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.
