Tuesday, June 24, 2008

An Enterprise Solutions client who tracks inventory, wants to know why QuickBooks is reporting “negative” inventory numbers and how can it be fixe

Inventory will go negative when a client sells a product before they have it in inventory.
QuickBooks uses an Average Cost basis when calculating inventory values and by allowing an inventory item to go negative, the average cost will be way off. This is why you should never let inventory go negative. This will skew the gross profit figures.

There are two options for correcting this problem:

1) Adjust Inventory within the program. This is a cleanup approach that avoids the necessity of changing hundreds of dates. First, do a physical inventory in QuickBooks. (Vendors>Inventory Activities> Adjust Quantity/Value on Hand.) Always check the box in the lower left that says”Value Adjustment”-just in case you have to adjust the value of any item. Make the adjustment account an expense account and call it something like “2008 Inventory Cleanup”. This way you can see the impact on the P & L. Also, make sure that the value of the inventory asset account equals the total of the inventory value in the “Inventory Valuation Summary Report”. (Reports>Inventory>Inventory Valuation Summary).

2) Change All Items Individually- this is the suggestion from the Intuit Tech Support Group. They suggest going back to all the products and the times they went negative and change the dates of either the invoice or the receipt of goods. This could create a lot of work and there are also other potential drawbacks.

In order to avoid future negative inventory numbers either:
1) Use the Sales Order function, or 2) Make the Purchase first.

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