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author's profile photo Former Member
Former Member

Negative Inventory

Hi Everyone,

Just a simple question, I would like to know which accounting drawer should a negative inventory adjustment account should be if I were to allow negative inventory?

I know negative inventory is not accounting practice and it is not recommended, but just would like to know where this account should be placed.

Is it the Cost of Sales drawer?

Thanks.

Regards

Kevin

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  • author's profile photo Former Member
    Former Member
    Posted on Aug 11, 2008 at 12:57 PM

    Hello Kevin,

    The Negative Inventory Adjustment account is used to hold the difference between the Cost of the item when it was sold, and the Cost of the item when it was purchased (resulting from these transactions):

    Sales Entry (Current Item Cost is $12)

    Dr. Cost of Sales - $12

    Cr. Inventory - $12

    Purchase Entry (Purchase Price is $15)

    Dr. Inventory - $12

    Dr. Negative Adjustment - $3

    Cr. Accounts Payable - $15

    As the Cost of the item when sold is already in the Cost of Sales drawer, the Negative Inventory Adjustment account is also preferred to be in the Cost of Sales Drawer (to follow the principal cost).

    I hope the above helps.

    Regards,

    Lorna Real

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