When running year end we recently noticed that when entering a Bill from a Vendor that is NOT linked to a PO (because sometimes we dont issues a PO for the purchase of products), Upon entering the Vendor Bill, it seems to be hitting the Merchandise Inventory Account AND the COGS... Why is it hitting COGS?!
We have not issued an invoice for the product yet, it is throwing off all our COGS balances due to Vendor Bill Entries.
Has anyone experienced this and found a soloution?
Thank you in advance :(
Can you run a Transaction Journal report on the bill and post a screenshot? That report will show you what accounts the bill is hitting. Bills credit A/P and the accounts assigned to the bill (or mapped via the items) book the debit entry. It's difficult to imagine a scenario where the bill entry is hitting both inventory and COGS.
A bill will generate an entry to COGS if you have over sold inventory into the negative. In that case the sales transaction (Invoice or Sales Receipt, for example) will include a best-guesstimate COGS amount based on the last known average cost for the item.
When you later purchase more items on a bill (or any purchase transaction), it will become the sole the basis for the average cost going forward - because you had no items on hand before the purchase. If the new cost is different than the best-guesstimate in the invoice, QuickBooks will create an adjustment to COGS that is associated with the bill to make up for the difference.
It does this because the bill date is after the sale date, and so updating the invoice would not only be inappropriate (changing your financials in a prior period, for example) it would also not actually work given how inventory cost is (correctly) calculated, by the using the costs on purchases and the quantities on sales over time, in date order.
"A bill will generate an entry to COGS if you have over sold inventory into the negative."
OK, I see what you're saying - but that is the case only if the average cost used when the item is oversold is different than the cost of the same item(s) on the new bill. That is where I was confused. Thanks for the clarification.