What is a stockout?
Running out of an item customers want to buy. The shelf is empty, so a sale that could have happened often does not.
Definition
A stockout is the moment an item customers want is not on the shelf. On the books, this is an empty inventory quantity for that item, not an account you debit when you run out.
The Balance Sheet can still show plenty of other inventory. This title, this size, or this ingredient is the one that hit zero.
The profit and loss statement does not gain a stockout expense. What you feel is revenue that never showed up, and sometimes a rushed buy that costs more.
This is an event, not a standing balance. When the next box arrives, the empty bin for that item ends.
Where it shows up
Balance Sheet: Related to the inventory line when it hits zero.
P&L: Related to revenue that was not earned.
See also: Reorder Point · Safety Stock · Backorder
When you look at your Balance Sheet, you will not see a stockout line. You may see inventory at zero for that item, or a total that looks fine because other goods are still on hand.
The signal is the empty bin, not a new account. A count or a stock report is how you notice it.
The profit and loss statement is quiet in a specific way. The sale you did not make is simply absent from revenue.
Cash also did not move for that missed sale. There is nothing to collect because nothing shipped.
A high inventory total does not prove you are safe. You can be overstocked on one item and empty on the one people came in to buy.
How it works
Units leave as you sell them or use them. If buys do not arrive before the last unit goes, that item hits zero.
The last unit that sold still had a normal sale entry. After that, demand can continue while the quantity stays at zero.
No journal records the missed walk-in. You do not credit revenue you did not earn, and you do not debit a stockout account.
A late purchase order, a thin buffer, or a demand spike can all cause the empty shelf. The event is the same: customers wanted it, and it was gone.
Some customers wait for a later date. Others leave, and that revenue is gone for the period.
Rush freight to refill can raise the cost of the next buy. That extra cost lands with the purchase, still not on a line named stockout.
When goods arrive, inventory rises again. The empty bin ends when units are back on the shelf.
Example
A bookstore has one copy left of a Saturday cookbook. That copy cost the shop $12.
A morning customer buys it. The shop records the cost leaving stock:
Debit: Cost of goods sold $12
Credit: Inventory $12
Inventory for that title is now $0. The sale of the last copy was ordinary; the stockout is what follows.
Saturday afternoon, four more customers ask for the cookbook. The shop has none, so those four sales never hit revenue and never need a journal.
The P&L is lower than it could have been by those unmade sales. There is still no stockout account to post.
The Monday delivery will put copies back on the shelf. Until then, the title sits at zero, and walk-in demand keeps being missed.
Common mix-ups
A stockout is not a backorder. A stockout is the empty shelf; a backorder is a customer who agreed to wait.
A stockout is not a general-ledger account. You do not debit stockout when the bin hits zero.
A stockout is not the same as low inventory in total. The shop can hold plenty of other titles and still be out of the one a customer came for.
Related terms
- Reorder Point: The stock level that triggers a new purchase order.
- Safety Stock: Extra inventory held as a buffer against demand or supply swings.
- Backorder: A confirmed customer order that cannot ship until stock arrives.
- Inventory: Goods held for sale or used to produce goods for sale.
- Sell-Through Rate: The share of received inventory sold within a period.
- Revenue: The total value of goods and services the business earned in a period.
- Days Inventory Outstanding: The average number of days inventory sits before it sells.
- Purchase Order: The document authorizing a purchase from a vendor at agreed terms.