Inventory count differences: explain the gap before approving an adjustment
In this example, the count sheet for one product shows 100 units expected and 92 on the shelf, and the warehouse asks finance to approve an eight-unit write-off before the books close. Posting it at once would treat every cause as shrinkage, including a dispatch that was never recorded. Approval should follow an explained difference: what the original count showed, which movements account for part of the gap, and what genuinely remains.
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Keep the count reference fixed
A count compares two figures at one moment, so record that moment carefully: item code, location, unit of measure, count time, the signed count sheet and any goods that moved during counting. Check units as well. A box of ten recorded as one unit creates a nine-unit difference by itself.
Microsoft's Business Central documentation describes a physical inventory journal that compares expected and counted quantities and posts the differences. It warns against recalculating expected quantities on the original journal lines between counting and posting, because later movements can distort the comparison, and it points users to reclassification or transfer processes for stock recorded in the wrong location.
So keep the original snapshot of 100 expected and 92 counted as the record of what was compared. Stock in the wrong location may need a transfer that leaves the total unchanged, and goods held for someone else need their status settled before they are included.
Sources and context, checked :
Trace the missing movement
In this hypothetical case, a dispatch note shows six units shipped before the count cutoff, but the issue never reached the stock records. The responsible accountant confirms the cutoff, and the issue is recorded through the software's normal process. That explains six of the eight units. A recount and document review confirm that the other two are genuinely short.
The books should end with one six-unit issue and one two-unit adjustment, a total reduction of eight. Posting the issue and also an eight-unit count adjustment would remove fourteen. How a system handles a source correction made after counting varies by product and setup, so agree the posting approach with whoever owns the stock ledger before the count is posted.
Treat damage as a separate valuation question
Five of the 92 units are damaged but present, so they stay in the count and are flagged for valuation. For entities applying IFRS, the IFRS Foundation's overview of IAS 2 says inventory is measured at the lower of cost and net realisable value (NRV). NRV is the estimated selling price in the ordinary course of business less the estimated costs of completion and the costs necessary to make the sale.
The table assumes every unit costs £10, the 87 undamaged units are recoverable at cost, and each damaged unit has an evidenced NRV of £4.
| Step | Units | Value | Note |
|---|---|---|---|
| Records at the count | 100 | £1,000 | Original snapshot, kept unchanged |
| Omitted issue recorded | -6 | -£60 | Recorded movement before cutoff |
| Unexplained shortage approved | -2 | -£20 | Confirmed by recount |
| Quantity after corrections | 92 | £920 | Agrees to the physical count |
| Damaged units written down | 5 of 92 | -£30 | 5 x (£10 - £4) |
| Carrying amount in this example | 92 | £890 | Lower of cost and NRV applied |
Sources and context, checked :
Assemble the approval file
Before approving, we recommend collecting the original count sheet, the recount, the source document behind each correction, the remaining quantity adjustment, the damage assessment and the reviewer's decision. If the cause of the two-unit shortage cannot be found, record it as unexplained. An adjustment may still be needed and the responsible accountant decides its treatment. The file should not name theft or any other cause the evidence does not show.
For the next count, preserve the original count sheet and explain the quantity gap through source-record corrections, location differences and any remaining shortage. Attach a separate condition and valuation assessment for damaged stock before the approved adjustments are posted.