Inventory reconciliation is matching, product by product, the stock your records expect, the stock you counted and the value in your books. Each difference is traced to a missing or wrong entry and fixed at its source. The count then corrects the cause as well as the number.
Reconcile line by line, because a total can balance while single lines are wrong. Without it, you reorder goods you already hold and overstock, or miss reorders on goods that exist only on paper.
The two reconciliations: quantity and value
Reconcile quantities first, then value. The quantity side matches records to the shelf; the value side matches your stock figure to the inventory account in your books.
| Quantity reconciliation | Value reconciliation | |
|---|---|---|
| Compares | Expected units with counted units, for each product | Counted stock at cost with the inventory balance in the books |
| Done by | Whoever keeps the stock records | Whoever keeps the books |
| How often | After every count | Every month end, and at the year end |
| Fixed with | The missing entry first, then an adjustment | A journal entry |
When and how often should you reconcile inventory?
Reconcile after every count, and close each month on a reconciled stock figure. Reconcile fast-selling and high-value lines weekly.
Reconcile out of turn at these moments as well:
- before you close the books for a month or a year;
- after a big sale event or a large delivery;
- when the same product keeps coming up wrong;
- when a branch changes manager or storekeeper.
The longer you wait, the more movements stand between the count and the cause. A difference from last week can be traced from fresh paperwork. One from last quarter often can't be traced at all.
How to reconcile inventory, step by step
Inventory reconciliation takes six steps. The third, the roll-forward, turns one record figure into a sum you can check entry by entry.
Step 1: Take a snapshot of the records
Export each product's recorded quantity at the moment the count starts. A count compared with an earlier or later figure finds differences that aren't there.
Step 2: Count the physical stock
Count blind, in the selling unit, one area at a time. Stock taking vs stock checking covers the counting itself.
Step 3: Roll each line forward and compare
Expected stock = last count + received − sold + customer returns − damaged − transferred out + transferred in
Variance = counted − expected
A negative variance is a shortfall and a positive one a surplus. Work out each line on its own, never the total.
In inventory software, the recorded stock already is this sum. Writing the sum out shows which movement is missing from it.
Step 4: Trace each variance to an entry
Check the line's movements since the last count. Look for a delivery on the shelf but not in the records, a transfer not yet approved, or a sale under the wrong product. Inventory discrepancy maps each pattern to its usual cause.
Step 5: Fix the source, then adjust the rest
Enter the missing purchase, approve the transfer, correct the sale. Adjust only what stays unexplained, with a note giving the count date and the reason, so each change leaves an audit trail.
Step 6: Review what keeps coming back
A line wrong at two counts in a row needs a process fix: storage, receiving, training or a lock. Unexplained shortfalls on the same lines are shrinkage, and they need their cause found.
Worked example: reconciling an Accra provisions shop
For example, an Accra provisions shop counts six lines after a month's trading. In total the shop looks better off than its records; line by line, almost every difference is a records error. These are illustrative figures in Ghana cedis.
| Product | Last count | Received | Sold | Other | Expected | Counted | Variance |
|---|---|---|---|---|---|---|---|
| Chocolate malt drink, 400 g | 48 | 72 | 85 | +1 returned | 36 | 30 | −6 |
| Chocolate malt drink, 200 g | 60 | 0 | 30 | 0 | 30 | 36 | +6 |
| Cooking oil, 5 litres | 24 | 0 | 18 | 0 | 6 | 30 | +24 |
| Rice, 5 kg bag | 30 | 40 | 52 | 0 | 18 | 8 | −10 |
| Sardines, tin | 96 | 0 | 70 | 0 | 26 | 22 | −4 |
| Sugar, 1 kg | 100 | 200 | 230 | −2 damaged | 68 | 68 | 0 |
Each variance was then traced to an entry, and valued at cost.
| Product | Variance | Cost each | Value | Cause found | Fix |
|---|---|---|---|---|---|
| Malt drink, 400 g | −6 | 38 | −228 | Six tins sold under the 200 g code | Adjust both lines, with a note |
| Malt drink, 200 g | +6 | 21 | +126 | The same six tins | As above |
| Cooking oil, 5 litres | +24 | 140 | +3,360 | Delivery on the shelf, purchase still saved as ordered | Receive the purchase |
| Rice, 5 kg bag | −10 | 95 | −950 | Sent to the Tema branch, transfer never approved | Approve the transfer |
| Sardines, tin | −4 | 12 | −48 | None found after a recount | Adjust, and record it as a loss |
| Net | +2,260 |
In total, the shop looks GHS 2,260 better off than its records. Line by line, the only stock really lost is GHS 48 of sardines.
The malt drink mix-up cost money as well. Six 400 g tins sold at the 200 g price of GHS 26 instead of GHS 48 is GHS 132 of sales never charged.
Adjusting the total would have hidden all of this. Of the four causes, only the malt drink and the sardines needed an adjustment. The oil and the rice needed their missing entries.
How to reconcile stock value with your books
Value the counted stock at cost and compare the total with the inventory balance in your accounts. A gap means a movement reached one record and not the other: usually the cost of goods sold, a purchase return or a write-off.
In ArmPOS's Accounting, the ledger's Inventory account, 1200-INV, goes up with every purchase. Sales, purchase returns, adjustments and damages don't reduce it, so it grows month after month unless you post an entry.
For example, the Accra shop's Trial Balance shows 1200-INV at GHS 131,500: last month's reconciled GHS 80,000 plus GHS 51,500 of purchases. After the count, Inventory Valuation totals GHS 82,300.
The gap of GHS 49,200 is the month's cost of goods sold, purchase returns and losses. Post it as one journal entry.
| Account | Debit | Credit |
|---|---|---|
| Cost of goods sold, an expense account you create | 49,200 | |
| 1200-INV Inventory | 49,200 |
The ledger then shows GHS 82,300, the counted stock at cost. Its profit and loss now includes the cost of what was sold. Your accountant may split the entry into cost of sales, returns and losses.
Keep write-downs out of 1200-INV, or this entry will undo them. Book a write-down to an allowance account under it, such as 1210 Inventory allowance (Type Asset, Parent 1200-INV). Each month end, set the allowance to what the stock still held needs, and post only the difference.
Book each month's losses in that month. IAS 2 treats a loss of stock as an expense of the period in which it happens.
Inventory reconciliation methods compared
Paper works for a small range; past a few hundred lines, scanning and software save time and typing errors. Each method trades cost against effort.
| Method | How it works | Pros | Cons |
|---|---|---|---|
| Manual | Count sheets, and the records keyed into a spreadsheet | Costs nothing | Slow, with typing errors; hard past a few hundred lines |
| Barcode scanning with a spreadsheet | Scan to count, then compare in a spreadsheet | Faster counts and fewer misreads | You still build the roll-forward by hand |
| Inventory software | Sales, purchases, returns and transfers change stock as they happen | Current records, and each product's history in one place | A subscription, and staff must enter every movement |
Reconciliation in retail and in manufacturing
Retail reconciles finished goods against sales; manufacturing reconciles materials against what production should have used. The roll-forward is the same, with different movements.
In retail, count fast lines weekly, enter returns before the count, and check small valuable items for theft. Point-of-sale records give the sales side line by line.
In manufacturing, compare the materials issued with what the bill of materials says the output should have used. The gap is waste, scrap or a recording error. Then reconcile work in progress and finished goods as they move to the store.
How to reconcile inventory in ArmPOS
ArmPOS holds every movement a reconciliation needs, product by product and warehouse by warehouse.
- Snapshot. Open Reports › Stock Report, choose the Warehouse and export it with EXCEL when the count starts (Stock reports).
- Count sheet. Products › Count Stock › Count makes the sheet for a warehouse, or one Category of it (Count and adjust stock).
- Trace. On the Stock Report, Reports on a product's row opens its sales, purchases, returns, transfers and adjustments on tabs. Stock Inventory Valuation shows the units sold, transferred and adjusted in a period.
- Fix the source. A purchase saved as pending or ordered adds its stock once you edit it to received (Record a purchase). A transfer moves nothing until someone approves it (Move stock between warehouses).
- Returns. A sale return on Pending keeps its items out of stock until you set it to Received (Returns and refunds).
- Adjust the rest. In Adjustment › Create Adjustment, enter the difference in Qty, choose Addition or Subtraction and add a Note.
- Reconcile the value. Compare Inventory Valuation's total with 1200-INV in Accounting › Trial Balance. Post the gap in Accounting › Journal Entries (Chart of accounts and journal entries). Accounting comes with some plans.
See what ArmPOS includes for shops in Ghana.
Frequently asked questions
What is the difference between inventory reconciliation and a stock count?
A count tells you what is on the shelf. Reconciliation explains why it differs from the records, fixes the cause and then corrects the records.
How often should you reconcile inventory?
After every count for quantities, and at every month end for value. Reconcile fast-selling or high-value lines weekly.
What is an acceptable inventory variance?
Set it per line: none on your most valuable lines, a unit or two on cheap, fast ones. Judge each line and its trend, never the net total.
Who should do the inventory reconciliation?
Someone other than the person who received or sold the goods. The storekeeper can explain a difference, but someone else should approve the adjustment.
What if you can't find the cause of a difference?
Recount, and if it stays, adjust the records to the count with a note and treat it as a loss. Watch the line: the same shortfall twice is a pattern, not chance.
Take one shelf this week and roll each line forward from your last count. To see each product's movements in one place and adjust with a note, create a free ArmPOS account.
