What happens if my inventory records don't match my physical count?
When your book count and physical count don’t agree, it means something went wrong between the last time the numbers were accurate and now. The discrepancy could be small or significant, but either way it needs to be investigated and corrected. Ignoring it leads to inaccurate financial statements, unreliable cost of goods sold, and potentially wrong tax filings.
The most common causes are data entry mistakes, receiving errors, unrecorded damage or spoilage, theft, and returns that weren’t processed correctly. Sometimes the unit of measure is off. You received a case of 12 items but entered it as 1 unit. Other times a sale was recorded but the inventory quantity wasn’t updated because the system wasn’t configured properly. Before you adjust anything, try to figure out why the numbers are off. The cause tells you whether this is a one-time mistake or a recurring problem in your process.
Once you’ve identified the discrepancy and done your best to find the cause, you need to record an inventory adjustment in your books. In QuickBooks Online, this is done through an inventory quantity adjustment that brings your book count in line with the physical count. The dollar difference flows through to an inventory shrinkage or adjustment expense account, which ultimately affects your cost of goods sold and your profit. If the adjustment is large, it can noticeably change your margins for that period.
Document every adjustment with notes about what you found and why you believe the discrepancy occurred. This matters for your own records, for your accountant at tax time, and in case you’re ever audited. “Adjusted inventory” with no explanation doesn’t help anyone. “Adjusted down 14 units of SKU 2045, likely damaged during July warehouse move” tells a story that makes sense.
The real goal is to reduce how often this happens. Regular cycle counts, where you count a portion of your inventory on a rotating schedule rather than waiting for one big annual count, help catch problems early. Tightening up your receiving process so every delivery gets verified before it’s entered into the system prevents a lot of errors. And making sure your inventory accounting is set up correctly in the first place means the system tracks quantities and values the way it should.
If you’re consistently finding discrepancies every time you do a physical count, that points to a systemic issue rather than the occasional mistake. It could be a workflow gap, a training issue, or a software configuration problem. A QuickBooks ProAdvisor in Long Beach can help you review your setup and processes to find where things are breaking down so you’re not just adjusting the same types of errors over and over again.
Long Beach's Trusted Bookkeeping Partner
The Next Step:
A Quick Discovery Call
Tell us where things stand with your books. We'll listen, ask a few questions, and give you a clear quote to get it handled.
More Questions
What does a QuickBooks ProAdvisor do?
A QuickBooks ProAdvisor is certified by Intuit to set up, troubleshoot, and optimize QuickBooks for businesses. They go beyond basic data entry to make sure the software is configured correctly and producing reliable financial reports.
Read answerShould a brand-new business invest in professional bookkeeping?
Yes. Starting with clean, organized books from day one costs far less than cleaning up a mess later. Even at a basic level, professional bookkeeping gives you accurate numbers to make decisions with and keeps you prepared for tax time.
Read answerHow does e-commerce bookkeeping differ from a brick-and-mortar store?
E-commerce bookkeeping involves more sales channels, more complex sales tax obligations, and platform fees that don't exist in physical retail. The volume of small transactions and multi-state selling creates layers of complexity that brick-and-mortar stores rarely deal with.
Read answerHow far behind on my books is too far behind?
Any amount of time behind creates some risk, but it's never too late to fix. The real issue is that cleanup gets harder and more expensive the longer you wait, and you're making business decisions without accurate numbers in the meantime.
Read answerWhat financial reports do investors want to see from a startup?
Investors typically want to see a profit and loss statement, balance sheet, cash flow statement, burn rate and runway calculations, and financial projections. Clean, accurate books are the foundation for all of them.
Read answerShould I use cash basis or accrual basis bookkeeping?
Most small businesses start with cash basis because it's simpler and ties directly to money in and out of the bank. Accrual basis gives a more accurate financial picture, especially if you invoice clients or carry inventory.
Read answer
