An inventory journal entry records the financial effect of a stock transaction. A purchase increases an asset, a sale transfers its cost to an expense, and a stock adjustment explains a difference between the records and the goods on the shelf.
The examples below use a perpetual system for a reseller. Amounts are in dollars, with tax, freight and payment discounts left out so the entries are easy to follow. Use the account names and accounting policy that apply to your business.
Inventory journal, stock ledger or purchase journal?
These records answer different questions:
| Record | What it tells you | Typical fields |
|---|---|---|
| Inventory journal entry | Which financial accounts changed | Date, debit, credit, document reference |
| Stock ledger | Which item moved and where | SKU, quantity, location, unit cost, movement reference |
| Purchase journal | Which purchases were recorded | Supplier, invoice, amount, account classification |
A receipt can appear in all three. Match the document references so the warehouse record and the financial posting describe the same event. A quantity movement alone does not prove that the accounts were posted.
1. Buying inventory on credit
Suppose a reseller receives 100 units costing $20 each, and records the supplier invoice for $2,000.
| Account | Debit | Credit |
|---|---|---|
| Inventory | $2,000 | |
| Accounts payable | $2,000 |
Inventory increases by 100 units and $2,000. Paying the supplier later debits accounts payable and credits cash. That payment clears the liability; it does not add another 100 units to stock.
This example records receipt and invoice together. If goods arrive before the invoice, your process may use a goods-received clearing account. Reconcile that account when the invoice arrives rather than recording the receipt twice.
2. Selling inventory requires the cost entry too
Now sell 30 units on credit for $35 each. The sale is $1,050. Their recorded cost is $600.
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable | $1,050 | |
| Sales revenue | $1,050 | |
| Cost of goods sold | $600 | |
| Inventory | $600 |
The first pair records revenue. The second removes the cost of the units sold from inventory. The stock ledger should now show 70 units worth $1,400, before any other movements.
Under a perpetual system, both effects are recorded when the sale is recognised. A periodic system calculates cost of goods sold at period end instead. Compare perpetual and periodic inventory before mixing entries from the two methods. The AccountingCoach explanation of inventory and cost of goods sold covers this distinction.
3. Recording a customer return
The customer returns two unused, saleable units. Issue a $70 credit against the unpaid invoice and restore their original $40 cost to stock.
| Account | Debit | Credit |
|---|---|---|
| Sales returns | $70 | |
| Accounts receivable | $70 | |
| Inventory | $40 | |
| Cost of goods sold | $40 |
The ledger now holds 72 units costing $1,440. If the goods are damaged, inspect and value them before restoring saleable stock. A customer credit and a warehouse acceptance are separate decisions.
4. Resolving a count shortage
A controlled count finds 71 units, one fewer than the ledger. Check the receipt, pick, return and transfer records first. A missing transfer needs its transaction corrected, not a second entry that hides it.
If the investigation confirms a loss, an approved $20 adjustment in this example would be:
| Account | Debit | Credit |
|---|---|---|
| Inventory loss expense | $20 | |
| Inventory | $20 |
The remaining balance is 71 units worth $1,420. Keep the count sheet, investigation, reason and approval with the adjustment. See the inventory reconciliation guide for the wider stock-control process.
5. Separating a write-down from a quantity change
A write-down reduces the carrying value of goods that are still present. It should not create a supplier payment or remove units that remain on the shelf.
For businesses applying IFRS, IAS 2 measures inventory at the lower of cost and net realisable value. Net realisable value considers the expected selling price less the costs to complete and sell the goods. The IFRS Foundation’s IAS 2 summary explains the measurement and expense treatment.
For example, ten units carried at $20 each have a total carrying value of $200. If their supported net realisable value is $150 under that framework, a $50 write-down reduces value while leaving the quantity at ten. The reason, evidence and approval belong in the record. Other accounting frameworks can apply different valuation rules.
A short reconciliation before close
- Match opening units, receipts, sales, returns, transfers and approved adjustments to closing units for each SKU and location.
- Match the stock valuation report to the inventory control account using the same cut-off time.
- Investigate unposted receipts, duplicated invoices, negative stock and transactions recorded in the wrong period.
- Tie each difference to a document and an approved correction. Keep a record of who reviewed it.
Do not force a quantity report to match an account balance by changing costs without evidence. Start with the transaction that caused the difference. For the broader topic, read inventory accounting and perpetual inventory.