Negative inventory is triggered before entering the subsequent buying transactions by entering sales transactions, i.e., you sell inventory items that you do not have in stock.

When you sell things in your company file that you have joined:

  • On an item receipt, bill, check or credit card fee, debiting inventory and crediting A/P, Cash, or Credit Card Payable, you buy items using the Items Tab.
  • You sell items, but never more things than you have on hand, on invoices or sales receipts.
  • There are two transactions reported in the sales transaction:
    • Sales/Receivable transaction, A/R debit, and Sales credit
    • Inventory/COGS transaction, Inventory credit, and COGS debit.
  • As they document both the revenue and the expenditures, you run P&L and expense reports displaying the invoices and sales receipts.
  • You run B/S reports displaying item receipts, bills, checks, and credit card payments because they document inventory increases, and they communicate invoices and sales receipts because they record inventory decreases.

When you sell things in your business file that you have NOT entered

  • The sales/receivable transaction is reported as planned in the invoice.
  • QuickBooks assumes for the Inventory/COGS transaction that the average cost of the items not on hand is either:
    • The same average price as the goods that you have on hand OR
    • Item Expense from the list of products.
  • The Inventory/COGS transaction is reported by QuickBooks using the cost assumed.
  • If the next purchase is not assumed cost, then the purchase transaction must report a change to the Inventory and COGS to account for the discrepancy.
  • Since the bill now concerns COGS, it appears on the P&L and other expense-showing records.

Please note that the transaction report for the Inventory/COGS transaction never appears on the transaction, but it can be seen by running the Transaction Journal report. The Transaction Information by Account and Account QuickReport for a Cost of Goods Sold (COGS) account would appear on bills, checks and credit card charges with Inventory/COGS changes.

How to display negative inventory

Negative inventory can appear on your balance sheet, but it is shown mainly in the following reports:

Report on the Inventory Valuation Detail (IVD): The IVD is the ONLY report you can use to determine your adverse inventory’s magnitude. Negative inventory occurs in the Quantity on Hand (QOH) column with negative numbers.

  • Go to the Menu Reports.
  • Select Inventory, then select Assessment of Inventory.

Document on negative Item Listing: You can use the Negative Item Listing report if you are using QuickBooks Enterprise 15.0 and more contemporary. Notice that the latest harmful quantities are seen but NOT the previous negative amounts.

  • Go to the Menu Reports.
  • Select an inventory, then select a list of negative objects.

You can use your Inventory Center if you are using QuickBooks Premier or Enterprise 2014 or earlier without an Advanced Inventory.

  • Go to the Menu for Vendors.
  • Select Inventory Activities, then choose the Inventory Center option.
  • Adjust the filter from Active Inventory to Assembly to QOH <=Zero on the top left side of the Inventory Center pane.

Issues that you might face

The overall cost of a new inventory item is not: 

  • A new inventory item has been created, with an item cost, but without an initial QOH/VOH.
  • Without an average cost, this leaves the object.
  • An invoice instead of a bill, check, credit card charge, or Change Quantity/Value On Hand was the first transaction to use the product (IAD).
  • The selling pushes the item into an inventory negative.
  • The invoice uses the item cost from the item list without an average price to credit inventory and debit COGS.
  • You buy the item at a price separate from the cost of the item.
  • The bill requires an adjustment to the Inventory and COGS for the discrepancy between the item’s cost and the actual purchase cost, allowing it to appear on the P&L report.

Selling inventory that you do not have has adversely affected your Quantity On Hand (QOH) and on your P&L report will cause incorrect Cost of Goods Sold (COGS).

  • Without an item price, you build a new inventory item.
  • Without buying any inventory, you sell the item.
  • QuickBooks does not have any data to measure the average cost, so it has to assign $0.00 to the average price.
  • This skews your COGS and your stock.
  • They are not corrected until a bill, check, credit card fee, or Change Quantity/Value On Hand determines an average cost.
  • Negative inventory leads to mistakes in vendor reports.

Usually, the Inventory/COGS transaction is on the invoice. Selling out-of-stock inventory allows the next bill to include an Inventory/COGS change marketing. Such changes are linked to the vendor and appear on vendor reports.

How to fix negative inventory in QuickBooks

Suppose your inventory reports are inaccurate because you have not defined an average cost. In that case, you can make them show the correct values by ensuring that a bill, search, credit card fee or Change Qty/Value on Hand is the earliest dated transaction for an item:

  • From the QuickBooks Reports menu, select Inventory, and then choose the description from Inventory Valuation.
  • QuickZoom is an item that displays incorrect values by double-clicking the name of the item. This opens up the item’s Inventory Valuation Information report. The transactions linked to this item are identified by date in order.
  • To open the Enter Bills pane, QuickZoom listed the first bill.
  • Change the date on the bill to the date you opened in Phase 2 earlier than the first invoice on the comprehensive report you opened.
  • To record the bill with the new date, press Save & Close.
  • For each incorrect object, repeat Steps 2 through 5.

You have sold stock products without recording sales: You may have entered accounts with bills and not stock products. If so, shift entries from the Expenses Tab to the Object by modifying the Bills. Be mindful that this will adjust your inventory costs. Before following this step, check with your accounting professional.

To End With

QuickBooks Desktop is a fantastic software when it comes to managing a particular organisation’s finances. Still, while doing that, you might see a negative entry that you can fix by reading this blog, so do read the whole thing, and you will be sorted. I hope that this blog helps you and worth the time that you’ve spent reading it. 

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