How to fix previous Inventory transaction issues (old PO, Adjustment, Negative...)

alex9 · ‎December 10, 2018

Hi there, is me again, in charge of inventory with 5000+ items recently...here is the issue I found and need advice.

1, Which account should be used for adjustment account. (we don't have our own accountant)

I found all the adjustment account we used is "income", whatever increase or decrease the quantity. I read some article that suggest use "income" for increase, use "expense" for decrease. If so, do I need create those two account with different names? or just use "income" and "expense" (the two already existed in QB), which way is better?

sometime we get some parts from damaged machines, which account I should use? what type of the acount?

2, How to close the previous PO?

Some of the items have PO from long time ago , like 3 or 5 years ago, it may confuse whether we need order the item. How can I close them? it seems we can't delete it.

3, negative quantity (on hand and asset value)

I know that shouldn't happen, I can't track what happened since there were so many individual "managed" inventory. Can I use "item receipt without bill" and make it no expense?

4, Separate transactions from one item.

We have some inventory items that include different item information. we already have thousands items, so the previous use some old item with low/no cost and no/ less QOH item and changed the item number/name and description (maybe something else), then keep using this as a new item.

how can I separate those transactions to a real new item? if keep using in this way, what it may cause?

I appreciate any suggestion and help!

qbteachmt · ‎December 10, 2018

"Why it posts to COGS when it sells?"

Because this is how Inventory works.

"my understand is it posts to COGS when it purchase from vendor"

Not for Inventory. Let's review:

Money is an asset. Stuff on hand over a significant time and of significant value is Asset; you didn't "spend" money, you Invested in this stuff that is still on hand. That is why Inventory is also an asset. Trading money in the bank for inventory means Asset = Asset. Nothing really changed, yet.

"and it posts to income when it sells to customer."

The IRS has a rule and the accountant's refer to it as The Matching Principal.

This means the Expense for what is sold, is not Expense, Until it is sold. This removes the value from inventory (no longer on hand) and posts to COG = Cost of Goods Sold. Now that it sold, we match income to expense and see Profit.

Until it sells, it still is On Hand. Value on hand = Asset.

"So if I have one item has -10 quantity on hand, I need use adjustment to give "0" new quantity and post to COGS acount, right?"

Yes, because you are Missing value. The question is, where did that Purchase get posted, since we forgot to list Inventory was what we purchased? If someone posted to COGS when this was an Acquisition of Product to be held on hand, they overstated Expense. It wasn't Gone, already.

"Another situation we have is, sometime we get some parts from damaged machine, we never bought this parts yet, but it can be re-resale, how can i add them to our QB? use adjustment and posts to COGS?"

Yes, as $0. In this case, unless you Buy something, it goes into stock as $0. That means the $0 in COGS in just a placeholder.

"how about the cost/value?"

Value is not Cost. Cost is what you paid for something.

"or i should use items receive without bill?"

Please; I think this is the Third Time---Stop Trying to bring Vendors into this workflow. There is no Item Receipt, Bill or Check or Credit Card Charge unless you Bought Something.

View solution in original post

qbteachmt · ‎December 10, 2018

"Why it posts to COGS when it sells?"

Because this is how Inventory works.

"my understand is it posts to COGS when it purchase from vendor"

Not for Inventory. Let's review:

Money is an asset. Stuff on hand over a significant time and of significant value is Asset; you didn't "spend" money, you Invested in this stuff that is still on hand. That is why Inventory is also an asset. Trading money in the bank for inventory means Asset = Asset. Nothing really changed, yet.

"and it posts to income when it sells to customer."

The IRS has a rule and the accountant's refer to it as The Matching Principal.

This means the Expense for what is sold, is not Expense, Until it is sold. This removes the value from inventory (no longer on hand) and posts to COG = Cost of Goods Sold. Now that it sold, we match income to expense and see Profit.

Until it sells, it still is On Hand. Value on hand = Asset.

"So if I have one item has -10 quantity on hand, I need use adjustment to give "0" new quantity and post to COGS acount, right?"

Yes, because you are Missing value. The question is, where did that Purchase get posted, since we forgot to list Inventory was what we purchased? If someone posted to COGS when this was an Acquisition of Product to be held on hand, they overstated Expense. It wasn't Gone, already.

"Another situation we have is, sometime we get some parts from damaged machine, we never bought this parts yet, but it can be re-resale, how can i add them to our QB? use adjustment and posts to COGS?"

Yes, as $0. In this case, unless you Buy something, it goes into stock as $0. That means the $0 in COGS in just a placeholder.

"how about the cost/value?"

Value is not Cost. Cost is what you paid for something.

"or i should use items receive without bill?"

Please; I think this is the Third Time---Stop Trying to bring Vendors into this workflow. There is no Item Receipt, Bill or Check or Credit Card Charge unless you Bought Something.

alex9 · ‎December 10, 2018

Thank you for your answer, It is very helpful! I learned a lot.
Could you please explain more about adjustment account and COGS acount.
As you answered for my first question, you suggested "1. You can set up one account and name it Inventory Adjustment, as I noted above, and use it for Either direction (up or down $ changes)."

What type of this "adjustment account" should be? expense? income? or others?
This account should only deal with the item that have quantity on hand (QOH >0), right?
If the QOH is negative, we need post to COGS acount, not adjustment account, right?

qbteachmt · ‎December 10, 2018

1. That is typically not Income, since it has nothing to do with sales. It is expense or a COGS type of account named for Inventory Adjustment, or Waste, even.

2. The top of every PO has the Close icon.

3. That happens when no one Purchases items but they sell them, anyway. Don't try to make More entries, now. No item receipt, no bill to pay later. You take a Physical Count and you Adjust inventory to correct it. Look at previous purchases, to see if they posted to Inventory Asset directly or to COGS directly. Whatever they used from Bills and Checks to buy this stuff, bypassing listing the items, that account is where your missing Values are posted and that account is what you would pull from, top of the adjustment screen.

Of course, this is a problem if these errors are Historic.

4. If they were at 0 qty and 0 value, when they "repurposed" that item, they didn't make a mess of the Accounting, but they had meaningless data on the activity reporting, such as Item Profit and Sales analysis.

It is too late to "change" that. I don't know what you mean by "to a new real item" because think about it: this is the Real Item, for that entry, now.

alex9 · ‎December 10, 2018

thank you, please see another answer as my response.

qbteachmt · ‎December 10, 2018

"If the QOH is negative, we need post to COGS acount, not adjustment account, right?"

Make one New account, name it Inventory Adjustment and Type = COGS.

Use it for Everything here.

qbteachmt · ‎December 10, 2018

1. You can set up one account and name it Inventory Adjustment, as I noted above, and use it for Either direction (up or down $ changes).

2. Delete is not Close. Delete = Gone. Close = Done. Wait for the Accountant's Changes file to be imported, before trying to change historic POs, then.

3. If the Item was listed on the purchase, and the item had that account mapping as you now see, then it posts to COGS when it Sells.

"probably some negative items we will never sell again, so can I create a "bill" with the negative quantity and "0" cost? or use inventory adjustment with "0" value change and post on COGS account, after that, I can inactive this item."

Stop trying to make More Bills. There is no Vendor involved, now. You use Adjust Inventory to fix your inventory. You would not Create new bills; you would find old bills with bad data entered and fix it there, if you could or if you cared.

alex9 · ‎December 10, 2018

" If the Item was listed on the purchase, and the item had that account mapping as you now see, then it posts to COGS when it Sells."
Why it posts to COGS when it sells? my understand is it posts to COGS when it purchase from vendor, and it posts to income when it sells to customer. So if I have one item has -10 quantity on hand, I need use adjustment to give "0" new quantity and post to COGS acount, right?

Another situation we have is, sometime we get some parts from damaged machine, we never bought this parts yet, but it can be re-resale, how can i add them to our QB? use adjustment and posts to COGS? how about the cost/value? or i should use items receive without bill?

thank you again

alex9 · ‎December 10, 2018

hi qbteachmt, Thank you for your help.

1. during the inventory adjustment, I understand that use WASTE as a kind of expense for the decrease of physical inventory count, how about increase? need another account? or use the same expense account?

2, when we close( delete ) the previous PO, it showed a notes, "An Accountant's copy has been created from this company file. while your accountant is working on your file, you can only work on transactions dated after 01/01/2014". Any advice?

3, I think all of our purchase posed on COGS account, right?(I attached our item edit as a example) . Yes, as you mentioned, it is historic issue, probably some negative items we will never sell again, so can I create a "bill" with the negative quantity and "0" cost? or use inventory adjustment with "0" value change and post on COGS account, after that, I can inactive this item.

4, i agree with you, yes, it is real item now, so i think i will keep using them.

Thank you again

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How to fix previous Inventory transaction issues (old PO, Adjustment, Negative...)