As a QuickBooks Point of Sale ProAdvisor, one thing I can count on when I go into a new client, not using a POS ProAdvisor, is seeing an amount in POS inventory Adjustment expense account (Document offset in prior versions). Most clients don’t understand how these transactions occur and how to prevent unintended entries.
First of all, what is this entry? Any time inventory is adjusted from something other than receiving, returning, selling, or issuing a credit for an item; QuickBooks needs to balance the transaction. Since these changes affect the value of inventory, the software uses this account to keep the books in balance. Sometimes these types of adjustments are necessary. For example, when you do a physical inventory; if you have inventory shortages; the correct entry is to post an expense to reduce the value of inventory. If something is damaged and you can’t sell or return it, you should also adjust your inventory downward and expense it.
What goes wrong? Point of sale allows you to enter an on-hand quantity from the item screen. While it will warn you that you are changing the value of your inventory with an adjustment memo, most clients say “Sure I want to change the value of my inventory as I am adding inventory” and then chose to hide the message forever. What has happened is that an inventory adjustment has been created and it will post a debit to inventory and a credit to POS Inventory Adjustment (document offset) upon the next synchronization with QuickBooks financial software. However, if the client actually intended to add inventory and create a bill for the inventory, this entry does not reflect the actual situation.
How do I prevent this problem? Train your clients to NEVER, EVER, change the on-hand quantity in the item list. Version 3 and earlier did not allow you to change this field and I have complained about this in every version since. If Intuit continues to allow this change, I think the software should display a message telling the client to call their ProAdvisor to fix the problem that they are creating and type yes agreeing to the charge. If the client does need to adjust quantities due to damaged items that they are unable to return, teach them to go to Inventory menu and enter a new quantity adjustment. When the client does this, they get are able to enter an explanation of why this occurred and when you see the adjustment, you will understand why it occurred.
But I need to get inventory in the system, don’t I? Yes, but do it properly. If this is a new business, have the client enter receiving vouchers for their entire inventory, let it create bills in financial and match to the bills to payments. If it is an existing store, you have a couple of choices. If the client has been using QuickBooks Financial to track their inventory previously and if the inventory item detail is correct, you could import the items from QuickBooks Financial Software into QuickBooks Point of Sale. This method has other issues that are addressed in The Sleeter Group’s new book, QuickBooks Point of Sale: Best Practices for Success, but that is beyond this discussion. Alternatively, you can use the data import tool to import the item list with zero quantities and then have the client perform a physical inventory. I suggest zero quantities because the item data entry process can take some time and inventory changes each day.
My client has a negative $98,256.00 in POS inventory Adjustment, how do I fix it? It really depends on several issues and the fix will not be the same for all. I will give some guidelines. If this is a new client, remember what causes this. It may be possible to create your bills using the document offset as your account. If all of the entries occurred within one accounting period and everything balances, this could be the simplest way. Another way to correct the problem and the most complete would be to zero the inventory and start over correctly. This is easily accomplished by using the physical inventory function in QuickBooks POS. Check the box “Set all items not counted to zero” with the entire inventory list displayed. This should create an offsetting transaction to zero the inventory and POS Inventory Adjustment (document offset) account. Then enter the receiving vouchers as if the client had a brand new file. Again, every fix is different and your fix may be a combination of the above or something totally different.
A correctly setup and functioning POS installation is a thing of beauty. The client who properly receives inventory using receiving vouchers will have bills recorded automatically in QuickBooks Financial. When clients use receiving vouchers, the only entries in POS inventory adjustment expense should be adjustments for damaged goods or shrinkage. Make sure your client correctly and consistently records transactions like this so that they never see a negative POS Inventory Adjustment expense again.