Negative Inventory
Negative inventory seems to be something all programs allow. Even the POS system I am demoing (not QB’s) allows you to sell something you don’t have. For the life of me I can not understand why you would allow that, but it is what it is.
When you sell inventory into a negative balance on hand what happens behind the scenes in QB?
Well everything seems to work normally:
- the average cost of the item sold is deducted from the value in inventory asset
- that average cost is sent to COGS
- and the quantity on hand is reduced.
So what is the problem? Pretty simple. That value of the item sold was never there, but it was removed from an asset account.
Then when you buy more of the item QB does some behind the scenes adjusting. The purchase is posted to:
- inventory asset
- the item cost is recalculated
- and a payable is entered.
Then QB looks back and sees the negative sales entry and compares the cost it used to the new cost based upon the purchase. And if the cost is different, it reduces inventory asset by the amount of the difference and increases COGS by the same amount. That is why you will see an entry called Bill in the COGS listing, it is the adjustment QB makes for negative sales.
OF course if the new cost is less than before, then the adjusting entries are opposite, COGS is reduced and inventory asset is increased.
This all works fine and things balance out - unless this happens over the end of year. That will cause you problems, so don’t sell anything to a negative if you cannot get it back in stock before the year ends.
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July 24th, 2008 at 2:17 pm
Why should an inventory system allow you to have a negative inventory? Well, how about this situation: It’s 3:30 PM and the UPS driver will arrive any moment. You have to get this order picked, packed and invoiced before he comes so that you can get the order to the customer when they need it. The purchasing manager went home with the flu earlier today and the morning’s receipt documents are sitting on her desk. The items are here, you have them in your hand, but QuickBooks says you don’t have them because the receipt wasn’t entered. You don’t have permission (or the time) to enter the receipts, you can’t make a manual inventory adjustment because that can only be done in single user mode (and you can’t kick the payroll clerk out!), so you just go ahead and enter the invoice, making the inventory go negative.
A bit contrived, but it does happen. There are workarounds, but they take time and make you change your procedure. Computers are suppossed to make life easier, not harder…
rustler Says:
July 25th, 2008 at 4:57 am
ROFL ok Charlie you got me, so the Purchasing Manager is a one person department huh? Title instead of pay - just like banks - ROFL.
Then at the very least the accounting program should have an exception report that generates automatically each morning at a certain time showing that kind of thing.
July 25th, 2008 at 3:23 pm
That was a real life scenario, too. More or less.
You can get close to that report by modifying an item listing, but I can only get it to show items with a quantity <= 0 (and can’t get just negative items, so far). Export it to Excel and do more filtering.