- QuickBooks 2014 & Older
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Avoid Negative Quantity on Hand (QOH) a/k/a Negative Inventory
Negative Inventory is caused by entering sales transactions before entering the corresponding purchase transactions, i.e., you sell inventory items that you do not have in stock.
Negative Inventory can show up on your balance sheet, but primarily it shows on the Inventory Valuation Detail (IVD) report with negative numbers in the Quantity on Hand (QOH) column. The IVD is the ONLY report that you can use to evaluate the extent of your negative inventory.
How inventory transactions work
When you sell items that have been entered into your company data file:
- You purchase items using the Items Tab on a bill, a check or a credit card charge, debiting inventory and crediting A/P, Cash, or Credit Card Payable.
- You sell items on invoices or on sales receipts, but never more items than you have on hand.
- The sales transaction actually records two transactions:
- The Sales/Receivable transaction, debiting A/R and crediting Sales
- The Inventory/COGS transaction, crediting Inventory and debiting COGS.
- You run P&L and expense reports which show the invoices and sales receipts because they record both the income and the expenses.
- You run B/S reports which show bills, checks and credit card charges because they record increases in inventory. B/S reports show invoices and sales receipts because they record the decreases in inventory.
When you sell items that you have NOT entered into your company data file:
- The invoice records the Sales/Receivable transaction as expected.
- For the Inventory/COGS transaction, QuickBooks assumes that the average cost of the items not on hand is either:
- The same average cost as the items you had on hand OR
- The Item Cost from the Item List.
- QuickBooks records the Inventory/COGS transaction using the assumed cost.
- If the next purchase is not at the assumed cost, then the purchase transaction must record an adjustment to Inventory and COGS to correct the difference.
- Because the bill now affects COGS, it appears on the P&L and other reports that show expenses.
NOTE: The Inventory/COGS transaction report never appears on the the transaction, but you can see it by running the Transaction Journal report.
NOTE: Bills, checks and credit card charges with Inventory/COGS adjustments will appear on the Transaction Detail by Account and Account QuickReport for a Cost of Goods Sold (COGS) account.
Issues you may see
- You created a new inventory item with an Item Cost, but without an initial QOH/VOH.
- This leaves the item without an average cost.
- The first transaction to use the item was an invoice instead of a bill, check, credit card charge or Adjust Qty/Value On Hand (IAD).
- The sale forced the item into negative inventory.
- The invoice, without an average cost with which to credit inventory and debit COGS, uses the Item Cost from the Item List.
- You purchase the item for a cost different than the Item Cost.
- The bill contains an adjustment to Inventory and COGS for the difference between the Item Cost and the actual purchase cost, thus causing it to show on the P&L report.
Selling inventory that you do not have has driven your Quantity On Hand (QOH) negative and can cause incorrect Cost of Goods Sold (COGS) on your P&L report.
- You create a new inventory item without an Item Cost.
- You sell that item without purchasing any inventory.
- QuickBooks has no information from which to calculate the average cost, so it must assign an average cost of $0.00.
- This distorts your COGS and your inventory.
- They are not corrected until you establish an average cost with a bill, check, credit card charge or Adjust Qty/Value On Hand.
The Inventory/COGS transaction is normally on the invoice. Selling out-of-stock inventory causes your next bill to contain an adjusting Inventory/COGS transaction. These adjustments are associated with the vendor and appear on vendor reports. For example, you could see Bills and Checks on COGS detail reports.
If you sell assembly items when you have an insufficient quantity on hand, and when you later build assembly items with a cost different from the average cost, the build transaction will have an adjusting Inventory - COGS transaction that is normally included in the invoice. The build transaction does not enable you to enter either a customer:job name or a class so job costing and class reports cannot include the adjusting transactions.
To keep accurate inventory records, including COGS, it is important to prevent inventory quantities from falling into a negative status. Avoid selling assembly items when there is an insufficient quantity on hand. If a sale is made when the QuickBooks records have not yet been updated with build information, be sure to enter the build transaction before the sales transaction to help ensure correct reporting.
- New inventory transactions put your cash or accrual basis balance sheet out of balance.
- Data damage troubleshooting repairs each episode, but it must be done every time inventory is entered.
- Eventually, you will not be able to repair the data damage and you will have to start a new data file.
How to fix it
Before attempting these solutions:
- Make one or more backups of your company data file without overwriting any previous backups. Keep these backups in a safe place.
- Consult with your accounting professional to assure that these changes are legitimate.
- It is not sufficient to adjust the current QOH to a positive value. You must eliminate each occurrence of negative QOH.
- If there is extensive negative inventory that is not easily repaired, a better option may be to start a new data file.
If you can do so legitimately, adjust the transaction dates such that bills are dated before invoices:
- In the menu bar, select Reports and then Inventory and then Inventory Valuation Detail.
- Click the Dates drop-down arrow and select All.
- Scroll through the report to an item that is showing a negative amount in the On Hand column.
- If you can do so legitimately, adjust the dates of the bills and/or invoices so that the bill dates are before the invoice dates.
- Repeat steps 3 and 4 for each item with a negative quantity in the On Hand column.
If the inventory reports are incorrect because you have not established an average cost, you can cause them to display the correct values by assuring that the earliest dated transaction for an item is a bill, check, credit card charge or Adjust Qty/Value on Hand:
- From the QuickBooks Reports menu, choose Inventory, and then choose Inventory Valuation Summary.
- QuickZoom an item that is showing incorrect values by double-clicking the item name. This opens the Inventory Valuation Detail report for the item. The transactions associated with this item are listed in order by date.
- QuickZoom the first Bill listed to open the Enter Bills window.
- Change the date on the bill to a date earlier than the first invoice listed on the detail report you opened in Step 2.
- Click Save & Close to record the bill with the new date.
- Repeat Steps 2 through 5 for each incorrect item.
How to prevent negative inventory
To prevent these issues from occurring: Do not sell inventory items until you have purchased them and entered the purchases into QuickBooks.
- Create a new inventory item.
- Enter the necessary information.
- At the bottom, enter the QOH and Value to establish an average cost.
- If you do not have any units on hand, enter a purchase BEFORE entering a sale.
- Enter the customer order as a Sales Order or an Estimate.
- Enter the customer order as an Invoice and mark the Invoice as Pending (Edit > Mark Invoice as pending).
- Purchase the inventory items and enter the purchase into your company data file.
- Convert the Sales Order or Estimate to an Invoice OR mark the Invoice as final (Edit > Mark Invoice as Final).
- Enter the customer order as an Invoice.
- In the menu bar, select Edit and then Mark Invoice As Pending.
- Purchase the inventory items and enter the purchase into your company data file.
- In the menu bar, select Edit and then Mark Invoice As Final.
- Adjust the Invoice date to the date on which the goods are shipped to the customer.
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