Negative inventory is where a transaction causes quantity on hand to fall below zero. Negative inventory is not uncommon and a small number of negative items could be considered a normal part of doing business. That said, negative inventory typically indicates some sort of problem that should be addressed. The most common problem is simply timing; the item was sold before the purchasing department had a chance to record the item receipt in Evosus. Negative inventory could also indicate employee theft, process breakdowns or general mistakes such as purchase orders are not being entered, transfers are not being created, or the wrong item being received.
What does this mean in Evosus?
Employees will receive a message when the completion of a transaction will create a negative situation. If the user has security permissions to sell negative quantity items, then the employee can click Yes to the message and complete the transaction; however, the transaction will not post to the general ledger until the negative has been resolved. Since negatives have no cost, the item cannot post until an item receipt is recorded to give the item a cost.
The following transactions can create negatives:
#1 Delivering items on an order
#2 Delivering items on a job, or Invoicing an order (even if you don't deliver the item) The transaction will be in a Hold Posting status until a receipt is recorded to cover the cost of the negative. A valid receipt could include a purchase order receipt, ICPO receipt, RGA receipt, stock transfer, stock adjustment or customer return. These transactions will display in the Pending Held Posting Transactions queue for easy reference.
How do I resolve negative quantities?
You should be monitoring negative quantities on a regular basis. At the very least, you should review and resolve all negatives at month end; however, it would be ideal to have someone monitoring negatives daily or weekly. Monitoring negatives regularly allows you to quickly catch issues before they get out of hand. For instance, you could quickly identify a breakdown in the receiving process when you see best selling items consistently going negative. Over time, you will identify the internal process issues and the number of items going negative should be reduced. This means the amount of time you spend tracking down the cause of negatives should be significantly reduced.
Before taking steps to resolve negatives, you need to know how to locate negative quantities.
Step 1: Run the Negative Quantity on Hand Report to locate all items with negative quantities in all stock sites (Administration>Reports>Inventory>Item).
Step 2: Run the 'Items Waiting to be Delivered' Report located under Administration>Reports>Sales>Items & Kits.
a. Locate all transactions with a status of "Invoice-Full." This indicates the transaction was invoiced before the items were delivered. Sometimes one or two items will not be available prior to invoicing, so you invoice, but don't deliver a couple items. This is okay as long as majority of the work is complete. You should not, however, make it a habit to invoice an entire order without delivering an item simply to recognize the revenue before the work is complete. Invoicing an order is what reduces valuation on hand quantity and allows the transaction to post to the GL. If you invoice before the item is received, then the quantity could go negative even though you haven't physically delivered the item yet. This is not considered best practice and Evosus does not recommend this.
- If you are invoicing the order prior to completion of the job and this is causing negatives, Evosus recommends voiding the invoice and waiting to invoice the order until the work is complete and the items are actually delivered. You should not create stock adjustments to resolve negatives in this situation.
- If this is not the issue, then move on to the next step.
Step 3: On the Inventory tab, locate the item and click PO to see if there are any outstanding POs for the item. You'll need to determine if the item was physically received, but not recorded in Evosus. If that is the issue, then receive the purchase order. If not, continue to the next step.
Step 4: On the Inventory tab, locate the item and click In Transit to see if this item is currently sitting on an ICPO waiting to be received. You'll need to determine if the item was physically received, but not recorded in Evosus. If so, complete the ICPO. If not, continue to the next step.
Step 5: On the Inventory tab, locate the item and click Edit Item and go to the RGAs tab to see if this item is on an RGA waiting to be received. You'll need to determine if the item was physically received, but not recorded in Evosus. If so, complete the RGA. If not, continue to the next step.
Step 6: On the Inventory tab, locate the item and right click the item and select Process Pending Returned Items to see if this item is waiting for action in the Pending Returned Items queue. If so, make a decision to return the item to Inventory. If not, continue to the next step.
Step 7: Perform a quick count of the item in the negative stock site and all other applicable stock sites to determine if the item was miscounted or incorrectly transferred to another location. If so, perform the appropriate transfers - physically and in Evosus. If that is not the issue, continue to the next step.
Step 8: At this point, you may need to perform a stock adjustment to resolve the negative situation. If so, you should have a Stock Adjustment Reason called "Resolving Negative Quantity." Your bookkeeper should recommend the appropriate expense account.
Rules for negative in Evosus
#1 Stock Adjustments cannot be saved if the adjustment will result in a negative.
#2 Stock Transfers cannot be saved if the transaction will result in a negative quantity at the supplying stock site.
#3 ICPOs cannot be filled if the transaction will result in a negative quantity at the supplying stock site.
#4 ICPOs cannot be received if the transaction will result in a negative quantity at the intermediary stock site.
#5 Accounting Periods cannot be closed if there are negative quantities waiting for cost.
#6 Items with Use Tax cannot be delivered or invoiced, regardless of permissions, if the transaction will result in a negative. This is because Use Tax is calculated based on item cost. If the item is negative, there is not cost to use to calculate the use tax. Evosus must wait for the correct cost before calculating the use tax.
Unless explicitly stated, this topic documents the most recent version of Evosus Business Enterprise. If you're not using the latest version, go here to download it.
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