Stock (Inventory) assets - Stock (Inventory) adjustment

Mostropovich · ‎December 19, 2022

Hi, I am sorry for the length of the following question but I don't know another way to detail it in a better way

We purchase a product [XYZ] from a supplier.

When we receive [XYZ], we create a product [XYZ-a], the total quantity is received as stock (A), categorized 'A', and therefore, when it is sold, on the invoices assumes the name [A:XYZ-a] .

We want to move some quantity of [XYZ-a] from Stock Asset (A) to a newly created Stock Asset (B), so that we can sell from either of the two Stock Assets.

For this purpose we have created a new product called [XYZ-b] which is assigned category 'B'.

The sales from Stock Asset (B) are displayed, in fact, as [B:XYZ-b].

Just to be clear, the physical product we purchase [XYZ] is the same, whether sold as [XYZ-a] or [XYZ-b]; the two products have the same initial purchase cost and the only differences between [XYZ-a] and [XYZ-b] may be 1) in the selling price, 2) the fact that [XYZ-b] is given in consignment to some Customers, 3) the Stock Asset Account they are sold from.

As the above requires Stock (Inventory) adjustments, so far we have used the option in the menu, called 'Stock Shrinkage', to "move" some quantities of the product [XYZ-a] from Stock Asset (A) to Stock Asset (B) as [XYZ-b] ;

In effect, in the Stock Shrinkage form we put, for example:

[XYZ-a] change in quantity ' - 10 '

[XYZ-b] change in quantity ' +10 '

so we have a decrease in Stock Asset (A) and an increase in Stock Asset (B), but the total quantity of the physical product - internally and generally called [XYZ] - stays the same at the moment of such operation. We will have 10 less [XYZ-a] and 10 more [XYZ-b], which is fine as their purchasing cost is the same and from an inventory point of view, we will know exactly how many [XYZ], albeit under different names, we have in stock, whether at home or in consignment c/o some of our Customers.

The question: is the 'Stock Shrinkage' option the best, or only, option we can use, or is there another way - simpler, not more complicated - to move the same product ( in our example [XYZ] ) from a Stock Account (A) to another stock account, (B)?

Thank you,

Rainflurry · ‎December 21, 2022

@Mostropovich

In the UK version, are you able to go to Settings > Chart of accounts > New and create a bank account there? In the US version, this is where you are able to create a bank Clearing Account. Then, you will be able to select that account in the adjustment account pull-down menu when entering the inventory quantity adjustments. I suggest using a bank account type for the Clearing Account because a bank account is able to be used in various other areas of QB when you need the convenience of a clearing account (A/P, A/R, etc.). However, if you're unable to set up a bank account type for the Clearing Account, the current asset account type will work fine for your inventory adjustments as per your screenshot.

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Rainflurry · ‎December 19, 2022

@Mostropovich

That sounds like the most efficient way to do it IMO. My only suggestion would be to use a clearing account under the "Inventory adjustment account" pull-down menu instead of the Inventory Shrinkage COGS account. This keeps your COGS account cleaner. Each time you make one of these transfers you are creating three entries into COGS which always net to zero, or at least it should. Using a clearing account will keep things neater and make it easier to find discrepancies if you run into any down the road.

Mostropovich · ‎December 19, 2022

@Rainflurry

Thank you so much. I'm glad you managed to decipher my blurb...

In fact, using the 'Stock Shrinkage' COGS option, produces, at times, odd results: Physical Stocks (inventories) are correct but values sometimes produce '0', which is what I would expect by increasing and decreasing the stocks by the same product, albeit via the two different products created, and sometimes produce plus or minus values, which, not being an accountant, I struggle to understand why it is so, though I imagine it may be because the 'average cost' and/or the selling price are different or have changed in time.

More important, for the moment is to understand your suggestion.

in the "Inventory adjustment account" pull-down menu should I create what you call a clearing account? If so what parameters should I use

for example:

Account Type = 'Current Asset' instead of 'Cost of Sales' ?

Detail Type = 'Stock' instead of 'Supplies and Material COS' ?

I am asking as I am not 100% familiar with terms used in accountancy...

Obviously, in the pull down menu of 'Stock Adjustment Account' we have both Stock (A) and Stock (B). So I could

1. enter the 'Stock qty Adjustment' form

2. select Stock (A) in the pull down 'Stock adjustment account' menu and decrease the product's inventory qty (for example [XYZ-a] -10)

3. save and repeat 1.

4. select Stock (B) and increase the product's inventory qty ( [XYZ-b] +10 )

5. save

I don't know whether the above would fall into the "using a clearing account" suggestion or you mean I should create a brand new 'clearing account', in which case I would need to be baby fed with how to do it, in case I should use parameters that are different from those I have listed in the first part of this message.

Hope I am not abusing your patience

Rainflurry · ‎December 20, 2022

@Mostropovich

My suggestion would be to set up a bank account in QB called "Clearing Account" and use that as the adjustment account. A bank clearing account comes in handy in many instances in accounting. One other thought: you don't need to make two separate inventory quantity adjustments, you can put both products on one adjustment (i.e. Line 1 is product ABC-a with a -10 adjustment Line 2 is product ABC-b with a +10 adjustment). Just my $.02.

Edit: I failed to mention you can select 'Cash on hand, Checking or Savings' for the Tax form section when creating the clearing account. It really doesn't matter since you always want to make sure the balance in the clearing account is $0 after the adjustments.

Mostropovich · ‎December 20, 2022

I cannot use a bank account as 'Account Type' and stock in 'Detail Type' - if this is what you meant for creating a "Clearing Account" (an account where I can adjust inventory quantities) because "Bank" does not appear in the scroll down menu. The only option present "Cash at bank and in hand" in 'Account Type', does not allow to use 'Stock' as an option in the scroll down menu of 'Detail Type'.

It may be that there are differences in the UK and US versions of QBO.

As 'Stock' (Inventory) is a Current Asset, couldn't I create a Stock Adjustment Account with 'Current Asset' as "Account Type" and 'Stock' as "Detail Type" ? Do you know whether this may work and how would it affect the financial side of the inventory?

Rainflurry · ‎December 21, 2022

@Mostropovich

In the UK version, are you able to go to Settings > Chart of accounts > New and create a bank account there? In the US version, this is where you are able to create a bank Clearing Account. Then, you will be able to select that account in the adjustment account pull-down menu when entering the inventory quantity adjustments. I suggest using a bank account type for the Clearing Account because a bank account is able to be used in various other areas of QB when you need the convenience of a clearing account (A/P, A/R, etc.). However, if you're unable to set up a bank account type for the Clearing Account, the current asset account type will work fine for your inventory adjustments as per your screenshot.

Mostropovich · ‎December 21, 2022

Thank you very much for your help. I will try the >Current Asset< option because, although I can create a Bank Account, the only option to do it is to have >Cash at bank and in hand< in 'Account Type', and such account type does not have >Stock< as an option in the scroll down menu of 'Detail Type'.

Let's see if it works, if it creates troubles, I am sure our accountant will be able to amend it.

Thank you again !!

Have a serene Christmas.

kikoA · ‎February 08, 2024

I use the average weight for the stock inventory in Quickbook Enterprise 2018, but I recently noticed that the balance has been off for the last three months. What need I do to fix this error?

Irene R · ‎February 08, 2024

Hi Kikoa,

I can see that you've posted the same scenario or situation. I suggest visiting my peer's answer for more details: https://quickbooks.intuit.com/learn-support/en-us/other-questions/re-inventory-costing-fifo-vs-avera...

If in case you have other QB concerns, please don't hesitate to leave a reply below. We're always here to help you out. Take care always.

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Stock (Inventory) assets - Stock (Inventory) adjustment