Stock Value Reconciliation with General Ledger

Stock Reconciliation Procedure

It is essential to regularly reconcile:

•Inventory Value in the General Ledger (Balance Sheet – Stock Control Account)

with

•Inventory Book Value (Extended Item Lookup – Average Cost × Quantity on Hand)

Failure to reconcile these values can directly affect:

•Cost of Sales

•Gross Profit

•Net Profit

•Balance Sheet accuracy

 

Why Reconciliation Is Important

If the General Ledger stock value differs from the book (system) stock value:

•Your income statement will be incorrect

•Your gross profit may be overstated or understated

•Your balance sheet will not reflect the true inventory value

 

How to Correct Differences

If a discrepancy exists:

1. Stock Value Greater Than Balance Sheet Value

(Book value higher than GL value)

Journal Entry:

•Debit Inventory (Stock Control)

•Credit Cost of Sales

      (or as advised by your accountant)

This increases the General Ledger stock value.

 

2. Stock Value Less Than Balance Sheet Value

(Book value lower than GL value)

Journal Entry:

•Debit Cost of Sales

•Credit Inventory (Stock Control)

       (or as advised by your accountant)

This reduces the General Ledger stock value.

 

Automatic Correction

To automatically align the values:

Go to Dashboard → Click Fix StMaster/GlDetail Value Diff.

This utility synchronizes the General Ledger stock account with the stock master value.

 

Common Causes of Differences

1. Negative stock allowed (selling before processing a GRN)

2. Using Supplier List Price instead of Average Purchase Cost as the valuation method

3. Late GRN processing

4. Incorrect cost of sales setup

 

Example 1

Selling Before GRN (Using Average Cost Method)

•Stock quantity before sale: 0 (reason: GRN was not done.)

•Average Cost: $0 (reason: GRN was not done)

•Item sold → Quantity becomes -1

•No GL stock account entry occurs (cost = $0)

 

If a GRN is generated after the sale - the journal entries will be,

 

Your Stock value will be zero, quantity -1(from the invoice) + 1 (GRN) will equal zero.

 

Stock value (Average Cost * In Stock): $0.00      (100 x 0=0)

Stock Value in the General Ledger:      $100.00

Stock Value Difference:                         -$100.00

Your balance sheet value is now $100, and your physical stock value will be $0; the difference is $100.

 

To bring the general ledger stock amount in line with your stock value, credit your general ledger stock account with $100 and debit your cost of sales account.

 

Example 2.

Selling Before GRN (Using Supplier List Price as Cost)

•Quantity before sale: 0

•Supplier List Price: $80

•Sale processed → Quantity becomes -1

 

The General Ledger entries will be as follows:

 

Status After Sale

•Stock value (Average Cost * In Stock): $0.00

•Stock Value in the General Ledger:     -$80.00

•Stock Value Difference                           $80.00

 

Note

You cannot fix this yet.

You must wait until the GRN is processed.

 

After GRN Is Processed (Actual Cost = $100)

(remember the computer used the Supplier List Price of $80.00).

The General Ledger entries will be as follows:

 

New Postion

•Quantity =  zero ( -1 (from the invoice) + 1 (from GRN).

•Stock value (Average Cost * In Stock): $0.00      (100 x 0=0)

•Stock Value in the General Ledger:     -$20.00    (80 - 100 = -20)

•Stock Value Difference:                        -$20.00

 

Correction Required

To align GL with book value:

•Debit Inventory $20

•Credit Cost of Sales $20

 

Important Notes

The correct procedure is always to process a Goods Received Note (GRN) before selling stock.

To prevent negative stock: Go to Stock > Stock Options and disallow negative stock.

If Supplier List Price equals Average Cost, no adjustment is required.