Inventory

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Asawari Malhotra (Querist)
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12 February 2013 Hello sir, please explain:- " the inventory a/c might be changed to bring them in line with the actual number counted during a stock take, at the same time, the expense a/c associated with the usage of inventory be adjusted by an equal and opposite amount." Q) what do the mean about an exp a/c associated with inventory here ? Q) how can inventory be adjusted with the expense account ?
Pls explain in detail.
Thank you.

Dr. Rashid Mehmood, CPA, Ph.D

Dr. Rashid Mehmood, CPA, Ph.D (Expert)
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13 February 2013 Dear Malhotra

If there is difference between actual inventory and physical available inventory you have to reconcile it first and the items remains unreconciled needs to be adjusted. the adjustment is for shortage or excess, for the shortage:

COGS/ Inventory consumtion DR
Inventory a/c CR

and reverse entry for excess difference. Material/ inventory consumption a/c is basically expense a/c.

While making the adjustment you need to assess how many items are still in WIP and not recorded in the books so these items should be debited to WIP a/c by crediting the inventory account and WIP a/c is not expense account rather is refers to asset.

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