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bookkeeping61
April 6, 2021
Question

Inventory

  • April 6, 2021
  • 5 replies
  • 32 views

I got a call from a client using Desktop 2019.  They are using inventory and were very concerned because the inventory value is a negative amount.  In addition, the cost of sales amount is extremely high.  In reviewing the transactions I'm seeing a debit to COGS and a credit to the inventory account every time they make a purchase.  So why is this happening and how do I fix it?  What are the questions I should be asking the client to figure out what isn't being done properly or is it a set up issue?

 

Thank you.

5 replies

LeizylMQuickBooks Team
QuickBooks Team
April 6, 2021

Hello there, bookkeeping61. 

 

Thank you for posting here in the Community. I'm here to assist with your question about inventory value. Let's make sure to use the correct accounts when setting up the inventories in QuickBooks Desktop. 

 

Here's how: 

 

1. Go to List at the top menu bar.

2. Select the Item list.

3. Click the arrow beside the item. 

4. Choose New. 

5. Unders Type, select Inventory Part.

6. Add the needed details. 

7. Click OK.

 

You can ask your client if what reports they've pulled up and the items or transactions created. 

 

I'd also suggest consulting your accountant for further guidance. 

 

For future reference, here's an article that you can use as a guide  about fixing negative inventory issues and their adjustments:

 

 

Please keep in touch with me here for all your questions related to your inventory. I'm always up to lend a hand.

bookkeeping61Author
April 9, 2021

Thank you for your response but it really doesn't address my issue.  Why are inventory purchases showing as a debit to COG and a credit to inventory?  This makes no sense to me.  I can do journal entries to fix what has already happened but I want to fix whatever is set up incorrectly so it doesn't continue happening.

john-pero
john-pero
Level 12
April 6, 2021

Sounds like a setup issue of the items products services they are using. 

 

Purchase of item for resale should increase inventory and not affect COGS, yet.

Sale of an item does two things, reduces inventory and increases COGS (in addition to income being posted as gross sale amount)

 

Without looking at a specific transaction my hunch is that their purchase is posting as the COG expense when they purchase, and possibly again when items are sold. If inventory is not going up when purchased that would be an indicator.

 

Look at one of the inventory items and if it is properly set up as a two-sided item it IS possible to post both expense and income to the same account. 

bookkeeping61Author
April 9, 2021

You are correct, the purchase is showing as a debit to COG, but it is also showing as a negative entry in inventory.  That is the part that really has me baffled.  It is one thing to redirect the charge to go to the inventory account instead of COG, but why the credit to inventory?

LollyNino_CQuickBooks Team
QuickBooks Team
April 9, 2021

Hello there, @bookkeeping61.

 

The Quickbooks Negative Inventory issue (also called the Negative Quantity on hand issue) is caused when you enter sales transactions before entering purchase transactions. This means that you have sold inventory items that are not in stock. 

 

The reporting feature in QuickBooks is dependent on the information entered. There are things to consider to ensure that there are values on COGS.

  • Inventory COGS is affected only when you sell inventory items on invoices or sales receipts. You must have entered sale transactions in QuickBooks.
  • The date on the transaction must be under the date range set on the report.

If your 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. 

 

Let me show you how to fix a negative inventory, here's how: 

  1. Adjust the transaction dates such that bills are dated before invoices:

  2. From the Quickbooks menu, select Reports and then Inventory and then Inventory Valuation Detail.
  3. Click the Dates drop-down arrow and select All.
     
  4. Scroll through the report to an item that is showing a negative amount in the On Hand column.
  5. 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.
     
  6. Repeat steps 3 through 4 for each item with a negative quantity in the On Hand column. 

It is not sufficient to adjust the current QOH to a positive value. You must eliminate each occurrence of negative QOH.

If you have negative inventory for a product, you'll see a negative amount in the QTY column. Take note of how much you potentially oversold. 

 

I'll add this article for future reference: 

Reach out to me in the comment section below if you have any other issues or concerns. I'm more than happy to help. Have a great rest of the day!

 

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