If you haven't worked through one, you likely will:  the year-end inventory adjustment.  Thankfully they only come once a year.  When adjusting historical inventory values, you face extra challenges because inventory is a live entity, meaning you need to consider what's on hand today, when entering something that ahppened yesterday.

Let's go through a simple example:

• Your 2016 year-end inventory for wheat = 10 tonnes valued at $1,500 ($150 per unit)
• You send your books to the accountant for review, and you carry on into the new year while you wait to hear back.
• In the first quarter of 2017, you sell 8 tonnes, removing $1,200 from the wheat inventory account.
• In the second quarter, you get the adjustments back from the accountant, one of which is to re-value the 2016 ending wheat inventory to $110 per unit, or 10 tonnes at $1,100.

You can see the challenge.  She wants you to remove $400 form the inventory value at the end of 2016, but you only have $300 on hand because you sold those 8 tonnes entered in Q1 of 2017.  If you enter the adjustment, your inventory would equal 2 tonnes valued at negative $100, which doesn't make sense.  Even if you tried to enter it, AgExpert Analyst will not allow for inventory values or quantities to go below zero.

So, how do you work around this challenge?

You have a few options:

1. If possible, you can delay entering any sales until after you get last year's numbers finalized.
2. You can work with the accountant to ensure that your inventory values are where they should be before sending your books in for review.
3. If neither of those are viable options, you can increase the value of the remaining 2 tonnes to $350.00 per unit (total value of $700) in 2017, which will give you the room to remove $400 in 2016.

For more invoemation about year-end adjustments, visit our Knowledge Base.  You can also call our Customer Care Centre at 1-800-667-7893, we'll be happy to help.

Last updated on May 18, 2017 by FCC AgExpert