What is the best method of adjusting inventory in the general ledger?

What is the best method of adjusting inventory in the general ledger?

• A. Revaluing based on cost flow assumption
• B. Counting the existing inventory
• C. Writing off obsolete items
• D. Estimating based on usage

Answer: (B)

Counting the existing inventory is the best method to adjust the general ledger because it establishes the actual on-hand quantities. A physical count verifies what you truly have in stock, which is the starting point for valuing inventory on the balance sheet and for computing accurate cost of goods sold. When the count differs from the ledger, you adjust the Inventory asset to match the physical count and record any difference as a loss (shrinkage or obsolescence) or as COGS if appropriate. This keeps the financial statements aligned with reality. Revaluing based on cost flow assumptions changes how costs are allocated (FIFO, LIFO, etc.) and does not reflect actual stock on hand. Writing off obsolete items is a correction for items that are no longer usable, but it doesn’t address ordinary discrepancies between records and reality. Estimating usage is too imprecise for precise ledger adjustments.