A correction made to inventory records to match the actual physical stock count
Stock adjustment is the process of modifying inventory records to reflect the actual quantity of goods physically present in a store or godown. Discrepancies between book stock and physical stock can occur due to damage, theft, pilferage, expired products, data entry errors, or natural evaporation or shrinkage. When a physical stock audit reveals a mismatch, a stock adjustment entry is passed to increase or decrease the recorded quantity. In India, stock adjustments are important for GST compliance because they affect the value of closing stock reported in financial statements. Businesses should document the reason for every adjustment and retain records for audit purposes. Regular stock adjustments ensure that reports, purchase decisions, and financial statements reflect the true inventory position.
Your records show 500 packets of biscuits in the godown, but a physical count finds only 485. The difference of 15 packets may be due to damage during transit or pilferage. You create a stock adjustment entry reducing the quantity by 15 and noting the reason as 'Damaged goods'. Your book stock now matches the physical count at 485 packets.
Yes, stock adjustments for shortage reduce your closing stock value, which increases your cost of goods sold and decreases profit. Adjustments for surplus do the opposite. This is why accurate reasons should be recorded for every adjustment.
Do stock adjustments whenever you complete a physical stock audit — ideally monthly or quarterly. Businesses with perishable goods or high-theft-risk items should do weekly checks. Adjust immediately if you discover damaged or expired stock.
Yes, you can create a new adjustment entry to reverse an incorrect one. For example, if you accidentally reduced stock by 20 units instead of 10, create a new adjustment adding back 10 units with the reason noted as correction of previous entry.
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