Inventory adjustments

In your returns journey, there can be certain instances, such as expected items not received in return, items lost in transit, etc. which can impact your accounting ledger, inventory reconciliation and claims. Learn here more about return exceptions.

These cases need to be accounted for by using inventory adjustments. Inventory adjustments refer to the adjustment events recorded to reconcile the inventory due to any of the exceptions that are not captured in the regular events.

It is recommended to create an inventory shrinkage expense account as well. A corresponding adjustment to the inventory shrinkage expense account should accompany all the inventory adjustments.

Whenever there is a loss, you need to decrease the inventory and add it to the shrinkage expense account. Once you receive a reimbursement for loss, you can reduce the same from the shrinkage expense account.
Whenever there is excess inventory found, you need to increase the inventory and decrease it from the shrinkage expense account.

This article will help you understand the necessary action that you need to perform for inventory adjustments corresponding to the occurred exception.

Reason Code	Reason for adjustment	Description	Inventory Adjustment type	SKU	Reference	Remarks
R01	Return is lost in transit	If a return is picked up from a customer but not delivered to you.	Decrease	All the SKUs that are part of the lost return package	Return tracking ID	You should add the cost of such inventory to the inventory shrinkage expense account. When the reimbursement is received, you should reduce the inventory shrinkage expense account.
R02	Wrong product received	The return includes items that either don’t belong to your inventory or their SKU could not be identified while processing the return.	Decrease	SKU of the missing item (expected return item that is not received)	Return tracking ID	You should add the cost of such inventory to the inventory shrinkage expense account. When the reimbursement is received, you should reduce the inventory shrinkage expense account. An inventory adjustment event will accompany this to add a new product (UnknownSKU) to the inventory.
R03	Item is missing from a return	An item that is expected to be present in the return package is missing.	Decrease	SKU of the missing item	Return tracking ID	You should add the cost of such inventory to the inventory shrinkage expense account. When the reimbursement is received, you should reduce the inventory shrinkage expense account. Many a time, this will be accompanied by an additional item received as part of the return package, which will be part of the adjustment with reason code R04.
R04	Additional items delivered as part of returns	An item that is not expected to be present in the return package is found.	Increase	SKU of the additional item	Return tracking ID	You should reduce the cost of such inventory from the inventory shrinkage expense account.
R05	Draft return received (missing order information)	You received a return but information about the order against which the return was received is unavailable.	Increase	SKU received as part of the draft return	Return tracking ID	You should reduce the cost of such inventory from the inventory shrinkage expense account. This needs to be done because there will be a corresponding return which will be marked as lost if not received.
R06	Draft return is mapped with order	Information about your order is now available for a return that is received as a Draft return.	Decrease	SKU received as part of the draft return	Return tracking ID	You should add the cost of such inventory from the inventory shrinkage expense account.
R07	Return is delivered to a different location	The item is shipped from one fulfilment location, but the return is received at another fulfilment location.	Transfer from one location to another	SKU which is a part of the return	Return tracking ID	Stock transfer notes need to be recorded from one location to another location.