adjust Inventory
   1. Go to Inventory > Adjust Inventory
   2. Enter the Item Number and Location (if used)
   3. Leave Quantity and Unit Cost blank
   4. Enter the amount of the Expense in the Amount field
   5. Enter the same Inventory Asset Account that is associated with the item (Inventory Asset Account field of the Item Profile)
   6. Enter a meaningful memo in the Memo field
   7. Click Record
2. Transfer the expense to the asset account
   1. Go to Accounts > Record Journal Entry
   2. In the Account field enter the correct expense account
   3. In the credit field fill in the expense amount
   4. On the next line, enter the Inventory Asset Account in the Account field
   5. In the debit field fill in the expense amount
   6. Enter a meaningful memo in the Memo field
   7. Click Record

The result will be an increase of inventory value and average cost of the item, and an increase in the Inventory Asset account by reducing the expense in the Expense account. The change will be reflected on both the Profit & Loss (by reducing the expense), and the Balance Sheet (by increasing the amount of the Inventory Asset Account).