The inventory number that should always tie to your GL

There is a number in your accounting system that represents the value of your stock. There is a different number in your warehouse system, or your spreadsheet, or your ERP's inventory module, that also represents the value of your stock.

They should be the same number. In most growing businesses, they are not.

The gap between them is not a rounding issue. It is not a timing difference that will sort itself out. It is a signal that your business does not have a reliable picture of what it owns, and that the balance sheet you are using to make decisions is wrong in a measurable, findable way.

Here is what causes the gap, why it matters more than most finance teams treat it, and how to close it permanently.

Why the numbers drift apart

The stock valuation in your GL and the stock count in your inventory system diverge for five reasons, almost always in combination.

Goods received but not yet invoiced. Stock arrives at the warehouse and gets booked into inventory. The supplier invoice has not arrived yet. The inventory system knows the goods are there. The GL does not, because no journal has been posted. The gap is the value of everything sitting in the warehouse that has not yet been matched to an invoice.

Manual journal errors. If your month-end stock close involves someone exporting a figure from the warehouse system and entering a journal by hand, the journal will sometimes be wrong. Wrong amount, wrong account, wrong period. Every manual step is an opportunity for a discrepancy to be introduced that then compounds into the next period.

Different valuation methods applied inconsistently. Your GL might be using weighted average cost. Your inventory system might be using FIFO. They will produce different numbers even if every transaction is captured correctly. If the valuation method was set up differently in two systems at some point in the past, the gap grows with every stock movement.

Stock adjustments not posted to the GL. A warehouse team writes off damaged goods, adjusts for a miscounted item, or processes a return. The inventory count changes. The GL does not, because the adjustment was made in the warehouse system without a corresponding journal entry. Over time, these small unreported adjustments accumulate into a significant number.

Timing of sales and cost of goods sold. A sale is recorded in the accounting system. The cost of goods sold is not posted at the same time, because the link between the sales invoice and the stock movement is not automated. The revenue appears on the P&L. The inventory reduction does not appear on the balance sheet until someone runs the month-end stock journal.

Each of these causes is a symptom of the same underlying condition: the inventory system and the accounting system are not integrated. They are two separate records of the same physical reality, maintained by different people using different processes, and they are guaranteed to drift apart.

Why it matters more than the audit

Most finance teams treat the stock-GL reconciliation as an audit problem. The auditors will ask for it at year-end, so it gets done at year-end. During the rest of the year, the two numbers sit in comfortable disagreement and nobody looks too hard.

This understates the cost.

If your stock valuation is wrong, your gross margin is wrong. If your gross margin is wrong, every conversation you are having about pricing, product mix, and profitability is based on incorrect data. You might be selling a product you think is profitable at a margin that does not cover your actual cost of goods.

If your stock valuation is overstated on the balance sheet, your net assets are overstated. If you are using that balance sheet to secure credit or report to investors, the overstatement is a material misrepresentation. The consequences of that becoming apparent at the wrong moment are significant.

The stock-GL discrepancy is not an accounting tidiness problem. It is a business intelligence problem.

The two approaches to inventory accounting

There are two fundamentally different ways to account for inventory. The approach you choose determines whether your stock valuation and GL can ever agree in real time.

Periodic inventory is the traditional approach. You count stock at set intervals, typically monthly or quarterly. Between counts, the GL stock account does not move. At the end of the period, you count what you have, calculate the value, and post an adjustment. The GL stock account reflects reality only at the moment of the count.

Perpetual inventory is the modern approach. Every stock movement, whether a purchase, a sale, a transfer, or a write-off, triggers an automatic double-entry in the GL at the moment it happens. The stock account in the GL moves in real time, alongside the physical stock. At any point in time, the GL balance should equal the inventory system's valuation.

Perpetual inventory requires integrated software. The warehouse system and the accounting system must be the same system, or must be connected so tightly that a stock movement in one automatically creates a journal entry in the other.

If you are running periodic inventory, your stock and GL will agree once a period, after the count journal, and diverge for every day in between. If you are running perpetual inventory with proper integration, they agree continuously.

What perpetual inventory looks like in practice

When a purchase order is received in a perpetual inventory system, the following happens automatically:

The stock quantity increases by the received amount. The stock valuation increases by the cost of the goods received. A journal entry posts: debit Stock Account, credit Goods Received Not Invoiced (GRNI). The GL stock account reflects the new inventory value the moment the goods are booked in.

When the supplier invoice arrives and is matched to the purchase order, the GRNI account clears: debit GRNI, credit Accounts Payable. The stock account is already correct. The only question is which payable it is now owed to.

When a sale is made and goods are despatched, two things happen simultaneously. The revenue journal posts the sale. The cost of goods sold journal posts the reduction in stock: debit Cost of Goods Sold, credit Stock Account. The P&L captures both the revenue and the cost at the same time. The balance sheet reflects the reduced stock value in real time.

The result is a GL stock account that is always current. There is no month-end stock journal because the stock account has been updated with every movement throughout the month.

The five checks that tell you if you have a problem

If you are not sure whether your stock and GL currently agree, these five checks will tell you.

Run your inventory valuation report in your warehouse or ERP system as at today. Note the total stock value.

Pull the balance of your stock or inventory account from your GL as at today. Note that figure.

Compare them. If they differ by more than a small rounding amount, you have a discrepancy that needs explaining.

Next, check your GRNI account. If it has a large balance with old items, stock has been received and booked into inventory but supplier invoices have not been matched. This is often where a significant portion of the gap lives.

Finally, check whether your last stock count matches your system's perpetual inventory count for the same date. If your physical count and your system count diverged during the last stocktake, the journal to correct it should have brought them back into alignment. If that journal was never posted, or was posted incorrectly, the discrepancy from the stocktake date is still sitting in the numbers.

How to close the gap and keep it closed

If your stock and GL currently disagree, the path forward has two phases.

Phase one: reconcile to a known-good date. Choose a date, usually the last stocktake date or the end of the last full accounting period. Confirm the physical stock count as at that date. Calculate the stock value using your chosen valuation method. Post an adjusting journal to bring the GL stock account to that figure. Document the journal clearly: what it corrects, why the discrepancy existed, and what process change will prevent it recurring.

Phase two: set up the processes that keep them aligned. This almost always means moving to perpetual inventory with proper integration between your inventory system and GL. If your current software does not support this, the stock-GL reconciliation will remain a periodic, manual exercise and the gap will continue to reopen.

The process changes that make the biggest difference are:

Automating the GRNI process so every goods receipt creates a GL posting immediately. Connecting stock adjustments and write-offs to automatic journal entries so nothing happens in the warehouse that does not appear in the accounts. Aligning the valuation method so both systems use the same approach. Running a real-time inventory valuation report that can be compared to the GL stock account on demand, not just at period end.

When those processes are in place, the stock-GL reconciliation becomes a five-minute check rather than a two-day exercise. You pull both figures, they agree, you move on.

The number that should never surprise you

Your stock value is one of the largest numbers on your balance sheet. It directly affects your gross margin, your net assets, and your working capital position. It should be a number you trust completely, at any point in time, without needing to wait for a period-end count.

The technology to make this straightforward exists. The question is whether your current system is using it.

Zinye ERP uses perpetual inventory accounting as the default, with automatic GL postings on every stock movement. If you are currently reconciling stock and GL manually at month-end, we can show you what it looks like when the two numbers agree automatically. Start at zinye.com.