Journal Entry for Missing Inventory

Missing inventory is the amount of inventory that goes missing from the warehouse and requires to write-off from the balance sheet.

Inventory refers to the items that company purchase for the purpose of reselling or manufacturing the finished goods. It includes raw material, work in progress, and finished product. The raw materials are purchased to use as input in the production process.

Work in progress is the product that is in process of manufacturing, it has already started but is not yet finished. The finished goods are the items that are completed production process and ready to deliver to customers.

These are the physical items that store in the company’s warehouse. The company requires to have proper control over the inventory to prevent the thief or fraud. It will ensure that the amount recorded on the balance sheet is the same as the actual quantity of inventory on hand.

If the company does not have proper physical control it will lead to the missing inventory. It means that the actual inventory is less than the recorded amount on the balance sheet.

When the company found out about this problem, they have to quantity the missing balance and proper adjustments. The company has to write down the inventory balance to reflect the actual inventory.

There are many procedures that a company can use to track the missing inventory, it depends on the actual work process. One of the most effective ways is to count all the inventory on hand and compare it with the inventory listing. The accountant should propose adjustments to the different amounts.

It is not always possible to count all inventory to compare with the listing. The inventory on hand may be too high and it needs to move all time. So it is almost impossible to count all of them at the same time.

Journal Entry for Missing Inventory

After the company realized that inventory are missing, the actual quantity is different from the recording.

The journal entry is debiting inventory write-off and credit inventory.

The entry will reduce the inventory balance on balance sheet. The difference is recorded as the expense on the income statement.

Example

Company ABC is a retail store with thousand of inventory units on hand. The accountant realized the inventory was missing during the operation. After investigation, the company found that the inventory missing $ 5,000. Please prepare the journal entry for missing inventory.

The inventory is missing from the company, so it has to write off the missing balance from the balance sheet. It ensures that both the physical amount and recording balance are the same.

The journal entry is debiting inventory write-off $ 5,000 and credit inventory $ 5,000.

The entry will increase the inventory write-off $ 5,000 which is the expense on the income statement. The inventory needs to reduce $ 5,000 from the balance sheet.