QuickBooks

QuickBooks Enhanced Inventory Receiving–More Workarounds

Written by Charlie Russell

I’ve talked about the problems that you can run into with the optional Enhanced Inventory Receiving (EIR) function in QuickBooks Enterprise V12, but there are still situations where you may find that this feature is needed. Let’s talk about some workarounds that are available for one of the big problems.

I’ve written about the inventory offset problem, where you can create an improper posting to the inventory offset account by adding items to a bill that weren’t included in the item receipt. For example, if the item receipt includes several inventory items, but you add a shipping charge (using, for example, and other charge item) to the bill, that shipping charge is posted to the inventory offset account, but it is never cleared. The workarounds that I offered earlier were to either pay for the item with a check or credit card charge rather than using the receipt/bill approach, or to add that shipping charge to the expenses tab instead of the items tab on the bill. These aren’t the optimal ways to deal with these kinds of charges, so these workarounds aren’t a satisfactory way to resolve the problem. They do avoid the inventory offset problem, though!

Just the other day Von Smith asked some questions in a LinkedIn group discussion that got me thinking about some other ways to get around the problem. I’ll use adding a shipping charge to a bill for my example.

First, let’s recap the problem. Keep in mind that this occurs when we enable Enhanced Inventory Receiving in QuickBooks Enterprise V12, which lets you create a separate item receipt and bill transaction when receiving inventory items – where normally the receipt and bill are just one transaction.

  • Receive some items using an item receipt. The estimated value of these items is posted to an inventory offset account.
  • Create a bill for that receipt, and add an other charge item for the shipping charges that were included in the invoice from your supplier. The inventory offset account is supposed to be adjusted down by that same estimated value from the item receipt. However, the problem is that the value of the shipping charge is also removed from that account, which is not correct. The inventory offset account is out of balance.

You can avoid this by not using the other charge item, instead posting the shipping charge directly to your G/L by using the expenses tab in the bill. However, that isn’t the way that we recommend that you use QuickBooks. Best practices recommend that you try to use items whenever possible, rather than posting directly to an account.

Modify the Item Receipt

Since the problem with the bill is that it contains a charge that doesn’t show on the item receipt, one simple fix when you receive the bill is to go back to the original item receipt and add that freight charge item. In fact, maybe you could just add that freight item when you enter the original receipt?

QuickBooks Item Receipt

You have to be careful, though, because you don’t want the freight charge showing showing in your accounts on the receipt date. One of the main reasons for using EIR is to get the actual costs of the bill to show on the date of the bill, not on the date of the receipt. The simple fix for this is to make sure that your Freight item has a zero cost value. You are just entering a quantity of one for freight at this point, and if you have a zero cost for the item there won’t be a value posted to the inventory offset account.

QuickBooks Freight Item

With a zero-cost freight item in the item receipt, you can now enter the actual freight cost in the bill. EIR adjusts the inventory offset account by the value of the item used in the receipt, which is zero, so you don’t get an incorrect posting when you update it in the bill.

Adjusted QuickBooks Bill

This is a fairly simple workaround as long as you have your items set up correctly to begin with. You still are using the items tab as we prefer, and costs show up in the right amount at the right time.

Landed Cost

In many cases you will want to incorporate the freight cost into the cost of the items – this is referred to as the landed cost of the item. There are several ways of handling that in QuickBooks (see my article on shipping costs and QuickBooks inventory), although I wish that QuickBooks handled it more smoothly.

In this case, when the freight charge is a part of the bill for the receipt, simply include the freight charge in the amount for the item. In my example, the cost of the received item was $12.00 and the freight was $2.00, so I enter the amount as being $14.00. This will still manage the value in the inventory offset account correctly.

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It is more complicated, of course, if you have multiple items in the bill. You have to allocate the freight cost across the various items manually. You still are using just the items tab, not the expenses tab, and the inventory offset account is managed properly.

Is It OK to Use EIR?

I continue to have reservations about the EIR function at this time. There are other problems, such as the bill linking problem for example. Also, I worry that the way that the program manages the inventory offset account may still have problems. Keep in mind that enabling EIR is a one-way street. You cannot turn the feature off once you enable it, without going to a backup copy, creating a new company file, or using an expensive third-party service.

When I was playing around with bills and receipts for this article, adding and deleting and adjusting various transactions, after awhile I ended up with incorrect values in the inventory offset account that could not be explained by the current state of the transactions. QuickBooks got confused if I made multiple adjustments to transactions that affect this account.

  • Create a receipt for an item, and add the other charge item (with a zero cost). Using my example above, this would post $12.00 to inventory offset.
  • Create a bill for that receipt, and adjust the item cost to include the freight charge (as in my landed cost example). Don’t enter a value for the line with the freight charge. Inventory offset is properly adjusted down to zero.
  • Delete the bill. This should set inventory offset back to $12.00, the cost of the item without the freight charge. However, in my test, inventory offset is set back to $14.00, which is the updated (landed) cost that I entered, not the original cost. I now have $2.00 too much in inventory offset.

This will self correct later – if I again create a bill for this receipt it will remove the $14.00 value from the inventory offset account. However, that is placing too high of a value in the account for the interim period of time. I’m not sure if this is a major issue, but it isn’t correct and I don’t like it when small details like this aren’t accurate.

About the author

Charlie Russell

Charlie Russell has been involved with the small business software industry since the mid 70's, and remembers releasing his first commercial accounting software product when you had an 8-bit microcomputer with one 8 inch floppy disk drive. He has a special interest in inventory and manufacturing software for small businesses. Charlie is a Certified Advanced QuickBooks ProAdvisor with additional certifications for QuickBooks Online and QuickBooks Enterprise, as well as being a Xero Certified Partner. Charlie started blogging about QuickBooks in 2008 (Practical QuickBooks) and has been writing for the Accountex Report (formerly the Sleeter Report) since 2011. He retired from accounting and QuickBooks activities in early 2018.

Visit his CCRSoftware web site for information about his QuickBooks add-on products. He is also the author of the California Wildflower Hikes blog.

16 Comments

  • You said, “In many cases you will want to incorporate the freight cost into the cost of the items”
    Including freight, and any other charge to get the item on hand, in the item cost (and reducing the price by any discount) is an IRS requirement.

    See IRS Pub 538 Page 18 which says
    For Merchandize purchased during the year, cost means the invoice price minus appropriate discount plus transportation or other charges incurred in acquiring the goods. You must reduce the cost of inventory by a trade (or quantity) discount.

    I realize that many large corporations and some accountants don’t do it. But in my view making it sound optional is misleading. The requirement is to expense the cost of the item in the year sold, not purchased. Posting freight to an expense account is fine if you also mention that freight for items not sold should be posted to an asset account before end of year reports are done.

    • Thank you, Jim. I guess what I should say is “always check with your financial advisor on how to deal with this”. I’m not a CPA or a financial advisor, so I just pass the decisions on to those who know.

      • Charlie,

        I’m contemplating purchasing QBE for a client in the distribution of eyewear products. When I heard QBE had an inventory enhancement; I was very happy. However I have been reading several blogs about the nightmares of this enhancement. Can you contact me so we can have a conversation about my scenario to figure out if the enhancement will work for us or if a third party inventory interface will suit us better?

        • Gene, you can contact me by the email address that is in my “author bio”, at the end of this article. Please note that for direct support I charge an hourly fee (we can discuss the details).

          When you say “inventory enhancement” that can mean a lot of different things. Some of the new inventory features work quite well. It is just certain ones that should be avoided. Hard to make a generalization.

    • Jim,

      Thanks for the clarification on this. We agree that landed cost by item is the “proper” way to go from the “GAAP” perspective, and I’ve written about that for years. But as this exemplifies, there is no easy way to do that in QB without the “trickery”.

  • Charlie.

    I haven’t thought much about this and probably shouldn’t be commenting but couldn’t you simulate Enhanced Inventory Receiving by creating a bill (with items) when the material was received and adding a line to zero out the bill and crediting inventory offset or a accrued inventory cost account.

    Then when the actual bill is received, couldn’t you just create a 2nd bill (without items) and debit the inventory offset or accrued inventory cost account.

    • I’m not sure if I’m following you, Karl. On the first bill/receipt – are you trying to create a bill that has a $0.00 value? Because if you don’t, you have a payable on that date.

      If I have a value on the Items tab, then you are saying to add a negative value on the expenses tab to make the bill $0.00? I can’t seem to get that to work.

      Or am I totally missing your approach?

    • OK, I took another look at your suggestion (and you sent me some screen shots). For some reason, the first time that I tried entering a bill with a positive value on the “items” tab and a negative value on the “expenses” tab, QuickBooks wouldn’t let me get the balance to be zero. I must have gone through some other process to get it to argue with me (we aren’t always on the best of terms).

      Certainly there are ways to accomplish the same thing that EIR is doing. From a quick look, your process shouldn’t have any of the bad side effects that EIR can cause. In other articles there have been discussions on how to get around the receipt/bill timing issue without EIR.

      The concept for EIR is that there should be a simple way to address this issue, so that you simply enter a receipt, then a bill, and everything is tied together and works. The two problems here are that EIR doesn’t always work right (it has bugs, and shortcomings) AND that you cannot turn EIR off once enabled. So I’m pointing out the problems you may run into if you HAVE turned it on and have to live with it being there.

      The problem with the workarounds, such as the excellent one that you lay out, is that it requires that you do a number of extra steps in a particular way. Too much room for error if you have to manually set things up. My hope would be that EIR would work nicely, and bundle all the steps up into a nice package.

      I will mention, to those who don’t know Karl Irvin, that if you enable EIR and find that you need to get rid of it, one way to do that is to create a new file and transfer the information from the old file to the new one using Karl’s excellent Data Transfer Utility (and possibly some other of his utilities along with that), available at http://www.q2q.us. Great tools. The only hassle there will be if you have separate receipts and bills that you have to reconcile in the new company that doesn’t have EIR…

      • Karl,

        I think your idea is a great workaround and I’m pretty certain it will work just as you describe.

        I continue to warn against the EIR feature because it’s just too risky if people have complicated or high-volume purchase transactions. Just another example where it’s better to pursue an addon like acctivate instead of using QB for inventory when things get complex…

  • OK, I have a ‘new’ one to add to the Enhanced Inventory Problem list. And it’s a MAJOR problem!

    I’m in Enterprise 12. R8. Manufacturing client started into Enterprise (with a new file) in January of this year due to the fact that they need job costing.

    They use both inventory and NI parts on fixed price jobs. To get inventory costs posted to FP jobs, they enter a Sales Receipt w/$0 income. NI parts and service purchased for jobs are to be posted to jobs as costs are incurred.

    Issue 1:
    When you purchase a non-inventory part and include a job (or an Other Charge, or a Service Item) – using the standard acquisition process of Puchase Order–>Item Receipt–>Enter Bill: The Item purchased for the job does NOT show up on the Job Cost Detail report.

    The cost DOES show up on the P&L by Job report for that job as of the Item Receipt date – but not on the Item-based Job Cost Detail report. End result: One total for the job on the Account-based report, and a different total on the Item-based report!

    I stumped 2 different sets of Intuit Tech Advisors – one at the QB general tech level, and a set of 6 or so of them at the Enterprise level. They duplicated the issue. Try it – you’ll see what I mean.

    I’m now scheduled for a return call from the ‘escalation’ people.

    Issue 2:
    Consider the following:
    1. Item Receipt goes in at $50 for an inventory item
    2. Inventory Item is sold and $50 goes to COGS (as it should).
    3. End of financial period occurs.
    4. Bill is entered at a different amount (say $60) on day 15 of the new financial period.
    5. Bill change triggers the following: Item receipt $ amount is automatically changed retroactively to $60 (note: also no change to the ‘Entered/Last Modified’ date of the Item Receipt.)
    6. COGS is changed retroactively.

    Issue 3:
    When you want to use the reconciliation feature to reconcile the ‘ins and outs’ within the Inventory Offset account to $0 (a standard way to be able to show what hasn’t yet matched up in order to support the balance), the left side shows the vendor name, and the right side ‘labelled as PAYEE’ shows the JOB name.

    Every other liability account (of which the Inventory Offset account is one) actually shows the PAYEE in that column (as they should). This one is treated as if it’s an asset account (asset accts should show the job name). But this is NOT an asset account!

    Try matching those up without having to drill down on every single one!

    I’m pretty sure that Charlie has previusly mentioned that only the PO shows all 3 related transactions when you click the History button. I.e., The Bill only shows the PO, not the Item Receipt. The Item Receipt only shows the PO. So to find the Item Receipt that matches a Bill, in this situation, requires that you:
    1. Double click on the Bill
    2. Click the History Button and select the PO
    3. Click the History Button in the PO and select the Item Receipt

    If you can still remember what you’re doing at that point, you can then go back to the reconciliation and click off the various line items for that particular Bill on the right side of the screen (remember that there may be many items purchased in a manufacturing environment!) and match them against the Item Receipts displayed on the left side of the screen.

    If anyone can prove me wrong on any of these points, I’d be ecstatic to hear about it!

    • Diane, my apologies for the delay in responding.

      I’m not at a place where I can look into this right now, but I’ll take a look. I’m not surprised by some of what you found. Not fun! Thanks for pointing these out.

      • Updates:
        Spoke with ‘tier 2′ today and they informed me that Issue #1 that I outlined above is a reporting’ bug and that they are submitting it to developers to fix. They said that they would also submit #3 (re: the job name showing up in the Payee column). They said that these should be fixed in the next release and will fix issues retroactively.

        We did not discuss Issue #2. I decided that 2 out of 3 concessions in one fell swoop was enough for one day. Also, after further consideration, I believe that the Bill, even if physically received later than the Item Receipt SHOULD be dated prior to the Item Receipt (i.e., the company providing the goods should be dating the Bill on the date that THEY ship out – which would be earlier than the Item Receipt). Thus, if the accounting occurs properly, it would only impact closed periods if someone over-rides the closing date.

        Hope these ‘finds’, thoughts, and bug submissions save someone else a lot of time…

  • I have 2 people creating items into our inventory. Is there a way to see which items were recently entered so that I can verify those items was setup correctly?

    • Greg, not without using a third party reporting tool, or possibly with “Custom Reporting” if you have a current version of Enterprise along with an ODBC reporting tool (Excel for example). The audit trail doesn’t include record additions, and none of the other QB reports allow you to access the dates. The dates are available to products that can look into the database from outside.

  • Hey Doug, just a quick note…We are running QBE 12 and ACCTivate. Guess what? We are having problems with billing because ACCTivate requires a Shipping Cost Offset Account established (under the Non-Inventoried Warehouse Config) but there is NO help information for how to set this up and how to reconcile.

    Scenario – Sales Order has 1 Inventory Item and 1 Incoming Freight item. When we try to create the Invoice (and get paid!), we get an error about not having an offset account established.

    ACCTivate is having problems with this also. You may want to re-consider your recommendation until they (eventually) get this fixed (if ever…)

    P.S. – This is NOT the only problems we are having with ACCTivate / QBE system…

    • “Standard Cost” is not often used for freight-out, since shipping expenses to customers are not part of COGS. It is best suited for labor or non-inventoried items with a fixed cost per unit. It’s possible, but not recommended.

      Standard Costs for Labor and Non-Inventoried items
      http://help.acctivate.com/articles/828/

      The ACCTivate! Landed Cost module can track additional costs, such as inbound freight-in, customs, taxes, duties for inventoried items. Again, this does not include outbound freight to customers.

      Landed Cost
      http://help.acctivate.com/learn/landed-cost/

      Please let us know if you have any further questions, we’re here to help!

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