What if the stock count does not match the records?

When a physical inventory count differs from the records, verify the item, unit of measure, locations and cutoff before posting an adjustment. Reconcile movements and condition separately. Keep any unexplained remainder visible rather than giving the whole difference a convenient cause.

A computer record can be current with the transactions entered and still omit a movement that actually occurred. A shelf count can miss a second location or include units that cannot be sold. Neither deserves automatic priority without checking what it covers.

Set one cutoff for records and stock

Consider a fictional retailer counting one model of cable adapter at 6 p.m. on December 31, 2026. The inventory record shows 100 individually counted units at a complete cost of $20 each. There are no varying cost layers in this example.

The retailer temporarily stops movements for this item while two paid employees count it. Their two hours each are already scheduled and funded without displacing accepted customer work. They label counted locations and keep the original count sheets. Any later receipt or shipment belongs after this cutoff.

The main-bin count is 82. That is eighteen below the record. Before calling eighteen units missing, the team checks the locations, shipping and receipt documents and units of measure. There are no cartons to convert, consigned goods, stock in transit or other owned locations beyond those described below.

Reconcile the movements before the loss

A completed shipment record shows ten units left before 6 p.m. but the inventory posting was omitted. Once the authorized posting is made, the expected stock at cutoff is ninety, not 100. The ten-unit movement is explained by the shipment evidence. It is not an unexplained stock loss.

The team also finds five units of the same item in a labeled overflow bin. A second count confirms them. Physical stock becomes 87: the original 82 plus five. Finding stock changes the count coverage; it does not require buying five new units or entering another receipt.

The reconciled expected quantity is ninety and the verified physical quantity is 87. Three units remain unexplained. The initial eighteen-unit difference has become ten units shipped, five found in another bin and three still missing from the expected quantity.

OpenStax's perpetual-inventory explanation describes comparing recorded inventory with a physical count and making supported adjustments. The retailer's case is original; the separate movement reconciliation prevents an accounting adjustment from concealing a posting error.

Keep condition separate from presence

Four of the 87 units are physically present but damaged. In this supplied case, the responsible reviewer establishes that they cannot be sold, repaired or returned and have zero recoverable value. They are segregated and recorded for the authorized write-off process.

The count is still 87 physical units, of which 83 are usable and four are damaged. Describing all 87 as available to promise would create a different error. Describing the four damaged units as physically missing would hide the evidence about what actually happened.

The unexplained quantity remains three. Damage to other units does not establish why those three are absent. There is no finding of theft, employee responsibility or supplier failure in this example.

Show the unit and cost bridges

The original record carries $2,000: 100 units at $20. Posting the documented ten-unit shipment removes $200 of inventory cost, leaving ninety units and $1,800 before the remaining adjustments. Sale revenue and collection belong in their own records; this unit-cost reconciliation does not invent either amount.

The three unexplained units represent $60 of recorded cost. Removing that amount leaves $1,740 for the 87 physically present units before the damage valuation. The four damaged units represent $80 at the same supplied cost; reducing their carrying amount to zero leaves $1,660 for the 83 usable units.

The complete inventory reduction is $340: $200 for the documented shipment, $60 for unexplained missing units and $80 for the damage adjustment. It is not all an unexplained loss. Nor is it a new $340 bank payment.

This illustration does not choose account names or tax treatment for an actual business. The authorized accounting reviewer applies the relevant policy, records the supported entries and retains the evidence. The inventory-cost guide addresses a different question: assigning differing purchase costs to units sold and held.

Finish with usable stock and an open question

The final record links the original count, overflow recount, shipment correction, damage evidence and approved adjustments. It reports 83 usable units for the next operating decision and leaves an investigation owner and date for the three unexplained units. Posting the adjustment does not resolve their cause.

Review the process finding too: why did the shipment fail to reach the inventory record, and was the overflow location included in the counting instructions? Correcting those known gaps can improve the next count without pretending to explain the remaining shortage.

Use the updated usable quantity, open orders and actual delivery dates when deciding whether to reorder. The reorder guide handles that next decision; changing the count does not itself choose an order size.