What is the primary function of an adjustment account?

The primary function of an adjustment account is to post inventory adjustments. This means that whenever there are discrepancies between the physical count of inventory and the recorded inventory in the accounting system, these differences can be reflected in the adjustment account. This functional use ensures that the financial records accurately reflect the actual inventory levels.

By utilizing adjustment accounts, businesses can make necessary corrections to their inventory records without needing to alter the original transaction records. This can be crucial for maintaining the integrity of financial reporting. Inventory adjustments might arise from reasons such as loss, damage, theft, or discrepancies due to errors in the counting process. Hence, this dedicated account helps maintain clarity and accuracy in inventory management, which is essential for effective operational and financial decision-making.