QuickBooks

QuickBooks Negative Inventory is BAD

Written by Charlie Russell

You can use the inventory feature in QuickBooks to keep track of the “quantity on hand” (QOH) of inventory parts and assemblies, but this can add a dimension of complexity that can create problems for a small business. One of these problems has to do with allowing negative quantities to occur. Let’s talk about why QuickBooks negative inventory happens, why it is a bad thing, and perhaps what you can do to prevent it.

Why Negative Quantities Happen

It’s pretty simple. You enter a sales transaction for items that you haven’t received yet. There are a lot of reasons why this might happen.

  • The simplest reason is that inventory control takes time. If you want to track inventory quantities you have to enter every transaction that affects inventory. If you have a small business, this can create a lot of pressure. You HAVE to get the invoices out because that is how you get paid. Inventory receipts? Well, not as urgent, you’ll get those updated when you have the time. So, sales happen before receipts, QOH goes negative.
  • Another case is that people don’t always understand how QuickBooks works. Perhaps they don’t WANT to keep track of the quantity on hand, but someone turned the inventory feature on and created all their items as inventory parts. They sell the items, they don’t worry about receiving items, QOH goes negative.
  • You could be drop shipping items to a customer, so that I actually want to record the sale before the item is ordered. QOH goes negative.
  • Perhaps you are careful about entering your receipts and tracking inventory. However, in most versions of QuickBooks, an item receipt is the same transaction as a bill– so if you receive the item before you sell it, but the bill for that receipt is dated after the sale date, when you change the receipt into a bill, the date change moves the receiving date to be after the sale. QOH goes negative.

There are other scenarios, but you get the idea. The core issue here is that QuickBooks allows negative quantities to occur. It may warn you that this is happening, but it still lets you, and there isn’t a way to make the software prevent it from happening.

Why QuickBooks Negative Inventory is BAD

OK, so, your inventory QOH is negative. What’s the big deal? How about incorrect financial statements, confusing reports, and damaged data files?

Yes, sounds bad, and it could be. I’m not going to say that ALL of these issues will happen ANY time that you have a negative quantity on hand, but they could.

According to Intuit you can see any or all of these problems if you have negative inventory quantities:

  • Profit and Loss Cost of Goods Sold (COGS) amount incorrect
  • Cash basis Balance Sheet out of balance
  • Balance Sheet inventory amount incorrect
  • Vendor reports contain errors
  • Bills for inventory purchases showing up on income and expense reports
  • Recurring data damage, according to Intuit – you may see that running a rebuild will bring your b/s back into balance

That is a scary list of issues! I have understood, for years, about how negative inventory can affect COGS in your financial statements. Some of the other issues are not things that I run into very often (cash basis statements, bills showing in unexpected places). But the possibility of recurring data damage is a real concern.

I can’t show you examples of all of these issues, as often they don’t show up unless you have a large file with many items and transactions. Let me go through a very simple exercise to show SOME of the confusing issues you may see.

Here are a few transactions that I have for a new item in my item list, “Test Part”, that starts off with no quantity on hand:

  • I’ll enter a bill for 2 of the item at $1.00 each on 7/1/2013. After this, the average cost of the item is $1.00.
  • Next I enter a bill for an additional 2 items at $1.10 each on 7/2/2013. After this, the average cost is $1.05.
  • Now I sell 6 of the items on 7/3/2013. Heck, I know that there are some on the way, UPS just hasn’t delivered it them me yet.

Let’s look at the transaction journal for my invoice. You can see that it is posting $6.30 to COGS, which would be the cost of 6 items at the average cost of $1.05.

QuickBooks Invoice transaction journal

That’s OK – what other cost could we use? We don’t know the actual cost of the two items that I haven’t received yet. My Profit & Loss statement will show this COGS value. My Balance Sheet will show an inventory asset value of –$2.10, but that is OK for now.

Now, one day later (7/4/2013), I receive those two items at a cost of $1.30 each.

If I had received them BEFORE the sale, my average cost would have been $1.133 and COGS for the sale would have been $6.80. However, if I look at the inventory item now it will show that the average cost is still $1.05? Not a problem in this case, I have a zero balance on hand. But, what about my financial statements?

Let’s look at the Profit & Loss Detail report.

QuickBooks Profit & Loss Detail Report

The FINAL balance for COGS is accurate – it shows the correct value of $6.80 in this case. But if you are coming back to audit your reports you see some odd things:

  • The original invoice transaction is still showing a COGS value of $6.30. If you look at the transaction detail for that invoice you will see this amount, not the more accurate $6.80. This means that you cannot look at a particular invoice to see the correct COGS value.
  • You see a Bill showing up in the COGS section. That isn’t normal – a Bill should not be seen here normally.
  • The amount of the COGS from the Bill is $0.50.

Easy to explain all of this when we look at a simple transaction. Sure, there is a Bill for $0.50 – that is the difference between the original COGS amount and the corrected COGS amount. No problem!

BUT, what if you have hundreds of transactions, hundreds of items, and you see these odd numbers? You can’t easily look at the COGS value for an invoice, you see odd numbers that don’t seem to have a direct connection to any transaction (try doing a “search” for a Bill amount of $0.50). These adjustments may bring things back to balance in THIS case, but if you are reviewing your records you are going to have a very hard time working this out.

And THIS is a case where the financial statements are accurate – think how bad it will be if there is actual data damage, as Intuit says can happen?

Diagnostic Help

I do want to point out one of the very nice features of QuickBooks Accountant (and Enterprise Accountant) – the Troubleshoot Inventory feature in the Client Data Review. This is a VERY helpful report that will point out negative inventory problems for you quickly. It is one of the first things I’ll look at with a new inventory-based client – to see if there are negative inventory quantities.

QuickBooks Troubleshoot Inventory

If you use this, make sure that the date range reflects the period you are reviewing. For general troubleshooting I want to make sure that the ending date goes at least through the current date (rather than a prior fiscal year, as you might use if you are working with financial statements for tax purposes).

Also make sure that you have the option in the lower right set to “any time in date range” if you are trying to eliminate all of the problems.

How Can I Fix This?

Some people think that it would be nice if QuickBooks had a switch that would prevent you from having a negative quantity on hand. That hasn’t happened yet – and I’m not really convinced that this would be a universally acceptable answer.

How can you avoid this from being a problem? Just don’t sell things before you receive them. Easier said than done, in some situations. To start, make sure that this inventory preference is turned on, so you at least get a warning if you sell something you don’t have.

QuickBooks inventory preference

If you absolutely have a situation where you must sell something before it is received/billed, consider using one of the non-posting transactions to generate your documents for the customer. Create an estimate, sales order, or pending invoice for example. These won’t post to your financial statements, and you can turn them into a posting invoice at a later date. This works in some situations, but not others.

Another option that I’ll mention is the Enhanced Inventory Receiving function found in QuickBooks Enterprise (V12 and later). Normally, a receipt/bill is a single transaction with a single date. This can be the cause of many date-related inventory issues where you receive an item but then get billed for it at a later date. Enhanced Inventory Receiving (EIR) changes this by splitting these into two transactions – a receipt and a bill. Sounds good! However, I’m not really a fan of this feature. There are problems with it, and a big issue I have is that once you turn this on you cannot turn it off. There are several articles in this blog that talk about some of the issues.

Other than that, all that is left is to change transaction dates so that you avoid having the negative quantity. You can move the invoice date up to the date of the receipt – but that can mess up your receivables aging. You can adjust the receipt/bill date back to the date of the invoice, but that creates problems for your payables due dates. If you are a manufacturer and you are building assembly items, moving the date of the receipt around can cause problems if you are using that part in an assembly build – since BUILDS cannot be done with negative inventory you may find that your assembly builds are turned into “pending” builds if you adjust receipt dates (and that is NOT good).

As you could see with my simple example above, QuickBooks will try to make an adjustment to correctly post the COGS values when you bring the negative balance back to a positive value. For simple situations, this works. You still have issues if someone is trying to audit your books, or explain why you have some odd COGS values showing in detail reports, but for many small businesses this is not an issue. The big concerns that I have, and the reason why I always try to “stamp out” negative inventory QOH, are:

  • Businesses that never bring the balances back to zero or positive – so that COGS calculations are never accurate.
  • Businesses that have turned on inventory control, but never do receipts (they should be moved to non-inventory parts).
  • Intuit’s statement about corrupted data files and inaccurate reports – I don’t know how bad the situation has to be before we see those kinds of problems, but that is very scary!

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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 the managing editor and primary writer for the Accountex Report (formerly the Sleeter Report) since 2011. Charlie can be reached at [email protected]

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

83 Comments

  • It’s true, I’ve had a few 100 orders that inventory went negative and now I’m unable to rebuild the or reindex the file. QB says it’s because the negatives and it does data damage.

    Seems like huge hassle using Quickbooks for Inventory.

    • I have rarely seen a corruption issue myself that I can tie in to negative quantities. I have a lot of test files that often have negative QOH because they are just for testing and I don’t have to worry about QOH. None of them have a corruption problem. But, it CAN happen, as you have seen!

  • I’m very glad to read this comprehensive overview of what can go wrong.

    Seems as if QB was designed to be a GL system, and the inventory module was an afterthought. My experience with testing it like you did, is that different tests come out with different results, sometimes within the same day. Software isn’t supposed to be able to do that?

    I have one client who I’ve solved this problem by figuring out how he ran his business, and then coming up with this solution.

    He manages inventory in Online Edition. He adds inventory by going into the Inventory list and making adjustments. That’s how he was doing it when I showed up and it makes sense to him. Having to enter inventory from the bill is not at all how people think or how global economies work. It can still get negative, but it still works better. He’s selling from Online too, which is helpful, since his salespeople are all over the place. So he gets a good COGS from Online edition. But the rest of the numbers are crap. Sales numbers are handled separately too but that’s another story.

    Then I have QB desktop for GL. When he buys inventory he posts the wire transfer to Inventory Assets. And I journal entry the Online Edition COGS every month from Asset to COGS. So he finally has an inventory system he can manage, and good numbers too. I’m helping him to get very rich.

    He’s not the first client who has chosen to do inventory in a separate database, not the GL one.

    • Madeline, that seems really, really obtuse and complicated! I can’t comment much more because I don’t know all of the reasons that you are working this way. I would never set up a system where you are trying to mix QB Online with QB Desktop. There has to be a better way.

      For major inventory management it is often best to look at an add-on product of some sort. There are good options for both QBO and QB Desktop – although the options are more limited on the QBO side.

  • There is only one ‘big’ problem with the Troubleshoot Inventory tool in the CDR…..Intuit didn’t make a way to ‘print’ the displayed results!

    We should scold them,”Bad Intuit, Bad Intuit” as we would with a puppy who chewed up one of your favorite shoes.

    Murph

    • Well, if you want to go down that route, there are a LOT of things we can scold about.

      The tool can do a lot more – at least they make it easy to find the items rather than scanning through an inventory stock status by item report. Of course, if they added a filter for quantity on hand in that report, that would be a LOT more useful…

  • Whether it is universally excepted or not, IMO it is a no brainer that Intuit should provide us an OPTION to disable/prevent negative inventory.
    I cannot think of one good reason why Intuit has not provided this OPTION. You have explained the many reasons why Intuit should provide us the OPTION to disable/prevent negative inventory.

    One good way to find negative inventory is to run the Physical Inventory Worksheet, and click on the SORT BY button and change it to Quantity On Hand. This will display all the negative quantities at the top of the report. Memorizing this report makes it even quicker to get at the data.

    • Thanks for the suggestion on the physical inventory worksheet, Cliff. I still would rather have a filter option in a report like the inventory stock status reports, but you offer a good workaround.

      My request, even more so than the option to not allow negative QOH, would be that since they do allow it, why can’t they stop it from CORRUPTING the database? That is a bug – if you do something the program allows you to do, you shouldn’t get corrupted data.

      I thought that they were going to offer a switch like that in one edition or another not long ago in the past, but that didn’t come out. I think that they probably have some technical issues, but that is purely speculation on my part.

  • Timely article! I always enjoy reading your blog.

    Quick question, if I may. I’m working with a client going from a semi-paper system into QBES with advanced inventory. I’m getting the information in drips and drabs and want to keep up with the data entry so as to get them to a live state ASAP. They’ve given me their master item list and YTD invoices, but I don’t have an opening balance for inventory or YTD POs.

    Is it OK for me to enter the invoices first (which makes the inventory go negative) then enter the POs after the fact? I would also do an inventory adjustment for opening balances as of 01/01/13. The dates on the transactions would be in line, so I figured QB would make the adjustments and everything would fall out once all data was in. Am I correct to think this or should I just wait until I have the POs and do it in the correct order?

    • Jackie, it is hard to give you a good, complete answer in a blog comment (and based on partial info). There are lots of ways to deal with this, and it depends on many factors that you didn’t go into.

      Keep in mind that the PO’s won’t affect inventory balances themselves – it is the receipts that will do that.

      I would not do anything that would drive inventory QOH negative at any point.

      In a very general sense – you are going to have to get the inventory quantity into the system, and that is an involved process as far as the physical aspect (do you take a physical count, or trust the balance from your semi-paper system?). I would consider adjusting the balance to accurate values prior to doing invoices, but it should be the current value and not the one at the beginning of the year.

      However, many factors involved here. Starting up an inventory system can be complicated.

  • Good article! You have addressed all of the inventory issues that I have been struggling with. My biggest peeve is that QB makes you use the inventory receipt date on the the bill. Why in the world are these two connected? Who in their right mind would believe that the date something is received would be the exact same date that a bill was produced? This issue alone has caused unbelievable problems for my clients who use the build assembly feature…if they change the date on the bill to match the bill they actually receive, QB “unbuilds” their item, creates pending builds, makes assembly items go negative, etc., etc., etc. Can you say “NIGHTMARE”?

    • Interesting, I am using another software that does the same thing and thought this was poor programming. I guess it might be the norm.

      • How to deal with costing (COGS) with negative inventory is a major, complicated issue. I’ve been dealing with inventory systems on small business computers since the late 70’s, and it has always been an issue. You can avoid it by never allowing negative QOH, but that isn’t acceptable to all businesses. However, the situation in QB where you have CORRUPTION of the database because of this – that is poor programming. No excuse. My older company had a CP/M and DOS based inventory system – negative QOH never corrupted the data…

      • Really? What program might that be? We are looking for alternative softwares and dont want to buy the same trouble.

        We create negative inventory everyday due to the way we do business, and although we “correct” it daily with the necesssary transactions, we are still experiencing severe data damage/corruption.

        • Pam, that is a product that is no longer available. That was back in the 80’s. But we never had corruption in the database from doing something that the program would let you do, which is what Intuit is saying is the case here. Incomprehensible that they would have that situation.

        • Hi Pam –

          I presume by now you have found a “real” ERP system. If you have no, send me an Email. I can direct you not only to a good package that is not terribly expensive, but to a company I would trust with my first born 🙂

          Best of luck to you,
          Kathleen

    • Vivian, it is a terrible system. Then we have Enhanced Inventory Receiving in Enterprise to do that split, but I’m still very worried about some of the other problems that tends to create. There are ways to deal with the split dates, but they are workarounds that create extra work.

      See this article I wrote back in 2009 – and the VERY long discussion about it in the comments: http://qbblog.ccrsoftware.info/2009/06/paying-a-bill-before-receiving-inventory-in-quickbooks/

  • Theft, waste, breakage or deterioration could all cause your inventory numbers to be overstated. Those numbers are rarely entered as adjustments.

    • Michael, those (and others) are very good reasons for inaccurate inventory counts. But if you do NOT enter them, that usually means (in the cases you cite) that your QOH in the system will be overstated – your system will say you have more than you actually do. That in itself doesn’t cause a negative QOH. But, it does create (if you don’t deal with it) a situation where people will not trust the computer count, and so if they are told you don’t have any they’ll just ignore it and sell the item anyways…

  • Very timely article, Charlie, especially since I just had a meeting with a client yesterday and their continued problems with a corrupted data file. Their balance sheet won’t balance, we’ll do a verify and rebuild, it will work for a few weeks and then back to not balancing. And guess what – they always have negative inventory! Now I have even more of a reason to stress to them to NOT let that inventory go negative! I never realized the corruption problem could be related to the negative inventory.

    On another note, what separate inventory system do you recommend for a food distributor that needs date code and lot number tracking to be in compliance. Fishbowl? Any others?

    Thanks for the article!

    • Linda, as I said, I haven’t had my hands on a file that had corruption that I could positively credit to negative QOH. I’ve talked to people who report that, but can’t confirm it. Intuit states that this is possible in their own support KB article, so that is what I’m basing my statement on. I’m more concerned about negative QOH now that I’ve looked into this than I was before!

      I haven’t completed an analysis of the add-on inventory systems yet (I’m hoping to add a writer to the blog that has worked with them), so I don’t have a specific recommendation. And, food distribution is a special case. I would look at Fishbowl Inventory, and also at ACCTivate. Both are good products from quality companies. But I can’t say that they have the features for that specific situation.

  • Thanks for the excellent article, Charlie. I work with a client who had to send their file to QuickBooks Data Repair because of data corruption. They were advised it was because of negative inventory. As you say… it’s BAD!

  • Thank you for the article.

    One question – how does changing the dates of the posting transactions affect this? For example, we ship out an order on 8/20 causing a negative QOH because we have yet to post an item receipt or bill for the particular item. The next day 8/21 we post the invoice against inventory and date it 8/19. Will this retroactively correct any issues that would have been caused?

    • Cam, doing that in the short term SHOULD fix the issue. The only reason I say SHOULD is that there is this vague statement about “file damage” from Intuit. We can’t say exactly why or when “file damage” occurs – and my expectation would be that if it DID occur then just posting the correction might not fix it.

      However, the “file damage” situation doesn’t seem to happen often (at least, I haven’t run into it often), so fixing it will take car of the issue. The only time you don’t want to do that is if the old trans is in a prior, closed accounting period.

  • Why has Intuit not come up with a patch that can not just fix this? Why can they not make a patch that will prevent corruption to the file. My mid-size company has been using this for 6 years, with negative numbers, and now we are having serious problems with corruption. We are in a bad spot.

  • We experience negative inventory with drop-ship items. Should these items be classified as non-inventory to avoid this issue?

    • We have the same issue as Laura Brown. We are a distributor that stocks many items, and sells some itms that we don’t stock. QB Prem. Manuf & Wholesale allows for both Iventory and Non-Inventory Items, however, one Iten can not be both or either at the same time.

      If we have an Inventory Item, which is not currently in stock, the sale becomes a “Drop Ship” from the manufacturer’s inventory; and the Inv QOH goes negative untl we receive it in, which is usually when we receive the Invoice. Inv QOH remains negative until we receive the Invoice and Inventory.

      QB Prem Manuf & Wholesale has a choice to receive Inventory wihout the Bill, and later receive the Bill. I have used this to prevent the issue above, but this proceedure has room for much user error, and bugs that produce results that our accountant, a QB Pro Advisor, can not cure.

      Anyone else with this issue? Any cures?

      • Tom, you just have to be really careful with your procedures to make sure that you receive the inventory, then enter the bill without changing the receipt date.

        Short term negative QOH most likely isn’t a big problem, depending on the circumstances.

        • Charlie,

          I don’t understand your reponse to Tom. We use the “Item Receipt” every day to bring in inventory. We receive inventory without the bill. We use the date that the product is received as the date.
          The vendor inoice may take a week (or more) to arrive. When the invoice arrives we enter bills against received inventory and put the actual date on the vendor invoice as the date in the system. We must use this date as it impacts early pay discounts and/or when the bill is due for payment.
          After reading the article I can see that it may allow for a negative QOH for the time after receipt and before billing but I don’t see the solution.
          What am I missing? Are we entering these wrong?

          • Lane, this is one of the tough things to deal with in QuickBooks. The impact varies depending on what kind of business you have and how you are using inventory.

            Let’s say that I have 10 items on hand to start on day 1. I receive 10 more at a different cost on day 5, and that recalculates my average cost. On day 15 I enter the bill. Normally, the item receipt and bill are the same transaction in QB. If I change the date to match the BILL, now my items are marked as being received on day 15, not day 10. So the average cost recalculation happens 5 days later.

            What if I sold 11 of those items on day 14? COGS is for that sale recalculated when I enter the bill. I have negative inventory for a few days. In many cases, this isn’t a big issue, QB will adjust for it and over time things even out.

            BUT: What if instead of selling those items I used them to build an assembly? When I enter the bill and change the date, I created the negative on hand, and you can’t build an assembly with inventory parts you don’t have. So, the “build transactions” will be changed from a build to a pending build, and that has cascading effects that generally aren’t good.

            BUT: What if the items were received in December, but the bill came in dated in January? Assuming I’m on a calendar year for accounting. Now I have changed the COGS value in the prior fiscal year, and if someone has already started working on the taxes I now have a discrepancy.

            There are a few other examples, but you get the idea. In many cases it doesn’t make a big difference, but in some cases it does. QuickBooks Enterprise tries to alleviate that with the “Enhanced Inventory Receiving” option, which splits the item receipt and bill into two separate transactions, but there are some problems with the way that it has been implemented that can cause different problems.You can see my initial writeup on that at https://www.sleeter.com/blog/2011/09/quickbooks-2012-enhanced-inventory-receiving/ – and then there are several followup articles about problems with it if you look at the list at https://www.sleeter.com/blog/?s=enhanced+inventory+receiving

  • I do books for a small farm. We make invoices but do not use the inventory feature. I recently (Jan. 1) started a new company file and transferred my lists. We got pop up notices that we didn’t have enough in inventory when we created new invoices. Now accounts are showing negative inventory. Reading up, I see that I can’t switch that off. We don’t want to use the inventory control. Will these negative numbers affect my reports now? We did not have this problem with the last company file we used 2013. What do you advise?

    • Annie, I can’t give you detailed answers just through blog comments, without knowing a lot more. You should work with someone who can see your file, talk to you about your business situation. Using non-inventory items instead of inventory items gets away from “negative inventory”, but that also changes how your costs flow through the books. And, if you still have negative quantity of the old items, that means that there is something that hasn’t been reconciled properly in your workflow. We would need to know WHY you had negative inventory quantities in the first place, and address the cause of that.

  • Hello Charlie,
    Really great work and appreciate these posts. They are quite helpful.

    Quick question. I have a case where negative inventory is used as the default practice! This has wreaked havoc on inventory evaluation and several other practices as you can well imagine.

    I see several reasons to start from scratch. In other systems such as Navision, I know the average cost of an item will ‘reset’ when the quantity is adjusted or goes to zero. Is this true in QB? If not, what is the best way to get our average cost back to an accurate value?
    Regards

    • You can adjust the inventory valuation of any item with a “value” inventory adjustment. However, if “negative inventory is used as the default practice”, things will just go negative again. I would focus on fixing that issue before I would worry about correcting the valuation.

  • I have a very strange issue that maybe you can help with. Negative inventory existed in the old company file we were using and being I have not a lot of experience setting up a new company file from an old one that involves inventory we brought forward these negatives and well to say the least this caused a lot of errors, errors that went unnoticed for far too long. QB valued all of the inventory incorrectly for months and significantly higher than what it should have due to the negative starting balance. In order to fix this I had to comb through ALL the transactions that had happened and do JE’s to put back or in some cases take out the difference from the Inventory Asset account and also alocate proper amounts to the proper COGs accounts. Now I am out between my Inventory Valuation report and my Balance sheet and even QB tech support is not sure how to fix it without deleting all on the JE’s, problem is they are necessary and without them we are in even worse shape. I am so lost at this point and unsure how to proceed. I created a back and and then plugged it in and made another JE to see if that could fix the issue and well it does however that was just a test and in the real solution I am unsure of where this difference should be categorized as far as the offsetting account that I would debit in order to get this amount back into my inventory asset account. The only option I can think of is maybe a few adjustments were missed? Do I go through each transaction again for that time period and start there or is there an easier solution? Please let me know your thought.

    • Tanya, I can’t possibly give you a comprehensive article without doing a detailed analysis of your company file. I’m not taking on clients in that area now, but I can refer you to people who can help.

      In general, making adjustments won’t do you much good if you don’t resolve the problem that creates the negative balances first. It will just build up again.

  • Hi every body so i have a big problems about inventory list is negative when i am in the balance sheet but the items is not negative, So please help me i am using quickbook 13 i tried my best to solve the problems but i can’t please help me

  • Think how much easier all this would be if you had accounts for goods sold but not yet shipped, and bought but not yet received (like multi-currency A/R and A/P with each item as a currency).

    • “Real ERP” systems have such an account for items bought but not yet received, these accounts are a liability and normally called something like Purchases Clearing. As for the billing, in my 30+ years doing this, I can honestly say I have never heard anyone ask that their Invoices be posted to unearned revenue……. 🙂

  • Help! I sure hope someone can assist me, I’ve desperately been searching for a solution to the inventory problem we’re having. Sometime in 2011 the company I work for started using a third party inventory/job shop management system that integrates with our Quickbooks software. Unfortunately, control of inventory just seemed to go from bad to worse…

    I’m now involved in trying to help resolve the problem and I’ve contacted customer support, but they’ve so far been unable to give me the answers I need. The problem is when the software syncs with QuickBooks and bills are then created for inventory items received, the “Expenses” tab is populated, rather than the “Items” tab, so it completely bypasses inventory in QuickBooks and goes into some expense account that it automatically creates. Then when something ships they enter it into a packing list which creates an invoice in QuickBooks, but this forces our inventory to go negative because QuickBooks is treating it as a sale for something we don’t have. The software company states that a journal entries would need to be made in QuickBooks using inventory and costing reports from within the software, but I have no idea where to go from here. And now I’m wondering, should we have turned off inventory tracking when we began integrating the new software? How do we fix this?

      • Hi Charlie, thank you for answering! The addon product is called Jobboss. Yes, customer support stated that the inventory items in Jobboss will not flow through to the items tab when bills are created and it’s not capable of doing that. So we should be creating non-inventory items for the items we sell?

        • Molly, I can’t give you a definitive answer because I haven’t had the opportunity to review your business situation. IN GENERAL, when you have an add-on system to manage inventory, the inventory quantities are all managed in the add-on’s side of things. In that case the TYPICAL approach is to use something like a non-inventory item on the QB side, because things like item receipts aren’t going to flow over to QB.

          The QuickBooks inventory management system is very simplistic and it doesn’t have a lot of the fields that a full inventory system would need, so the more sophisticated systems will take care of “quantity” management all on their own. Trying to synchronize that activity with “inventory part” items on the QB side is a major headache for the add-on, so in general they don’t even attempt it. And that makes sense to me.

  • We’ve had QB and POS for a little over 10 years, but the business has been in operation for over 30 years. We are coming to a point where we now realize we have HIGH negative inventory on specific items because they were never received, but the bill was payed. So now, it looks as though we are selling something we don’t have and didn’t pay for, and some of these items go back 5 or more years. How on earth do we fix this??? Waiting to hear back from the accountant but we would like to try to remedy this on our end without screwing up everything for the past 10 years. Can I get any help with this? i have a bit of experience with quickbooks, limited to what I do at work and the one semester of computerized accounting. Not quite enough, I think, to fix this unassisted.

    • Jennifer, it isn’t possible to give you clear answers without being able to get hold of your file. There are several issues here, some accounting and some technical.

      With huge and long term negative balances you may find that there is file corruption sneaking in. You may need to start a new company file, which is not a simple process.

      From the accounting side, the answer depends on exactly how you entered the transactions for those purchases. What accounts things were posted to.

  • Hello,
    We make a food product and use the Manufacturing edition and have inventory parts and assemblies. We have a receiving log and enter all bills as they come in — when we receive raw materials. Then when we enter invoices it usually says I don’t have enough in stock — even though we only invoice when we have finished product. Right now my “quantities reserved for other assemblies” shows negative 23,276, on one of my finished products. How do I zero out that out?

    • It is difficult to give you a really good answer without having hands on the file.

      Yes, the quantities reserved for other assemblies is generated by the “pending builds”. If you aren’t doing that on purpose, then you need to investigate why those are occurring, and fix that issue. And, if you have a lot of pending builds, you need to either clear them out or deal with them as appropriate. Without knowing why they are there I can’t say what the best way is to deal with them. There is a “pending builds” report.

      There are a lot of reasons why pending builds may be showing up. Some have to do with changing receipt dates of components when you have already used them in a build. Some have to do with the issue that QB won’t let you build something if you don’t have a positive quantity on hand – it will then make the build pending.

      So you have to investigate that.

      Then, separate (but maybe related), you have a negative quantity for your finished product (maybe more than the one). You have to figure out why that is happening. A good guess is that those pending builds were the builds to make that assembly – they didn’t get completed, so the quantity wasn’t replenished, but you still sold the item.

      You can do an inventory adjustment to zero out the value, but that will have to post a value to an account, or you have to do another kind of adjustment to change the quantity but not total value. That is just a bandaid, because if you have a problem with pending builds being created then you haven’t fixed the issue, and it is going to occur again.

      Again, I can’t give a good, complete answer as I don’t know what is going on with your system. You should have someone who understands this who can look at your file and your processes. I can make recommendations on who to talk to if you contact me directly.

      Other than that – start by figuring out why you have pending builds and stop that from happening, then figure out how to clear out the pending builds that exist, and go from there.

  • Thank you for your reply.
    I pulled up the pending builds report and it’s scary. There are approximately 230 pending builds back starting from 6/13, we switched to QB 4/13.

    When I drill down to the Build Assembly it shows Pending Non-Posting in orange type. When I choose Build & Close, it closes but doesn’t change the report or the Pending Non-Posting status. It doesn’t look like it does anything.

    I am going to look around and see if I can figure out how to clear these Pending Builds.

    Yikes!

    • Shannon, I strongly recommend that you work with someone who can see your file, and who understands QuickBooks inventory. This isn’t something that I can help you with via blog comments, without seeing exactly what is going on. You don’t necessarily want to change those pending builds to real builds, that will have a big impact on your financial statements. You may just want to delete them, BUT I am not recommending that at this time as I don’t know the details of your situation.

      If you contact me directly I can give you some recommendations on people who can help you with this.

  • Good morning. I have a complicated question, and this blog seems to be on track to an answer. We are a manufacturing facility. We are using QB 2014 currently and started from QB 2008. We initially attempted to track inventory via Quickbooks using assemblies etc. And for whatever reason, we seemingly overcomplicated things and couldn’t ever get it to work properly. Our owners asked us to stop tracking inventory and just do physical counts monthly and adjust value to actual monthly. We still need to track the items simply for the P&L and balance sheet, but not for inventory tracking. We made all the inventory assemblies “inactive” and did a journal entry to zero out the balances etc. A decision was then made to make all items “inventory parts”. Whether right or wrong, that’s where we are. We still enter sales orders simply as a guide for open orders for production, and then invoice off of those SOs. We also issue POs containing those items, and then receive them when they arrive against the PO. At the end of the month we do a physical count and a valuation adjustment to the proper accounts, but we are seeing some descrepancies (and some negative numbers), which concern me. The negative numbers are tied to the fact that one of our items is a “finished good” which is what we invoice for. Since we don’t buy that item, and it’s made from several other raw materials, every time we sell it it goes negative, yet we never get any more in per se. What are we doing wrong, and how do we resolve it? Our CPA explains that they are doing things correctly on the financial side, but I’m not certain the financial reports are accurate. Are there any suggestions here? Thank you in advance, as I’d like to get it straight for the new year. Thanks!

    • Eric, it is difficult to give a really good answer to a question like this without sitting down with you and seeing your QuickBooks file, and doing an evaluation of your business. There are a bunch of red flags here, but the resolution of the problems depend on a number of details.

      Negative inventory for the finished good will cause problems, and your COGS figures are most likely going to be inaccurate.

      Using journal entries to zero out the older inventory parts or assemblies creates problems, your inventory valuation reports will never match your balance sheet (amongst other problems). You should never use journal entries to adjust inventory parts/assemblies (see https://www.sleeter.com/blog/2014/03/do-not-do-with-quickbooks-inventory/ )

      You mentioned that you made a decision to make all items “inventory parts” but you don’t explain why. If you are just doing a physical count periodically then it sounds like your items should all be non-inventory parts, which would resolve a bunch of the issues (but that changes how information flows through your financial statements).

      I highly recommend working with a consultant who can look at your file, look at your business, and give you firm advice on the best way to set things up. It needs to be someone familiar with QuickBooks but also familiar with inventory management. Feel free to contact me directly at [email protected] and I can give you some referrals.

  • Charlie, I am currently taking on the book-keeping roles for a somewhat new company. The people before me that were hired to help get his books straight, royally screwed him up. His accounts on QB are all in the high negatives, they deleted an obscene amount of transactions trying to get the accounts back to ‘$0’ which is just ridiculous, and now he is struggling to reconcile 2014. Unfortunately this is above my head though I am researching what all I can do to assist his actual accountant in fixing these issues. He has Negative Inventory, the liabilities were not deposited weekly, PO#’s were not created therefore not tracked… Etc. It’s an absolute mess. His actual bank accounts are stable and everything is accounted for. It’s only QB that is a mess. Can you give me any pointers?

    Ashley

    • Don’t worry about old PO’s. They don’t affect the financial statements or inventory balances. You may want to clear out any open PO’s and just start fresh.

      It is hard to give you specific advise without knowing a lot more, and having hands on the file. There are two aspects – cleaning up what you have now, and preventing problems from reoccurring. You can clean it all up, but if they don’t change their processes then it is just going to go bad again.

      If things are really bad you may want to consider starting a new file. You can transfer information from the old system to a new file using the utilities from http://www.q2q.us. However, you may find that you want to work with someone who has experience using those, as this process can be a bit tricky.

      If their is a lot of inventory involved, you will need to get those accounts in balance. That is the hardest part sometimes, determining what the asset values are. A physical inventory count may be necessary. But these kinds of adjustments have to be done in conjunction with the accountant. LOTS of what you may have to do have to be done with the accountant’s assistance if the QB files don’t match the tax financial statements.

  • Hi Charlie,
    Always love hearing what you have to say! We are a small wholesale company with many inventory items (over 8,000). We sell huge amounts of inventory to supply houses, farmers, etc. Because of the large amount of transactions, my busy salesmen ignore the warning when QB pops up to tell them that we don’t have that quantity. Now that I have 2015, I can tell the system not to allow a negative sale. Finally! My question is that is an error created every time a negative item is invoiced? What I had been doing is creating a neg. item list each morning, and keeping track of the items. Once I received the bill, I would post it prior to the sale of the item. One solution is to create the invoice, but mark it as Pending (as that’s non-posting) until I’ve received the items to post prior to marking it Final. So, I know I can “fix” these problems, but am wondering if the damage is done every time they create a negative.

  • Hi, I have a major problem with my QB COGS account which my accountant cant seem to make sense of. We have about 50 items that have been incorrectly assigned a cost of goods sold value manually so not against any bills that exist. Over a year we have sold a lot of these items and our COGs account is showing a expense of 20K more than it should be. My accountant says our trial balance, Balances so if we take out that 20K from COGS it will no longer balance. So where does QB put the other side of the accounting.

    • I can’t give you a specific answer without seeing how you have things set up. Inventory items are handled differently than non-inventory items, for example. Assuming these are inventory items, when you sell an item the cost is posted to COGS and removed from the inventory asset account, assuming you have things set up correctly in the item.

      Lots of reasons why COGS can be off from what you expect – and you talk about some sort of manual adjustment (it isn’t clear what exactly you have done there).

      You should have an experienced QuickBooks expert take a look at your file to see what is going on.

      • With non inventory items can you still track stock levels? The items I refer to are ones we make our selves. We account the expense of making the items through labour and materials but do not assign these costs directly to the inventory item. When those items were set up in QB we manually assigned a COGS value. So every time we sell that manual cost to being posted to COGS account. Also the expense for making the item is being charged again through expenses. So the cost of those items are being charged twice.

        • Non-inventory items don’t track quantity on hand. And they are expensed when you buy them. As for inventory assembly items, COGS is assigned based on the average cost of the item, when you sell the item. Average cost should be generated based on the average cost of the component items when you assemble them, if you are using the “build” transaction for an inventory assembly.

          Best I can say is that it sounds like you aren’t using the program correctly for your situation. I can’t say what exactly is going on without knowing a lot more about the process you use, and seeing your file. You haven’t mentioned what version of QuickBooks you are using, and that makes a difference as far as what features are available to you.

          “manually assigned a COGS value” – right there, I see an indication that you aren’t using QuickBooks the way it is intended to, and that is leading you down the right path.

          Again, working with someone who understands QuickBooks and inventory, who can look at your QB file and see how you have set it up and how you are using it, would be very beneficial.

          In addition, if you are manufacturing items, and using Premier or Enterprise (you shouldn’t be using Pro if you are a manufacturer), you might want to look at this series of articles: https://www.sleeter.com/blog/tag/manufacturing-tutorial/ – you want to scroll down to the bottom of the list and start with the oldest, then work your way up.

  • Hi we are using Premier 2014. I think you are right we are not using it correctly. I will read the link you sent through. Thanks so much this advise has stirred me in the right direction.

  • Hi Charlie-

    We are experiencing the corruptions driven by negative QOH’s as I never knew it was an issue. I’m afraid we are at the brink of breaking our file and desperately need help.

    We use Misys and often we assemble in Mysis and send over as a complete unit into QB, However, there are times a customer only needs one component of that assembly so we will transfer over just the one component into QB. Because of the difference between our regular customer orders, and dealers, who often only order single parts as opposed to the final assembled good, we many times end the day with negative QOH’s at the end of the day and adjust the following morning.

    We also do a lot of drop ships and by making those non inventory items we lose some of the tracking of the ins and outs.

    Do you have any recommendations on how to properly handle this? How am I suppose to process drop ships as the most basic example of when negatives can occur?

    Am I correct, that Intuit has still not implemented a fix? It just does not make sense to me how this actually breaks a file.

    We are in a critical state with our file and could use some expert consultants. With everything thing I’ve read here and other places, they say just don’t do it which is much easier said that done. Does Sleeter have consultants I may be able to hire to help look at our process and how we process in QB?

    • I wanted to update on this post.. I just went hard at QB support and they are assuring me changes were made in the program starting with version 15 that allow for better handling of negative QOH’s. They did say you may need to run intermittent rebuilds especially in instances of dropships because the balance sheet will temporarily be off, but by running the rebuilds, we won’t cause corruption. I’m not sure if I agree. Only time will tell I suppose. I’d be curious if any QB users would agree with what I was just told.

    • Jen, it is hard to give specific advice without hands on the system. If you are using MiSys (a great product) to handle inventory, mixing that up with some inventory management in QB itself is going to cause issues as you see. My general recommendation would be to keep things all in one side or the other.

      Yes, in QB 2015 and 2016 there are inventory improvements, but not really anything that is going to make things that much easier for you.

      If you scroll down to the bottom of this page you should see a link for finding a Sleeter-certified consultant. There are a number of people who have gone through our testing/qualification program (which is much more rigorous than Intuit’s ProAdvisor program) that can help you. In addition, if you email me directly (my address is in my author profile) I can refer you to an excellent consultant who knows specializes in inventory and who knows both the QB side and the MiSys side.

  • Hello,

    I’ve read through almost all the comments on this blog but haven’t seen this situation addressed: I’m tracking inventory that was received in the previous year (December), but paid for in January (business owner pays for all purchases with CC). The business is cash basis, and this one inventory item will show negative until the following year when the payment for the inventory will be recorded. Can this still wreak havoc on the QB data file? Am using QB Pro.

    Any insight is much appreciated!

    Linda

    • QuickBooks is set up to run on an accrual basis. You can get cash basis reports, but underneath it all you are still using an accrual-basis product. That makes things complicated sometimes.

      Running negative inventory for a short period of time, bridging the end of the year, probably isn’t going to be a big problem. But keep in mind that COGS postings may not be entirely accurate then.

      But, if you RECEIVE the item in December, then pay the bill in January, that won’t cause a problem usually. You shouldn’t be seeing negative inventory levels if you receive the item properly.

  • We run an ecommerce site, and we physically carry goods. Since an out of stock notice on a website, will probably kill a sale, our policy is to take the credit card information, as new stock is only a few days behind. We are using the default QuickBooks Average cost method for inventory valuation, so things pretty much self heals. At the end of the year, we many need to make a few minor adjustments.

    So negative inventory is not evil. It depends on how you run your business. Your accountant will tell you if negative inventory is good for your business or not. Ours wasn’t concerned, as the negative inventory didn’t happen often and when it did, it was self healing. Also QuickBooks will warn you about negative inventory. Yes it would be nice to turn it off for people who don’t want negative inventory, but it’ much better than Xero, which has it’s head in the sand.

    Yes companies sell stuff they don’t have (yet), and charge the customer at time of sale. Accounting packages must provide this flexibility to the customer.

    • While there are situations where you can minimize the issues, I stand by my opinion.

      If you correct the negative inventory in a short period of time, it does self correct in general. You can still get caught with some funny figures when you bridge an accounting period, though.

      The worse part is that negative inventory, while self correcting, can still cause file corruption, which is NOT self correcting. Intuit’s website said that (although Intuit may have decided to remove that statement), and that is a cause for concern.

      For situations like yours I generally recommend that people manage inventory outside of QB, for a variety of reasons. Or, work with sales orders or other features to manage inventory levels properly.

      Yes, people can get by with the issue, and it doesn’t always create a problem for everyone, but it is still a problem as far as the way that QuickBooks deals with the issue.

  • Hi again! I manufacture and sell equipment. So I sometimes need to invoice before we have completed the build. sometimes I can’t complete the build because we are out of 1 part. I sometimes sell the trailer, and ship the missing part later. So, to correct the negative inventory, I have to adjust some dates. Is it ok to just date the receipt of parts before the sale, and then pre date the build as well? I don’t like changing the invoice date, cause then it doesn’t match the one I gave the customer. Or do I not need to change the dates, just let it self heal, as some say? What is the best way.

    • Different ways to handle it, depending on circumstances and what you prefer.

      You can create a Sales Order, give that to the customer, to handle the billing to them. Then create the invoice after you complete things, but don’t give that to the customer. This doesn’t always work well because it alters your A/R balances for a short time, but I’ve seen people do that.

      If you go ahead and invoice, creating a negative balance for the assembly, and the period of time that the balance is negative is a short one, I’m OK with that. I don’t expect to see any major problems. But only if it is a short time, small quantities, on occasion. Keep in mind that if you generate a P&L during that time that your COGS may be off. Try to avoid having that negative balance at the time you are generating tax information. As you say, it will self correct. I’m guessing that this is something that happens just on occasion, in your case?

      I don’t like changing dates of item receipts because that changes your A/P and bills.

      • Thx Charlie. It’s kind of a seasonal thing, where we are running out of inventory, and the orders keep coming in. Generally orders get filled within a few weeks. There would be some builds that would be dated a month after the invoice date. So that is ok?

  • Hi Charlie, great article. We have inventory over/under issue on a few items that were erroneously set up to be inventory (instead of non-inventory). We’d like to correct this so our Inventory Assets balance is accurate. Can I simply adjust the inventory items quantity to zero, inactivate them, then create non-inventory items to use in their place, moving forward? If so, how do I determine whether to use an expense or cogs adjustment account (in the Adjust Quantity/Value window)?

    • Yes, you can use inventory adjustments to move the balance to zero, then mark the items as inactive. You might also want to rename them, so that you can create the non-inventory items with the old name. DO NOT use journal entries to adjust the inventory asset account.

      As for the account to use for the adjustment, that is up to you. Something to talk to your financial advisor about. You placed the cost into inventory asset instead of expensing it when you purchased. Now you are moving that cost out of inventory asset into some other account. It could be the account that you would normally use when you purchase them as non-inventory parts. However, it depends on how “old” that value is. Was it purchased in a prior tax period? These are the kinds of things that you need to talk to your financial advisor about, the answer depends on the circumstances.

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