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? Okay, 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.
How to Fix Negative Inventory? Essentially, do not sell inventory items until you have purchased them and entered the purchases into QuickBooks.
If your file has multiple instances of negative inventory, we offer a service to repair the data file and remove all instances of negative QOH. Please click https://e-tech.ca/Quickbooks-Negative-Quantity-on-Hand-(QOH)-Repair.aspx