Correcting an Inventory Out of Balance

Problem: The Inventory Value Reconciliation report shows an out of balance at the bottom. What causes this and what can I do to fix it?

Solution: If inventory items have been set up correctly, your inventory asset account balance should only ever fluctuate in accordance with the item sales and purchases you have put into MYOB, along with any inventory adjustments you have made. At any point in time your asset balance should agree to the inventory ledger balance.

The likely reasons for an out of balance is an entry coded directly to your inventory asset account. If this is the case, the result will be a change in the general ledger balance, but not to the actual inventory values on hand. The other main reason would be an inventory adjustment coded to the inventory (asset) account. This alters the inventory but not the general ledger account. Both cause problems for you.

At all times you must avoid coding any transaction direct to the inventory asset account.

We suggest you correct your inventory list first and then  balance to your general ledger. If you know for sure that your inventory ledger contains the correct item quantities, unit costs and total value, you can do a Journal Entry to correct the asset account balance. To reduce the asset balance record the journal like this:

Debit: 5-xxxx Purchases or 5-xxxx Inventory Adjustment
Credit: 1-xxxx Inventory Asset
(Note that this is the only time you will code a transaction directly to the inventory account)

Continue to review the “Inventory Value Reconciliation” report regularly to ensure that the asset balance continues to agree with your inventory ledger.

If all this seems too hard, engage an MYOB Certified Consultant to help you.