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2009/09/10

Inventory Adjustement Worksheet vs Inventory Adjustment

I want to talk about the difference between an Inventory Adjustment Worksheet and an Inventory Adjustment - almost a pet peeve of mine! To the uninitiated, just by reading the two, you're probably thinking it's just about the same thing. And, if you've looked at these transactions in Netsuite, you may also have simply come to the conclusion the difference is mostly a user interface thing.

In reality, the two have very important differences. An Inventory Adjustment is your day-to-day tool for adjusting inventory for miscellaneous reasons. It basically acts like a normal transaction. You add or remove a certain quantity, and the financial impact of this is as if you'd sold or bought the items - quantity * rate equals +/- inventory value.

A Worksheet does NOT have the same impact. A Worksheet is a *reset* of your inventory quantity and value. So it is not an incremental change. The impact is twofold: first, the complete removal of all quantity and value (so your impact is the current On Hand Value) and the second is the addition of the new quantity and value (so your impact here is the value exactly as you enter it). Your Average Cost is completely recalculated in the most simple of ways - value divided by quantity.

What this means is that the Worksheet if a powerful, powerful beast. In practice, it should be used for periodical physical inventory counts, or if your inventory has gone out of whack and you need to fix it (this can happen in a myriad of ways). An Inventory Adjustment is NOT the appropriate transaction to use for physicals and to correct serious problems. Inventory Adjustments just pile on changes on top of existing ins and outs. It is not certain, it is not absolute and it won't fix problems at their root.

Another thing you need to know about Worksheets is that they are a "solid wall". This is best illustrated with a simple example -

01/01/2009 I have 5 Widgets on hand
01/03/2009 I make an Adjustment for -5. I now have 0 on hand
I then backdate a transaction, or even edit an old one, dated 01/02/2009, adding 3 items
On 01/03/2009, I now have 3 items on hand. The changes I made before the Adjustment are taken into consideration.

If I redo this example with an Inventory Adjustment Worksheet, so that -
01/01/2009 I have 5 Widgets on hand
01/03/2009 I make a Worksheet, setting the item to 0 on hand
If I backdate or change a transaction on 01/02/2009, adding 3 items, on 01/03/2009 I STILL have 0 on hand. The Worksheet acts as a solid reset. No matter what comes before, after the Worksheet, you will have what you wrote.

So good inventory management needs judicious use of Inventory Adjustment Worksheets as well as Inventory Adjustment. I've too many accounts slowly slip into inventory hell because of improper use of one or the other. The difference is not just a question of user interface. Accounting-wise, you're doing two very different things.

1 comment:

  1. Good article, Olivier.
    I found the Adjustment Worksheets (import) is powerful, manageable for small to medium sized inventory (data file). There is no need to adjust the GL for inv balance. When it comes to larger datafile of 100,000 items, it could be a nightmare; but then it is also or even a more nightmare with Celigo or any app. I agree, it is important to have a well-planned strategy for inventory adj/mgt.

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