Month-end close · 12 months and the 3 after
Where the inventory adjustments came from.
Wexley Medical · January 2025 to March 2026 · US dollars
An inventory adjustment of $14,000 to $28,000, every month. $246,200 in 12 months, on about $2.5M of purchases a month, so each one read as noise. They netted to $12,800 for the year, which is why nobody chased them. $238,600 of it traces to one cause: purchasing, the warehouse and accounting each date the same shipment differently, so cost keeps landing in the wrong month.
1Where it goes wrong
The adjustment, every month
Plus means extra cost was booked. Minus means cost was taken out. It swings because last month's timing gap reverses while a new one opens.
What it did to gross margin
The red line is what the board saw. The black line is the same months with each shipment's cost in the month the goods arrived.
Open any month
What made that month's adjustment
Each adjustment is 2 things: last month-end's timing gap reversing, and a new gap opening at this month-end.
| Shipment | Purchase order dated | Goods received | Supplier invoice | What happened | Effect on the adjustment |
|---|
The cause
One shipment, 3 calendars
Nothing was miscounted and nothing was missing. Three teams were each right by their own date.
Dates it on the purchase order
Cost is treated as committed the day the order is placed. Weeks before anything arrives.
Dates it on the receipt
Stock on hand goes up the day the goods are checked in. This is when the company owns them.
Dates it on the supplier invoice
The inventory account goes up when the invoice is posted. Sometimes before the goods, sometimes 10 days after.
What it means
The money is small. The decisions made on it are not.
The adjustments net to $12,800 for the year. The cost is what the wrong number does before anyone finds it.
Margin off by up to 0.75 points, in either direction
On about $44M of sales that is about $327,000 of gross profit that was never real, or never missing. Prices were reviewed, a supplier was pushed, a product line was questioned, on a margin move that was bookkeeping. When the real margin does slip, it is hidden inside the noise.
A recurring adjustment nobody can explain
To an auditor it is a control finding. To a lender on an inventory-backed line it is a reserve against the borrowing base. To a buyer it is doubt about every number in the room. Illustration: half a point of margin doubt on $44M of sales is about $218,000 of EBITDA; at 6 times, about $1,308,000 off the price.
A number the CFO signs and cannot defend
A finance team of 5 spends days each month forcing a line to tie, then carries it. The CFO reports inventory and margin to the board knowing one line has no explanation. That is the position this work exists to end.
Why it took AI
Where a person cannot reach
159 of about 1,800 shipments a year, roughly 150 a month. 9% of the shipments caused 97% of the adjustments, and nearly all of them came from the 4 overseas suppliers, where invoice and receipt are furthest apart.
2 totals, once a month
The reconciliation compares the inventory account with the inventory system. When they differ by under 1% of purchases, the affordable move is an adjustment. Lining up the 3 dates on every shipment means pulling about 5,400 documents a year from 3 systems that share no common key. Nobody has those days at month-end. A one-off check would explain one month and miss the pattern.
Every shipment, every month
All 150 deliveries a month, not a sample. It lines up the 3 dates from the 3 exports, flags each shipment whose dates fall on different sides of a month-end, prices it, and ties the total back to the adjustment that was posted. The same rules every month, so March can be set against June and the pattern shows.
The judgment and the rule
Knowing that 3 dates is the place to look. Deciding which date is right: the receipt, when the company owns the goods. Getting purchasing, the warehouse and accounting to work to one rule. That is the advisory work, and AI is what makes the evidence for it affordable.
2How to fix it
CFO action items
3 moves, in order
- IssueCost enters the books on the invoice date, not the receipt date.Financial impact$246,200 of adjustments in 12 months, and reported margin moving 1.4 points while the business moved 0.3.ActionOne rule in all 3 places: cost follows the date the goods are received.
- IssueGoods received before the invoice arrive in stock with no cost in the books.Financial impactInventory and payables both understated at month-end, then corrected by an adjustment nobody can explain.ActionA month-end accrual from the received-not-invoiced list, reversed on the first day of the next month.
- IssueInvoices posted before the goods arrive sit in the inventory account.Financial impactInventory overstated against the warehouse at month-end, and the difference written to cost.ActionPost them to goods in transit until the receipt is recorded.
3The result
12 months before, 3 months after
The adjustment stopped. The margin stopped moving.
The rule took effect on 1 January 2026. These are the first 3 closes under it.
| 12 months before | 3 months after | |
|---|---|---|
| Inventory adjustment, average month | $20,517 | $433 |
| Largest gap between reported and real margin in a month | 0.75 pts | 0.02 pts |
| Shipments with cost in the wrong month | 159 | 0 |
| Adjustments nobody could explain | $246,200 | $0The $1,300 that remains is count differences, each one named. |
Margin can be trusted before the next capital commitment, and the month closes without a line nobody can explain.
Bring the adjustment nobody can explain. We look at where it comes from.