Go to Products & Services in QuickBooks Online, select the inventory item you need to adjust, and click Adjust Quantity. Enter the actual count from your physical inventory. QBO compares that number against what the system thinks you have and calculates the difference automatically. You don’t need to figure out the variance yourself.

The adjustment posts to an expense account. By default, QBO uses an Inventory Shrinkage account. Some businesses rename this to Inventory Adjustment to capture both gains and losses, but either way it hits the same place on your profit and loss statement. If you want a different account, you can change it during the adjustment. Just make sure you’re consistent so your reports are comparable month to month.

Do this after every physical count, not just when something looks off. Monthly is a good rhythm for most small businesses carrying inventory. Waiting until year-end to reconcile physical counts against QBO means you’re running your business on inaccurate numbers for months. You can’t make good purchasing decisions if your system says you have 40 units but the shelf has 28.

When you enter adjustments, add a memo or note explaining the reason. Spoilage, theft, damage, miscounts from receiving, or vendor shortages are all common causes. This detail matters when you’re reviewing trends. If shrinkage keeps climbing, you need to know whether it’s a receiving problem or a loss prevention problem. A note that just says “adjustment” tells you nothing useful three months later.

For businesses with a large number of SKUs, consider adjusting by category or location rather than trying to count everything in one session. QBO lets you filter and adjust items individually, so you can spread counts across the month. Count beverages one week, dry goods the next. The important thing is that every item gets counted on a regular cycle.

If your inventory accounting feels like guesswork, the issue is usually that physical counts aren’t happening consistently or adjustments aren’t being recorded when they should be. The QBO feature itself is straightforward. The discipline of counting and recording is where most businesses fall short.

One thing to watch for is the impact on your cost of goods sold. Every inventory adjustment flows through to your financial statements. Large or frequent adjustments can distort your margins and make it harder to understand true profitability. If you’re seeing significant variances every month, that’s a signal to look at your receiving process, storage practices, or how items are being tracked at the point of sale.

A small business bookkeeper who understands inventory can help you set up the right accounts, establish a count schedule, and review your adjustment trends so the numbers in QBO actually reflect what’s on your shelves.