How to resolve Diagnostic 321 in Lacerte

If the following Diagnostic is generating:

"Ending inventory in the cost of goods section is different than the ending inventory on the balance sheet."

This diagnostic is critical, but will not prevent e-file submission.

What Causes This Diagnostic to Generate?

Diagnostic 321 is triggered in Lacerte when the ending inventory reported on Schedule A (Cost of Goods Sold) does not match the ending inventory reported on the Balance Sheet (Schedule L).

This often happens when an amount is entered in the field labeled: Inventories (if different from COGS) located under the Ending column on Screen 24, Balance Sheet.

This field should only be used when the inventory reported on the Balance Sheet intentionally differs from the inventory used in calculating cost of goods sold.

To resolve this diagnostic:

Use one of the following solutions depending on whether the difference is intentional or not.

Solution 1: Inventory Is Intentionally Different

If the balance sheet inventory is meant to differ from the COGS inventory:

1. Go to Screen 24, Balance Sheet.
2. Review the entry under:
   Assets → Inventories (if different from COGS) → Ending column.
3. If the amount is accurate for the balance sheet, no correction is needed.
4. To clear the diagnostic:
   Check the box next to Diagnostic 321 in the diagnostics panel.
   This will strike through the diagnostic to indicate it has been reviewed and acknowledged.

Solution 2: Inventory Should Match COGS

If the balance sheet and COGS inventories should be the same:

1. Go to Screen 24, Balance Sheet.
2. Find the field:
   “Inventories (if different from COGS)” → Ending column.
3. Remove any value entered in this field.
4. Recalculate the return (press F9).
5. The diagnostic should now be cleared.

Additional Notes

• This diagnostic serves as a warning for data consistency but does not block e-filing.
• If you're intentionally showing different inventory values, it’s best practice to document your reason in your workpapers.
• If you are using multiple activities, multiple states, or different accounting methods (cash vs. accrual), review all related inventory entries to ensure consistency.

Inventory differences are often the result of either book-to-tax adjustments or data entry in both the Cost of Goods Sold screen and Balance Sheet screen. When in doubt, align them or document your intent clearly.