Stock Adjustment Effect

When we took profit and loss account, there are several entries of stock adjustment being entered automatically by the system. These entries seem to come in when we do material transfer. But I fail to understand how these are calculated and what effect it is having on our profit and loss statement.

Hi Tejas,

I’m guessing you have enabled perpetual inventory. Perpetual Inventory means that every stock transaction has a corresponding accounting transaction.

So, if you did any Stock Entry Purpose Material Issue or Material Receipt. Or when you did a manufacturing entry, the total incoming valuation of the material has to balance with the outgoing valuation (the concept behind double entry book keeping).

So when there is an imbalance (typically in Material Issue/Receipt or when the sum of valuation of the manufactured items is different from the sum of valuations of the input items, the Difference Account is automatically charged for the Imbalance account. Now if the account you used there was a P&L account, it would affect your P&L.

You have to analyze the entries into the Difference Accounts you’ve used, see why those entries occurred in the first instance, and then make appropriate adjustment entries.

Hope this helps.

Thanks

Jay

@JayRam
In What scenario would there be a difference amount on Material Transfer?

There are no additional costs for transfer , the stock is just going from one warehouse to another , but at times it still shows me an entry for stock adjustment against stock in hand , sometimes in credit or debit .

I am failing to understand what can be the reason for this amount when an item is just going from one warehouse to another .

Hi Taher,

You have to see why Material Transfer is posting entries. Usually you will have a debit and credit entries for the same amount which is equivalent to the valuation of the items in the source warehouse. Sometimes if you have the Valuation Rate of the item set in the Item Master you may end up posting entries to the ledger to balance the incoming and outgoing rates.

I am afraid you have to painstakingly analyze the transactions that are getting posted to the difference account and try and figure out why this is happening.

My clients complain about these things too, but so far, there has always been a reason that ERPNext has posted such ledger entries, and there has been a way to prevent that going forward.

Hope this helps.

Thanks

Jay

1 Like

Thanks for the reply , it seems the issue was Mysterious Values in "Stock Adjustment" account - #31 by saifi0102

to which the proposed solution was

which has not been directly implemented but according to nabin here

, some kind of solution is in place in the latest version 13 ,

though it is unclear of exactly how it has been implemented , so i can manage v12 with it ,

At this point i have 2 question if you could please help me with @JayRam

  1. Is Stock Adjustment amount dynamic even for Stock reconciliation ?
    e.g i saved on reconciliation and the difference amount came to be a certain number but after a while when i checked the amount in stock adjustment was different for the same entry .

as you can see the stock adjustment amount changed from 0.485 in initial entry to 0.249 in accounting ledger when checked,

why does this happen?

  1. How do i balance the stock adjustment account ?
    Because now i know that the amount in stock adjustment is the systems way of balancing out back dated entries and what not and not actually an proper accounting expense ,this amount needs to be adjusted against some non-transactional account to get the Profit and loss statement proper ,
    can you suggest a proper account to which to pass the balancing entry for it .

Hey,
Did you get answers to your doubts? I am questioning the same doubts right now.

Thanks,
Jon