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Level 1

Negative Inventory

I have a client with a large negative balance in their inventory. After investigation, we have found that this is due to a timing issue. I am looking to find a new procedure to help them not have a negative inventory.

My client builds large custom built machines. Most of the parts are not in their inventory until they are ordered and received. The client gives a quote to their customers and creates an invoice when the customer approves the order. My client waits to issue the PO until they receive a down payment. (Don't want to order parts if there is a chance that the customer might cancel) I believe that issuing the invoice reduces the inventory and that does not even up until they receive the bill from the PO. (Getting the parts from the issued PO takes several months).

They are building custom $100K machines so they want their money up front, which I understand. What am I missing here? How do we avoid the negative inventory problem?

Secondly, how does this process affect the average costing of COGS?

6 Comments 6

Negative Inventory

Hello @peggycnelson,


Thank you for posting here in the Community. I'm here to help you avoid negative inventory in QuickBooks Desktop.


Yes, you're right. Adding sales transactions in the system before entering the corresponding purchase transactions will lead to a negative inventory.


When selling unavailable items in the company file, QuickBooks assumes that the average costs on hand are either:


  • The same average cost as the items you had on hand OR
  • The Item Cost from the Item List.

To avoid negative inventory, you can use a sales order since it's a non-posting type of transaction. Here's how:


  1. Go to Sales Orders/Create Sales Orders from the Help menu at the top.
  2. From the Customer: Job drop-down, select a customer or customer job. If the customer or job is not on the list yet, you can click Add New.
  3. Fill in the relevant information at the top of the form like the Date and S.O. No.
  4. In the detail area, select the item(s).
    Note: When you select or add an item, the description and amount are automatically populated based on the description and unit cost entered when the item was set up. You can delete or modify this when creating Sales Orders.
  5. Click Save & Close.

For more information about upfront deposits, as well as how to fix negative inventory in QuickBooks, I recommend the following article:


Please know that I'm just a post away if you have any other questions related to the inventory. Take care.

Fiat Lux - ASIA
Level 15

Negative Inventory


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. This is very bad in QuickBooks because it causes the following issues:

* Data Damage forcing you to constantly rebuild the file to bring your B/S to balance
* Cash-basis Balance Sheet is out of balance
* Profit and COGS amounts are incorrect
* Balance Sheet Inventory Account amounts are incorrect
* Incorrect Vendor Reports
* Error: LVL_ERROR--Error: Verify Account: Invalid balance. Amount overflow has occurred. Rcrd = 99.
* Error: Verify Account Balance failed. Calc bal = 0.00, List bal = *overflow*
* An overflow error has occurred. One of your accounts has exceeded the maximum value allowed. Review the balances in your chart of accounts and lower the value of the account to less than 10,000,000,000,000.
* Error: "It looks like something in your company file is causing your balance sheet to go out of balance."
* Error: Itemhistupdateengine.cpp -- LVL_ERROR--Error: Verify item history Target average cost mismatch error (expected value, found value).
* Error: Itemhistupdateengine.cpp -- LVL_ERROR--Error: Verify item history Target value on hand mismatch error (expected value, found value).
Error: Itemhistupdateengine.cpp -- LVL_ERROR--Error: Verify Item History: Bad target COGS for Item.

How to Find if your data file has Negative Inventory?
Run the Inventory Valuation Detail (IVD) report in QuickBooks:

In QuickBooks, select Reports>Inventory>Inventory Valuation Detail.
Click the Dates drop-down and select All.
Find all occurrences of negative amounts in the On Hand column.

How to Fix Negative Inventory?
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.
Caution: It is not sufficient to adjust the current QOH to a positive value. You must eliminate each occurrence of negative QOH.

Is there a File Repair Service to fix this issue?
We offer a repair service to fix all instances of negative inventory in the file. The service will analyze your source data file to identify the items and dates the quantity on hand (QOH) went negative and then fix all occurrences of negative inventory. The repaired file will not have negative inventory and will verify correctly in QuickBooks. There may be a change to the COGS and Inventory Asset account balances after the repair. There will also be a change to the Opening Balance Equity account that will be used to add the inventory adjustments. Your or their bookkeeper will need to add adjusting journal entries after the repair.


Level 1

Negative Inventory

Interested to find out more about your negative inventory service

Level 13

Negative Inventory

It sounds like the negative inventory issue is due to the fact that the customer is being invoiced for inventory items but they aren't buying inventory at that point, they're just making a deposit to be credited toward the final invoice.  For the upfront deposit, just invoice them for the deposit and record it as income (cash basis) or as a liability (accrual basis). The final invoice will contain all of the inventory items and COGS will hit the books at that point.

Fiat Lux - ASIA
Level 15

Negative Inventory


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Level 1

Negative Inventory

Hi Peggy,


I assume they send an Invoice to the customer to get the customer to pay the deposit.  They could send the Invoice out, and the make the Invoice "Pending" which will make it a non-posting transaction and the Invoice will not affect inventory 


1 Goto the Invoice in question

2 Goto Edit - down to Make Invoice as Pending

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