The inventory variance amount reflects the total inventory value change within any given period. The variance account is affected each time track count inventory is purchased or sold. The inventory variance account is set within the advanced tab of each inventory item.
The variance value will be decreased within the variance cost-of-sales account when inventory is purchased.
Purchase account is debited: $1000
Variance account is credited: - $1000
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Costs of Sales balance Unaffected since variance reverses any purchase costs.
The following transactions are created when the inventory method is set to Perpetual inventory. When expense invoices are processed, the count amount is incremented and the following transactions are created and posted to the general ledger:
|
Debit |
Credit |
Amount |
|
Purchase Account |
Accounts Payable |
Purchase Cost |
|
Inventory |
Inventory Variance |
Purchase Cost |
NOTE: The inventory variance credit transaction that is used off-sets the purchase transactions so that the cost of sales balance is not affected.
The variance value will be decreased within a cost-of-sales account when inventory is purchased.
Sales revenue account is credited: $1300
Variance account is debited: - $1000 creating the cost of sales transaction
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Gross profit $300
The following transactions are created when a sales invoice is processed. The 5-digit Inventory Variance general ledger account recorded in the inventory item’s advanced tab is combined with the purchase account’s 3-digit extension to create the complete Inventory Variance general ledger account.
|
Debit |
Credit |
Amount |
|
Accounts Receivable |
Sales Account |
Sale Price |
|
Inventory Variance |
Inventory |
Purchase Cost |
The inventory variance account is debited to create the cost of sales transaction when the sales transaction is created. The 5-digit inventory variance account recorded in the advanced tab of the inventory item is combined with the 3-digit code from the sales general ledger account.
A negative value balance within an inventory variance account indicates that the inventory balance has increased during the period. A positive value indicates the inventory balance has decreased.
The inventory variance account is only used when the inventory method is set to Perpetual. Go to Inventory > Options > General tab to view the inventory methods setting.