This is where user sets up the default Inventory General Ledger numbers.   Enter the default accounts associated with Inventory  and these numbers will be available during routine entry of data.

The inventory account should be an Asset account, normally under Current Assets.  The Cost adjustment account should be an Income/Expense account, normally under Cost of Goods or Inventory Adjustments.  Asset Accounts are Balance Sheet accounts and are shown on that statement, Income/Expense accounts are on the Income statement.

So if you have a cost adjustment to reduce inventory by $500 you are saying that you have $500 less than you should so that has to be expensed and recognized in the Profit and Loss, the transaction would be:

                                    Debit                 Credit

Cost Adjustment            500.00

Inventory                                               500.00

The Inventory account would be reduced by $500.00, the total of all of the inventory accounts (Raw Goods, Finished goods, etc) would be reduced by $500, the total Current Assets would be reduced by $500 and the Total Assets would be reduced by $500, Current earnings would be reduced by $500 and Total Liabilities would be reduced by $500.

On the income statement, the Cost adjustments would be increased by $500, depending what category the put the account, the sub total of that group would increase by $500, gross income would be reduced by $500 and total income would be reduced by $500.00