QuickBooks Inventory Quantity and Value Adjustments
If everything is working perfectly in your QuickBooks company you won’t need to worry about making inventory adjustments. You will receive inventory items, sell inventory items, possibly even build inventory items (assemblies), and everything will balance out. If that describes your company, great! For the rest of us, though, there are times when we will need to make inventory adjustments. The most common question I run into here is “do I make a quantity or a value adjustment?”
When to Adjust
There are a lot of reasons why you might have to make an inventory adjustment. For example:
- Damage or Theft: You can lose items if they are stolen, or if they are damaged in an accident or catastrophe.
- Physical Inventory Adjustments: You may count the items that you have and find that there is a discrepancy between your count and what the computer says. Variations don’t always indicate a problem, it could just be a low cost bulk item that you don’t have to control very tightly.
- · Data entry errors when you start up a new file
These are just a few examples, there are hundreds more. If you find that you need to change your count, or the value of your inventory, you need to make an inventory adjustment.
To make an adjustment you can select Vendors, then Inventory Activities, then Adjust Quantity/Value On Hand. Alternately, from the Item List, click the Activities button and select Adjust Quantity/Value On Hand.
The Adjust screen is one of my least favorite screens in QuickBooks. It allows you to enter adjustments for any or all of the inventory part and inventory assembly items in your item list. If you have a small list like what is shown here, it isn’t too bad. If you have hundreds or thousands of items it can be very difficult to work with, because it does not provide you with an easy way to locate a particular item.
A few key things to point out here:
- The adjustment date is critical. Any adjustment you make takes place on this date. If you are increasing items, they aren’t available until this date. If you enter a date in the future you won’t be able to use these items in a transaction that has an older date. If you use a date in the past then QuickBooks may adjust your Cost of Goods Sold values (if you are making a value adjustment), and if you are going back to an earlier accounting period that might not be a good idea.
- The adjustment account is important in several ways. Obviously, any financial effects of your adjustment will be posted to this account. Less obviously, if you are trying to find an adjustment that you already entered, the previous and next buttons will only scan you through the adjustments for the account that is showing here. That can be frustrating if you are trying to find an adjustment and you can’t remember which account you used.
- Value adjustment is checked if you are making (big surprise) a value adjustment. This has a major impact on how the adjustment affects your financial statements – I’ll discuss this in more detail below.
Quantity Adjustments
If the value adjustment box is not checked, you are making a quantity adjustment. The window appears as I’ve shown you above. This is the most common kind of adjustment that you will make in QuickBooks. You will use this to adjust the quantity of the items you have on hand.
I had 10 of the shade item on hand, but one was damaged in a storm. I enter either the new quantity and let QuickBooks calculate the difference, or I enter the difference and let QuickBooks calculate the new quantity.
QuickBooks is a double entry accounting system, so the adjustment is always going to balance a change in the inventory asset account against the account that you select. In this example this is a decrease in the quantity that I have on hand. That means that my inventory asset account (as specified in the item record) is reduced by the average cost of the item multiplied by the adjustment quantity, and that value is moved into the adjustment account I specified. In this case, I picked an expense account for damages. Most common adjustments are going to involve an expense or COGS account, usually.
Why do you need to enter an account to post against? Well, you can’t just add or subtract inventory items without some explanation. Changing the quantity will change the value of your inventory assets. If you are removing inventory because someone dropped an item and broke it, you have to reduce the value of your inventory (the inventory asset account) and then offset that in some matching account, such as a “damaged goods” expense account.
The keys to remember here are:
- The quantity is changed.
- The accounts are adjusted by an amount equal to the quantity multiplied by the average cost of the item. You are adding or subtracting value in your inventory asset account, and offsetting that in an expense or other kind of account.
- The date is critical, because you may be changing the balance on hand for a date in the past. This can change inventory valuation calculations, turn “build” transactions into pending builds, and more.
Value Adjustments
In the normal course of business it is unusual to make a value adjustment. I’m not a CPA or tax accountant – you should talk to your advisor before making this kind of adjustment. Usually when I see someone trying to make a value adjustment it is because the either don’t understand what is going on, or they are trying to correct an error that should actually be corrected by finding the original transaction and correcting the error there.
When you check the value adjustment box you can now enter not only a new quantity, but a new value for this item.
This kind of adjustment will change the average cost calculation for the items you adjust. QuickBooks will take the new quantity, the new value, and calculate the new average cost by the following formula:
Avg cost = (original value + difference in value) /adjusted qty on hand
In some ways this is the equivalent of hitting the QuickBooks inventory valuation system over the head with a baseball bat. You are (potentially) revaluing your inventory – creating (or losing) value in your inventory asset account AND recalculating the average cost of the items you are adjusting. This may be tempting, but I recommend that you do NOT do this unless you are really sure it is what you want.
If you feel that the average cost is not correct, you can enter a new value for the item. Note that the difference in the value is going to be posted to the inventory asset account and the selected account in this transaction. You can’t just create (or lose) inventory value, you have to post it somewhere.
Again, if you think that there is an error in your inventory valuation, it is probably because you have an error in an item receipt. Find that item receipt and correct the problem (if it is fairly recent), rather than making this adjustment.
The date is VERY critical here. You are changing the average cost of the item on the date you have entered. If this is a date that is in a prior accounting period you could be changing your financial statements, and that might not be a good thing to do.
Dan | Jun 2, 2009 | Reply
This is really helpful for someone who’s working through figuring QB out on my own! I have a question though. I’m a jewelry maker. I have an asset account called “raw materials” and one called “finished jewelry”. I also track my finished pieces individually as inventory items tied to this asset account. I don’t track each individual raw material (ie each bead, each inch of silver wire, etc) in QB, as I have another program which works amazingly for this, as well as for my pricing. When I make a new piece, I add a new inventory item, for example, silver ring. I price it at whatever price, and leave qty and value on hand empty. I then do a qty/value adjustment, using the “raw materials” asset account as my adjustment account, thereby moving the $10 of raw materials into my “finished jewelry” account. I would do the same thing if I needed to disassemble a piece back into raw materials. From my perspective, the money is going into the right places, and everything balances out. Does this sound “legit”? I’ve been struggling with this aspect of my business for a while, and thought I like to get some feedback on what I came up with. Thanks!
dan
Peter Cullen | Jun 3, 2009 | Reply
Dan:
I know Charlie can answer, however I thought I would shoot you a response to your inquiry. The answer is, well perhaps. The perhaps is because in your post, you did not indicate how the raw material inventory purchases are posted to your QB file. That is, when you purchase the raw materials needed to prepare a finished jewelry item, what account do you debit when you are purchasing these raw items, i.e. beads, wire, etc…??? if the account you debit is raw materials, then when you post the inventory adjustment you propose, then I would agree with your accounting entry.
Charlie | Jun 3, 2009 | Reply
Dan: Peter pretty much covers it (I always like to see others post answers here!). QuickBooks isn’t set up to handle your kind of custom manufacturing very well.
Thanks, Peter…
Kathy | Jun 3, 2009 | Reply
Thank you thank you thank you! I have been so confused about the Value Adjustment thing. It also helps tremendously that you mentioned how important the DATE of the adjustment is. Now I understand why I’ve been having so much trouble with making my inventory adjustments!
Dan | Jun 4, 2009 | Reply
Peter, yes, that’s how I do my purchases, they go right into raw materials, with just a memo of what the purchase actually is. Thank you so much for your reply!
Karen | Jun 4, 2009 | Reply
Just wanted to add an “amen” to your comment about the friendliness of the inventory adjustment screen. There is a lot of time wasted scrolling to find the handful of items that are needing an adjustment. I don’t know the reasoning behind it but a search feature would certainly make life easier.
A second amen goes to your emphasis on the importance of the adjustment date.
Thanks for your insights.
Charlie | Jun 4, 2009 | Reply
Karen, you can keep an eye on my other blog (http://ccrqblog.ccrsoftware.info/) for an announcement on the release of a product that will make the adjustment screen easier to deal with – although I’ll have to say that it probably won’t be released until late summer, more or less.
Peggy H | Jun 4, 2009 | Reply
Pls advise if we can scan in inventory items to set them up in QB Premier 2009 ?- what brand of scanner do we need to buy?
the one used by QB for POS ?
thanks for your help
Peggy
Charlie | Jun 4, 2009 | Reply
Peggy, that is a bit off topic, and it is also something more complicated to help you with in just a comment. There are bar code products that can help you in the Intuit Marketplace. You can use any scanner that plugs into your computer and sends the info to the keyboard, but that might not be exactly what you need, it depends on what you are starting with. Adding items to the item list requires a lot of info and scanning might not help you.
Eph | Jun 24, 2009 | Reply
Hi! I just have a simple clarification. Isn’t it that
Avg cost = New Value / adjusted qty on hand
such that New Value = original value + difference in value
?
Charlie | Jun 25, 2009 | Reply
Thank you for pointing that out Ephraim, I did have the formula upside down (it is corrected now). I wrote that article at the time I was looking at the Australian version, so everything was upside down (sorry, bad joke).
Beth | Jun 25, 2009 | Reply
I deal with agriculture and use an equity adjustment account to offset grain inventory on hand. I adjust the value to the local cash price at the end of each month so that the balance sheet is accurate. When the grain is sold, of course, it comes out of inventory, and the income is posted to grain sales, using a sales receipt. There are various accounts set up for the adjustments assessed also.
Is there a reference you can recommend about how to import from Excel into QB? I use a lot of classes and divide some transactions proportionately between them. I have seen group transactions divide for example bills by % between accounts, but not between classes. I would like to be able to memorize a group of classes, with associated %, and divide income or expenses among them by those %. Currently, I have to do it first on an excel ss and then copy the entries into QB.
Charlie | Jun 25, 2009 | Reply
Beth, that is a bit beyond what we are discussing in this posting. In any case, take a look at a demo version of the transaction importer from Baystate Consulting. I have a review of the Exporter by them at http://qbblog.ccrsoftware.info/2009/06/exporting-quickbooks-transactions-with-transaction-pro-exporter/ – the importer is similar. I don’t know if it will do what you need or not, but you can take a look.
James Scaggs | Jul 9, 2009 | Reply
I need help. One of the owners of our business had some inventory items that were basically given to the business as a form of equity. The business sold these inventory items and the funds went into business bank accounts.
I have already created the items in QB, but I didn’t enter the correct beginning qty on hand. There are only 5 pcs of the same item that I need to adjust. I have already sold these items in quickbooks on invoices and received payment.
How can I bring in that inventory and get the correct qty as well as giving the correct equity value to this owner?
Charlie | Jul 9, 2009 | Reply
James: If this is an “inventory part” item (I assume it is), you established the “inventory asset” account for the item. If you go to the inventory adjustment screen you can make an adjustment to increase the item quantity, and you can select the appropriate equity account as the account to post this value to. You should date the transaction to be before the sale of the item, unless it is in a closed accounting period.
Deb | Jul 10, 2009 | Reply
My item list shows -1 as the quantity for one of my assembly items. That is correct, I do not have any assemblies at this time. And if I open the build assembly window is says quantity on hand is -1 because I have one on a sales order. I think this is correct also. However, in the adjust inventory window the qty on hand is zero, not -1. Also now my overall inventory on hand is not correct. How do I fix this?
Charlie | Jul 10, 2009 | Reply
Deb: In your preferences, under “Items & Inventory”, do you have a check in the box “Quantity on sales order” under “when calculationg quantity available”?
If you do, then in the build assemblies window it will show you the quantity on hand, quantity on sales order, and quantity available.
I’m guessing that you don’t, but I’m not sure. Note that having a -1 on hand means that you sold more than you have on hand. Negative balances aren’t a good thing in QuickBooks. In any case, having one on the sales order will NOT affect the quantity on hand, it only affects the quantity available if you have enabled that calculation (which I usually recommend you turn on, in most cases).
The quantity on hand that is displayed in both the build assemblies and inventory adjustment windows depend on the date that you have for the transaction. If you have the same date set in each window, you should see the same on hand balance in both places. Watch the dates…
Deb | Jul 12, 2009 | Reply
thank you for such a quick reply! you guys are great, you give the best answers and yes it all works out now, thanks
Sheryl | Jul 27, 2009 | Reply
Hi Charlie, thanks for some great tips on this site. I couldn’t figure out why my “on hand” sometimes didn’t match the “adjust/quanitites fields” and it was all due to my invoice dates that you warned about.
However, now after reading your info I realize I have some other problems! I have lots of inventory items but I do not manufacture so no assemblies. Every inventory item I have loaded in respective accounts as “COGS” on the cost side, “Sales Income” on the sales side, and “Inventory Asset” under the Inventory Info. So when I make an inventory adjustment I have been using the “Inventory Asset” Adjustment Account. Something tells this isn’t right as QB warns me that this is neither an income or expense account. Should I be using the COGS instead for most adjustments? I realize there are things such as damage, expiration, etc where other accounts would be used. What is an example of when an adjustment account would be “sales income”?
Also, I have located all of the inventory adjustments where the “value adjustment” was checked. I had no idea the impact it was making. Just thought I was adding a column for viewing. Can I go back and uncheck them all to correct some of the avg. costs without a whole lot of damage?
Sorry lots of questions, I know you’re not an accountant.
Sheryl | Jul 27, 2009 | Reply
Sorry, but another question. You don’t talk much about income here and I run a monthly income report which I don’t think is entirely accurate after reading your info. It must be based on sales price minus avg cost results in income reported. I think, for the most part, my income report is being skewed up because: if I paid $2 for a box of bandaids 4 months ago and received in a new order of bandaids for $2.50 this month (as prices always go up!), making my avg cost say $2.25, my monthly income report isn’t going to be using the true cost of $2.50 for that box of bandaids I just sold but use $2.25. Showing I made $.25 more than I really did for the month? Is the only way to get avg. costs to today’s actual cost is to run them into the negatives and then receive new inventory? Grrrr. Hope this is making sense.
Charlie | Jul 27, 2009 | Reply
Sheryl: The account to use in the inventory adjustment depends on what kind of adjustment you are making – but I can’t think of any situation where you would use the “inventory asset” account. THat just doesn’t make sense.
If you have a loss of inventory due to damage or expiration, you should have an expense account for these kinds of things. You want to move the value of the damaged goods OUT of inventory assets and INTO the damaged goods expense account. It is a loss, you want it to reduce your profit AND reduce you inventory asset balance.
QB is a double entry system. The inventory adjustments automatically make one side of the entry “inventory assets”. You select the account that will be the other side.
When would you use “sales income”? Perhaps if a customer returns an item. However, I’d usually do that with a credit memo instead.
Going back to make changes to the existing adjustments? I’d be really careful, because that is changing your financial statements. I can’t really say if that is what you want to do or not based on the small amount of info I have.
Charlie | Jul 27, 2009 | Reply
Again, hard to answer – I’m not sure what report you are looking at.
QB is an average costing system. If you paid $2 last month and $2.50 this month, and the average cost is $2.25, then the actual cost of sales (based on average costing) SHOULD be $2.25. That is the way it works. If QB took out $2.50 on the most recent sale, it would throw your books out of balance.
So, yes, it might look like you made a higher profit this month, but that is correct. You are carrying the cost of the item from last month.
Hope that makes sense…
Sidney | Jul 31, 2009 | Reply
We sell about 150 items, when a sale is recorded, is the CGS journal entry based on the average cost of that item prior to the sale? Does the current average cost of an item go back to the “beginning of time”?
Charlie | Jul 31, 2009 | Reply
Sidney, when you invoice an inventory part (or assembly) the current average cost is posted to the account you specify as the COGS account. When I say “current average cost” it is the average cost of the item at the date (and time) that you ahve for the invoice date (you can’t see the time). Note that if you later make some inventory adjustments that are dated prior to that invoice date, QB will go through and change the COGS value based on the new average cost at that date.
Tehcnically yes it is the average cost for the history of the item. but the way they calculate it, if you bring the balance to zero at any point in time, the average cost is technically just the average of the received costs since that zero balance. Hope that makes sense.
And if you have negative balances on hand for an item, the COGS values are going to be very odd. Their calculation doesn’t handle negative balances well.
Sidney | Aug 4, 2009 | Reply
Your answer did clarify my confusion somewhat. If for example, the inventory represented purchases on 3 occasions at different prices and 2 sales would it be using LIFO or FIFO in determining the value and ultimately the average cost of what was still in inventory?
Charlie | Aug 4, 2009 | Reply
Sidney: LIFO, FIFO and average cost are three ways to evaluate the cost of your inventory. QuickBooks only does average cost, it won’t do LIFO or FIFO. Let me simplify this a bit and talk about purchasing on two occasions. I buy 10 widgets at $10.00 apiece. My cost of inventory by any method is $100 total, or $10 per item. I buy 10 more widgets at $20 apiece. My total cost of inventory is now $300. The average cost of an item per QuickBooks is $15 each.
If I sell one item, QuickBooks will post $15 to COGS, because that is the average cost of your inventory item. Your inventory total valuation is now $285.
If you were using LIFO, the COGS for that one item would be $20, and your valuation would be $280. If you were using FIFO, the COGS for that one item would be $10, and your total valuation would be $290. But, QuickBooks doesn’t do LIFO or FIFO, just average costing.
Adam | Aug 4, 2009 | Reply
Have been using quickbooks for some years and have finally decided that it would be a good idea to keep track of each items profitability. We make and sell wine by the case with each wine entered as an inventory item. As we don’t actually buy a case of wine then resell it I have never bothered with it so I am left with hundreds of items with negative values on hand.
To calculate the margin generated from sales of each items is it just a matter of going back a few months to when we last did a stocktake and entering a value and qty on hand adjustment? Do I have to enter a cost price into the items description or would the cost prie be calculated as the total value/total qty. Assume all current sales would be taken into account.
As I don’t purchase a case of wine from a vendor for a price. Could I calculate the cost price by adding all the component bills for a bottling run of wine to a specific account for that item eg wine cost, labelling costs, bottling costs, freight cost; and then have QB calculate a cost price for me.
Thanks
Charlie | Aug 6, 2009 | Reply
Adam, I’m a bit confused by your statement. You say you don’t actually buy items and resell them, but then you talk about doing a physical inventory count. So I’m not sure what you are doing.
Adam | Aug 6, 2009 | Reply
Charlie, sorry my post was bit disjointed. We are a winery and vineyard, so we harvest grapes make them into wine and then get the wine packaged offsite.
So we don’t purchase cases at a certain cost, we manufacture them and keep an inventory count of the amount produced.
I really have two problems;
1. Calculating the cost to produce a case of wine. (can quickbooks do this for me?)
2. Monitoring the profitablity of our sales of the wine.
In the past we have just used quickbooks to invoice out indivdual wine items but have not used it to record how much stock we have on hand and the cost of that stock, hence I my item list is full of wine with negative On hand values. I have now calculated the cost (currenty done outside of quicbooks)of some of my wine items and want to enter a value and a stock on hand count as at 1st July and report on their profitability from then on.
Hope this makes it a bit clearer.
Charlie | Aug 7, 2009 | Reply
Adam, you are in Australia? Note that I usually work with the US edition, and there could be differences between that and the Australian version. They aren’t quite the same thing.
A couple of things here. You existing items have negative quantities, so your physical inventory count is off, and therefore your inventory asset accounts are off. You have a mess to clean up if you are using QuickBooks to do your financial statements, and it is hard to say what exactly to do without seeing your files. At some point you are going to have to do a physical count of your inventory items and make an adjustment to get the quanityt and total inventory values accurate. And when you do this, it is going to change your balance sheet. You probably should do the adjustments against a clearing account, and then ask your accountant what to do to reconcile that clearing account.
Cost of a case of wine – sure, you can get that once you have things balanced and set up correctly. Again, hard to go into detail without seeing your files and knowing more about your business. You have to decide at what point you are going to move things into inventory (or not). Some vineyards will start with the harvest, some with the crush, some later than that. And how to value the inventory that you grow/crush is an interesting question. Again, a better question to ask your accountant.
Sorry for such a vague answer…
Adam | Aug 9, 2009 | Reply
Thanks Charlie,
Indeed I come from the land downunder, but in my trawling through the quickbooks forums I found a recent one on your site (quiet a good one too). I am aware of the points you just made, I suppose I was hoping for a quick easy answer to a question that needs a bit of in depth review of all our accounting proceedures. I’ll review it with our accountant.
Thanks for your help
Charlie | Aug 9, 2009 | Reply
Sorry, Adam, no quick fixes, because I would need to know a lot more about how things are set up in your file. How you are expensing or amortizing your growing costs (the cost of producing the press, or the bulk grapes if that is where you are inventorying). And it is hard to talk about how to fix old transactions without knowing exactly what you did before.
If you really need to figure out the costs of a particular case of wine, it depends on how you are tracking costs for growing, pressing, processing, bottling, all the steps. I studied viticulture back in the mid 70’s, but all my focus was on on culture of vines, not the business side of things.
You CAN use QB to figure out the cost of a case of wine, but you have to make a lot of decisions on how to account for the costs at various stages. Also, I don’t know if tax and accounting laws differ down there from up here…
Sidney | Aug 12, 2009 | Reply
Is there a logical explanation as to why Quickbooks would show a different average cost for an item than Excel? When I exported all the purchases and its related costs for that item into Excel, it arrived at a different average cost?
Charlie | Aug 12, 2009 | Reply
Sidney, I’d have to know how you calculated the average cost in Excel, and some more about the transactions you have. There can be many different reasons. QuickBooks will give you an odd average cost if your current on hand balance is negative, for example, until you bring the balance back up. The average cost calculation is a bit more complicated than just taking every purchase you made and adding them all up.
Sidney | Aug 25, 2009 | Reply
We are using Quickbooks Pro 2008. Is there a report which could tell me when there are multiple users, which areas cannot be accessed simultaneously by multiple people, specifically in inventory related areas.
Charlie | Aug 25, 2009 | Reply
Sidney, I don’t believe so…
Sidney | Aug 26, 2009 | Reply
Is there a logical reason why quantities on hand appearing in the Item List would be different than the quantities on hand in the Inventory Valuation Detail Report?
Charlie | Aug 26, 2009 | Reply
Sidney: Sure! The simplest place to start is the date of your report. Set the date to “all” – you could have future dated transactions that don’t show in the report otherwise. The item list is not limited by the dates. See this article for a discussion of this kind of thing: http://qbblog.ccrsoftware.info/2009/04/reconciling-quickbooks-inventory-balances/
Sidney | Aug 26, 2009 | Reply
That link was very informative. Unfortunately, those situations did not occur by us! Any other ideas? Would you happen to know secondly, why the Item List would be different than the “on hand balances” in the Adjust Qty/Value on Hand function? The latter will show -0- balances when in fact the Item List is accurately showing a balance!
Charlie | Aug 26, 2009 | Reply
Sidney: Again, the adjust quantity/value screen is date dependent. You have a transaction date, it shows the balances ON THAT DATE, and that can vary from the item list.
Pick an item that has an apparent difference. In the item list, right click and choose the “QuickReport”. Set that report date to “all”, then compare the final balance to the item list. It should match.
If not, make a backup copy of your file, run a “rebuild” from the file/utility menu. Then make the same comparison.
Jason | Aug 26, 2009 | Reply
Charlie:
A question: We are a manufacturing company (furniture parts). We buy rough, wet lumber. Then we kiln dry it, which adds value to it.
When the lumber is originally bought, its value goes to an Inventory Asset account. Then I have another Asset account, which is Kiln Drying Asset. So when we dry our lumber, the extra value needs to be added to the Drying Asset account. But where does the value come from? COGS or Expense? This lumber is processed further later on and sold, at which time the lumber value AND the drying value would be subtracted from Inventory and added to a COGS account, but we usually Kiln Dry large amounts ahead of time. So the drying value is basically Work In Process. But I cant figure out what account this value would be coming from.
Hope this is clear enough, thanks in advance for any advice you can give!
Charlie | Aug 30, 2009 | Reply
Jason, this is a question to direct to your accountant or CPA (and I am not either of them). The asset cost of the items have to come from somewhere. I don’t know how your business is set up, so I can’t give you a good answer.
Here is a thought to consider (and, again, I am NOT a CPA). You have costs that are associated with the drying process. To make it simple, perhaps you are paying for natural gas that you are burning to run the drier. How are you paying for that natural gas? Are you writing a check to the gas company? That is probably going to an expense account. You can do an adjustment to move some of that value out of the gas expense account into the inventory asset account, perhaps. Reducing the expense, putting it into inventory asset.
I’m not sure if that is the correct way to do it, however. There are tax implications here, and you may find Federal or State regulations on this. Talk to your CPA…
Kandace | Sep 2, 2009 | Reply
Is there a way to print an inventory adjustment?
Charlie | Sep 2, 2009 | Reply
Kandace: That depends on what you are looking for. If you want to see a report that shows all of the items adjusted in the same transaction (if there are multiple items), then “no”. You can right click on an item in the item list and select the “QuickReport” to see all adjustments for a particular item…
Kandace | Sep 2, 2009 | Reply
Thanks for the info Charlie.
Francesca | Sep 2, 2009 | Reply
I have been adjusting inventory qty and value by hand with no problems until today, which is the first day of my new fiscal year. If my inventory said 5 and I really had six I was writing new quantity 6 but QB was writting total 11! instead of just adjusting the new. Does anyone knows what the problems is?
Charlie | Sep 4, 2009 | Reply
Francesca, did you enter the NEW value as 6, or did you say the DIFFERENCE was 6?
Mr Tea | Nov 11, 2009 | Reply
I have a tea business. I purchase tea by the pound(bulk) and then package it into saleable units (1.1 ounce/unit). In QB I enter the inventory purchased as $/ounce. What I would like to know is how I’m supposed to account for the labor/burden/packaging/labeling that is added to the finished good. For example, I have 160 ounces of tea at $1/ounce. I will convert this into roughly 145 packages of tea which will then be valued at say $1.40 per ounce. When I create a finished good, will QB automatically deduct the Raw Material and convert to Finished Goods so that I properly account for my inventory at the end of the day? I plan to value my finished product by another unit of measure (1 unit or item). In other words, I will convert 160 units (ounces) to roughly 145 units (FG). Any thoughts on how to do this efficiently/effectively.
Thank you.
Charlie | Nov 12, 2009 | Reply
Mr Tea: A bit off the topic here. Assuming you are using Premier or Enterprise (you don’t state what you are using), you can create the finished good as an inventory assembly item. You can then create a bill of materials for the item and add your raw materials, as well as packaging and labeling. You can add burden – an estimate of your labor and overhead, if you wish. Then when you build the assembly all that is rolled into the assembled item. There are other articles in this blog about manufacturing issues.
Mr Tea | Nov 12, 2009 | Reply
ok i am using pro. What is the diff between Pro and Premier?
Charlie | Nov 12, 2009 | Reply
Lot’s of differences, too many to list. The basic program is the same as Pro. You have more options. The one that is appropriate here is the “inventory assembly” item, which allows you to create a part list for an item and issue “build” transactions. You can read about this starting at http://qbblog.ccrsoftware.info/2008/04/quickbooks-manufacturing-tutorial/
You also get a “sales order” order type, which is very useful.
Lots of other nice things – I generally don’t recommend Pro for any business that is building or selling things, Premier is better suited. But, then, it is more expensive.
Julia | Nov 23, 2009 | Reply
I made a mistake entering a new inventory part with a bill. When creating the new item, I filled in the quantity section. Apparently this was a mistake, and I should have left it blank to fill in automatically when the bill was entered, because I now have double the quantity I should have. I can’t figure out any way to change this number other than going to “adjust quantity.” The problem is the adjustment account. I don’t really want this adjustment recorded at all since it was just a data entry error, but even so, I have no idea what account to post it to. None of them seem appropriate and I don’t want this recorded as an expense that affects my P&L. Please help!
Charlie | Nov 24, 2009 | Reply
Julia, you have two transactions entered for the item. One from when you added the new item with a quantity, one from the bill receipt. You need to delete one of them, not make another adjustment. Right click on the item in the item list and select the “QuickReport”. Set the date range to “all”. You will see the transactions. One is an adjustment, the other a receipt. Double click on the adjustment to open the window, confirm that it is the quantity you expected, ctrl-D to delete. No more duplicate…
Omar | Dec 7, 2009 | Reply
Hi Charlie,
Very good Blog. Congratulations! We buy inventory parts for resale and receive a discount on the entire order. The bill comes in with all the items at the “current” cost, and then there is a line item discount, let’s say 5% off. Is there a way to spread the discount across the items being received? This will give us a truer average cost for the items. We are posting the discounts to a COGS account. This gives us a real number for COGS, but it’s not adjusting the cost of the item on the Inventory Asset Account.
Thank you,
Omar
Charlie | Dec 7, 2009 | Reply
When you do the receipt you can manually figure out what the discounted receipt cost is, and use that instead of the “real” cost.
Or you can do a “value” inventory adjustment against that COGS account to reduce inventory asset by that amount
Kathy | Jan 7, 2010 | Reply
Hi Charlie, sure hope you can help me, as I have searched and cannot find an answer for my particular situation. I am using QB Pro 2009. We are a small door manufacturing company, in business for 1 year. Every inventory item I have is loaded in respective accounts as “COGS” on the cost side, “Sales Income” on the sales side, and “Current Asset” under the Inventory Info. We purchase approx. 60 items for inventory such as hinges, screws, thresholds, doorsweeps, etc. Larger doors & glass are input as non-inventory items because they are ordered specifically for a customer. We do not use assembly items. We were told by a CPA in our first month of business, that we could do a quarterly or yearly adjustment to our inventory, but I cannot figure out what adjustment account to use as the adjustment is neither a loss – an expense, or a gain – income, since the items were used for customer jobs and we did receive income from those items.
Hope this makes sense to you. If there’s a better way to set this up, I am open to suggestions. Thank you so much for listenting. Kathy
Charlie | Jan 7, 2010 | Reply
Kathy, that is a bit hard to talk about in comments in a blog like this. I’d need to know a lot more about how you are using QuickBooks. Your CPA should be able to tell you exactly what adjustments to make. I would need to knwo if you are talking about the inventory items or the non-inventory items, how you are using the items you buy, how you are handling the items you sell, and more. Lots of detail before I can give you much direction.
Jennifer | Jan 11, 2010 | Reply
Hi Charlie,
I have a client who created inventory items for all his items instead of creating “non-inventory” items (which would have been more appropriate).
He uses his items to invoice customers but when he makes purchases from vendors he posts on the expense side rather than the item side and has the expense pointed to his cost of goods sold account.
When creating his items he entered the “purchase price”. Which from what I can tell when he sells an item it is also posting to the cost of goods sold.
He now has negative quantities for his items and a negative balance in his inventory asset account.
How would you suggest this I fix this?
I know what I need to do going forwards; I am just not sure about how to fix it for the past year.
What do you think?
Charlie | Jan 12, 2010 | Reply
Jennifer, that is a bit complicated to discuss in this format. And I’m not a CPA. And I don’t have enough details. If they posted to COGS directly when purchased, AND they sold the inventory asset items, then they are posting to COGS a second time (the COGS account in the item record is posted to when there is a sale). But, if there is no “value” or cost of the items, then the posting to COGS from the sale may be zero? I’d have to see those transactions to see if a value is there, and if so then you would have to look into doing an adjustment to move the quantity back to zero and post against that COGS account, probably. But that is just a guess, without seeing the actual file. Make a copy of the file before you do any posting!
Sue | Jan 17, 2010 | Reply
Hello, all – Just discovered this site, and I have a question related to this topic. I am a small online retailer, in the process of converting to QB Pro 2008. I was working with a CPA who has now retired, so I cannot ask him my last few questions.
Long story short, per his advice, I entered all purchases of inventory items against “Purchase for Resale”, which was set up as a COGS account. I have now created all the individual inventory items with zero quantity and a good average cost, and I have just completed a physical inventory, so I know how many of each item I physicall have in stock.
Our next step was that he was going to show me how to get the $$ out of Purchase for Resale and into the various respective items. It looks to me like I could do this using the Adjust Quantity/Value transaction, but I’m not sure what goes where, and I don’t want to get it wrong, as I will be doing this for well over 100 inventory items.
Let’s use a hypothetical example – say I have actual QOH of 15 for Red Widgets, which have an average cost of $6.00 each, and I have 10 Blue Gizmos, which have an average cost of $5.00 each. And again, the purchases originally went to the COGS account “Purchase for Resale”. How would I move $90 from “Purchase for Resale” to “Red Widgets” (qty 15 * avg cost $6.00) and $50 from “Purchase for Resale” to “Blue Gizmos” (qty 10 * avg cost $5.00)?
And lastly, if after moving most of the $$, I end up short in Purchase for Resale, that is, not enough dollars left in it to be moved into the remaining item(s), what should I do? And same question in reverse – if I end up with too much $$ in Purchase for Resale, that is, I’ve moved everything into individual items and still have $$ in the resale account, this would most likely be due to “shrinkage” or theft, and how would I get those remaining dollars out of Purchase for Resale, which should be zero balance when I’m done?
I am really regretting that we didn’t take the time to get all of this entered correctly at the time! I am not very concerned about having the transaction dates being now versus earlier, as I don’t need the inventory data for prior transactions, but I’m concerned that I may mess other accounts up big time if I don’t do this right.
Thanks,
Sue
Charlie | Jan 17, 2010 | Reply
Sue, I hate to say this, but I’m not sure that I can help you in a few comments in a blog like this. One problem is that I’m actually “on the road” and out of the office, so I have limited time to look at the blog. Another is that I’m not a CPA so I don’t like to give very specific answers like what you need without having my hands on your system. In a very general sense, inventory value adjustments are what you probably need. If you are expecting to move ALL of the cost from the purchases account, then if you find that you “overdraw” it, that amount has to then be adjusted off against an expense account like “shrinkage” or “loss by theft”, etc., with a journal entry (not an inventory adjustment).
Make a copy of your file, play with things, if you don’t like the results then restore that backup. And perhaps get a local ProAdvisor who can look at your actual files and give you informed answers.
MNHarun | Feb 2, 2010 | Reply
Hi (excuse my English),
What a long discussion (some related and some related in a way…).
After reading through Adam’s (the vineyard), Jason’s (wet lumber) and Mr Tea ($/ounce), and a post http://qbblog.ccrsoftware.info/2009/03/shipping-costs-and-quickbooks-inventory/ , felt that I got the same issue and was hit by the feeling of sometimes……haaaa I got it and sometimes….are you sure ? dilemma.
My story:
I’m a transport company that purchase sand and deliver to my customers. I bill my customer one amount that includes the (sand cost + small markup + transport fees + moving up and down the lorry). The inventory works fine and very pleased with Quickbooks Premier 2008 Asia version.
Now:
I won a tender from my government that enables me to mine (? or sand mining operation) my own sand and pay the government the royalties on the sand. The mining operation will incur various costs relates to the mining process.
It seems that now, I’m not buying any sand from anyone. How to enter into quickbooks the inventory quantity from the mining process and the cost/value.
Thanks all.
Thanks Charlie for a great-great blog.
Charlie | Feb 2, 2010 | Reply
MNHarun, I’m not an accountant, so I’m not sure what the best would be. Also, accounting practices as far as costing (etc.) of these kinds of resources are usually governed by laws in your country – and will vary from one country to another. This kind of thing is way over my head. Sorry…
inkhy | Feb 4, 2010 | Reply
I have a several questions. We are currently using Quickbook program. I am facing following problem. Can you give me suggestion? Our inventory items are locating in different places. In other word, we have several warehouses. How can i use Quickbook for moving items from one warehouse to the another? And if one warehouse sell our item, how we should enter sales receipt?
thank you
Charlie | Feb 4, 2010 | Reply
Inkhy: That is a bit off topic, and comments in a blog article like this aren’t a great way to answer those kinds of questions. There isn’t a great answer for multiple warehouses without using an add-on product. You can use “subitems”, where you create an item “warehouse A” and “warehouse B” and then assign items under that. Then you can use adjustments to move items from one to the other. That might not work in all situations, though.
Diana | Feb 6, 2010 | Reply
I am designing handbags and producing it by using subcontract labor. Dan mentioned that he uses a 3rd party program that helps him to track inventory, cost of the item, etc. What is that program? I would like to try one. I have 2009 Mfg Premier, and thinking of trying to keep very detailed inventory outside of QB.Thank you.
Diana | Feb 6, 2010 | Reply
I have lets say 10 bags (build in my inventory). I am giving away 1 bag for marketing purposes. What is the best way to process this transaction in 2009 mfg premier QB? Do I adjust quantity by 1 and click ‘value’ as well since the value of my inventory will be reduced by the cost of that 1 bag, OR just leave the value box along and adjust quantity by 1? It is my understanding though that the average cost of other 9 bags will increase if I do not use value adjustment box. Thank you.
teya steffens | Feb 7, 2010 | Reply
how do i setup the inventory adj account. i have enventory with a negative number and i need to fix . it ask me for and income or expensive account.? ok, need help.
thanks
Charlie | Feb 8, 2010 | Reply
Diana, I don’t know that Dan was using an outside program (didn’t see that reference) but there are several available. HOWEVER, please note that these are all (to my knowledge) fairly expensive programs, more expensive than QB itself. And some require that you use Enterprise…
For the adjustment question, if you are removing an item for marketing purposes and you want to use an adjustment, do NOT click the “value” box. You don’t want to adjust the average cost of the items, you just want to expense out that one item. Pick an account to post to that is something like “promotional expenses”. A regular adjustment will remove the cost of that item from inventory asset and post it to that expense. It will NOT adjust the average cost of the remaining items. That would be the typical approach to take.
Charlie | Feb 8, 2010 | Reply
Teya, I can’t give you s specific answer. The question is “why is it negative”? Is it because you haven’t been receiving the item correctly? Is it because you have some sort of problem with theft, loss, poor quality, scrap, or what?