QuickBooks 2012 Enhanced Inventory Receiving

Written by Charlie Russell

If you work with inventory in QuickBooks you are probably aware of the hassle of receiving inventory and the related billing – you can’t disconnect the receipt from the bill. There are a number of problems that come up because of this, and the workarounds are a hassle. Now, with QuickBooks Enterprise Solutions 2012 there is a fix, but it is important that you understand this before  you use it, because once you select this option you can’t change your mind!

(This article was updated 9/9/2011 and 9/28/2011) 

Problems with Item Receipts

In QuickBooks an item receipt and the bill for that item receipt are one transaction. You can’t separate them. You must have a one-to-one ratio of bill and item receipt (since it gets wrapped up into one transaction). This creates a number of different problems depending on your situation. Each of these have a workaround, but workarounds are not the best way to operate your business.

Here are a few of the problems you can run into with the standard method of receiving items in QuickBooks:

  • You may need to pay for items you have received before you actually receive the items. Entering a receipt with the accurate billing date  increases your inventory before it should.
  • If you enter an item receipt, and later you enter the bill, most people will change the transaction date to be the bill date so that the accounting transaction for the bill is accurate. This changes the item receipt to that same date. This can have far reaching consequences such as changing COGS calculations and possibly even turning inventory assembly build transactions into pending builds.
  • What if you receive a bill from your vendor that covers several different item receipts, on different days? QuickBooks doesn’t provide you with a simple way to deal with this, as there must be a one-to-one relationships between bills and receipts.
  • What if you receive multiple bills from your vendor for one item receipt? QuickBooks again doesn’t provide you with a simple way to deal with this, as there must be a one-to-one relationships between bills and receipts.
  • In many businesses proper procedures will separate the inventory receiving department from the accounts payable department. QuickBooks makes this a single transaction, so you can’t make that separation.

To solve these problems, Intuit has introduced an optional feature, Enhanced Inventory Receiving, which is available only in QuickBooks Enterprise Solutions 2012.

This separates the item receipt from the bill, which should resolve each of the problems that I list above. However, I want you to think about this feature carefully before you jump in, as there are a number of potential problems and yellow caution flags waving here.

Enabling Enhanced Inventory Receiving

Note that with a large QuickBooks company file the conversion process that you will go through to enable this feature could take a very long time. Possibly several hours. Schedule this conversion for an off time.

In fact, I highly recommend that you test this first by making a copy of your company file and testing it with that copy. Understand what the process is going to change before you put this into production.

To turn this feature on, go to the Items & Inventory preferences and click the Enable button. Note that next to that is a Learn More link. I highly recommend that you read this information.

Items & Inventory Preferences

If you have set a closing date in your company file, you will have to enter the closing date password. Why? Because this process is going to change transactions that occurred in prior periods.

After that, you get ANOTHER warning. This is good – Intuit is definitely concerned about the impact of this change and they want you to understand it clearly. I’ve talked to the product manager at Intuit, Catherine Fisse, and she was very clear that Intuit wants people to understand the changes and think this through.

Enhanced Inventory Receiving Warning

The program will make a backup copy of your file, which is GOOD since the conversion process isn’t reversible! You may find that the file cannot be converted – if there is any damage in the file and it won’t pass a “verify”, you will have to rebuild it and possibly correct any errors before proceeding.

When the process is done you will see a summary window similar to the following. Note that this test was run on a very small file with very few transactions, so it went fast and didn’t create any problems.

Enhanced Inventory Receiving Results

Pay careful attention to the changes that are listed here. Capture the screen, as I’ve not seen any place that you can get this information later.

Note that it says it is updating existing transactions? All of your inventory bills  from before the conversion have been split into Item Receipts and Bills now. Before conversion a Bill was one transaction handling the billing and the receipt. Now there are separate transactions for the bill and for the item receipt.

How Enhanced Inventory Receiving Changes QuickBooks

There are a number of screens and processes that are going to be changed.

Here is what we have without this feature enabled. Note the path on the home page.

QuickBooks Home Page before EIR

Here’s a normal item receipt. Note that you can turn on the bill received option, and that you have both an Expenses and Items tab.

Item Receipt WITHOUT EIR

Now, let’s take a look at this with Enhanced Inventory Receiving enabled. See the separation in the Home Page

Home Page changed

Here is the item receipt. Note that you can’t turn this into a bill, and the expenses tab is gone.

Item Receipt with EIR

Enhanced Inventory Receiving will create a new Other Current Liability account in your Chart of Accounts called Inventory Offset Account. When you enter an item receipt you will have a journal entry (these next two graphics came from the Quickbooks documentation).

Item Receipt Journal Entry

QuickBooks will create other journal entries when you enter a bill or payment against that item receipt.


(Updated 9/9/2011)  If you use a check or a credit card to purchase the items (using the items tab) QuickBooks does the same as before. It debits the Inventory Asset and credits the bank or credit card.

This is a big change, and it can be a bit overwhelming to understand. However, you need to read all of the materials and study these changes before taking the leap.

What To Watch For

I’ve said it several times already, but it is worth repeating. Understand the changes before you implement this feature.

There are a lot of good changes with this feature. All of those receipt/bill problems I list at the beginning go away. You improve the separation of inventory and payables, you eliminate timing problems, you eliminate the confusion over bills that don’t match receipts.

However, I have some concerns for you to think about.

You can’t turn this off once selected. I understand why this has to be, but if you make the change and don’t like the results, you can’t go back other than to restore an old backup file.

This creates many more transactions than before. You used to have a single bill transaction, now you have a separate bill and item receipt. That doubles the number of transactions for this activity. You also have many journal entries being created. If you have a company file where the volume of transactions is a concern, this can create problems. This will also make your company file bigger, which is a concern for some people. Update: Intuit says that I’m overstating this, as there may not be as many journal entries as I anticipated. You still are doubling the transaction count for receipt/bills, though.

This can change prior period financials. In early tests I found a number of situations where the financial statements for prior periods were changed. I haven’t tested this with a complicated test file with the latest release, and I believe some of the early problems were resolved. However, you can find that prior period values change. You can get around this by not relying on your current file to print prior period financial statements, if you have backups of the prior year company files. But that is another workaround. Also, I’m concerned that you have to make some journal entries to get the beginning balances back in alignment with your prior financial statements, but note that I have not yet investigated that fully.

Does this create problems with the IRS in an audit? Well, maybe. You are modifying the file for the period that may be audited. As discussed before in this article, it isn’t always clear what the IRS thinks is proper. Again, the workaround on this is to use a backup copy of the file that matches your tax filings. Note that I’m not sure that there is an issue here, I’m not a tax accountant or lawyer. I’m just wondering…

This might interfere with some third party add-ons. I don’t have any specific instances where I’ve seen this, but it is possible. Note that Intuit announced this change to software developers many months ago, which is good. However, I’ve talked to several developers who were not aware of the change, in spite of the warnings that were given. Not Intuit’s fault- people just don’t always see these notifications or understand the impact. The programming interfaces that developers use are in the process of being changed to accommodate this update, but at the time I’m writing this the developer tools are still being beta tested. If you have a third party add-on that relies on bills being an indication of an item receipt, now the bill is separated and the program might have a problem.

Inventory balances may change. Here is my QuickReport for an item receipt from before I enabled Enhanced Inventory Receiving.

Bill/Receipt from BEFORE conversion

After the conversion, here is the QuickReport for that same item.

QuickReport AFTER conversion

Now you see this is an item receipt, not a bill. However, look at my total on hand as of 9/30/2011. Note that they are different between the two reports? I haven’t dug into this issue to see why it happened in this test case.

My Recommendations

If you are starting a new company from scratch, the impact isn’t as big. You aren’t going to be adjusting prior periods. You still have to worry about the change in workflow and the increased number of transactions.

Test these changes out before you jump in. Copy your company file, print financial statements and inventory balances, test the conversion and compare the reports. Does this change your financials? Does this change inventory balances? Does this change your Payables? You have to investigate that and decide on how you will adjust to those changes.

Make Backups, Make Backups, Make Backups. You can’t turn this feature off, so protect yourself.

Study the changes in the workflow to make sure that this works for you. It does change things, it can create more work in some situations.

Study the list of reasons FOR using this to see if it helps you. If you don’t have those problems, don’t make the change.

Consider waiting until another revision because the early adopters of this feature are going to be the real test of how well it works. I never like to be the first to try this in a real world environment.


I’m throwing a lot of cautions out here, but I want to make it clear that I think that this new feature provides many benefits to some businesses. A lot of work has gone into this, and based on conversations with the Intuit people I know that they understand the complexity and the issues that are here. This is a good option, I just want everyone to think about it before jumping in.

See some additional articles on problems with EIR: An Inventory Offset Account problem and a Bill Linking problem.

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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 Sleeter Report since 2011. Charlie can be reached at charlie@ccrsoftware.com

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


  • Charlie, I am excited about this version of Quickbooks. I have this year, upgraded to the Enterprise version and I’m really excited to see how the lot numbers are implemented. I’ve also never been able to “Archive” my data and am wondering if this new condense option is finally going to allow me to reduce the size of my data file and remove older completed transactions to an archive file. “fingers crossed”.

  • Well done, you have covered this new feature quite well…..with a big emphasis on ‘think’ before you leap.

    William “Bill” Murphy – Oklahoma City

  • Great write-up. Thank you.

    Restating prior period financial results is not an option for our company. We are a subsidiary of a public company and there is no way, whether material or not, that we are going to restate our financials.
    I am amazed and disappointed that Intuit would implement a new feature that requires a prior period restatement. Intuit should have provided a path/method/tool to enable us to use the new feature without a restatement.

    • Cliff, in your case, I would take a backup, reinstall it as a test company in a separate location, and try it to see what will happen. I haven’t been able to work on this in great detail with a large, complicated company file. The large ones that I have that I’m allowed to play with don’t have much inventory in them. The ones that I have that have a lot of inventory in them can’t be used until I do a “cleanup” procedure, as they have errors and won’t verify.

      I don’t know that Intuit could have done any better as far as the changes. There are going to be some rounding errors, possibly, in some situations. THis is a major overhaul of a file. The inventory count issues are of a concern. I haven’t looked at why exactly that happened.

      For a new company, you just have to decide if you want the extra volume of transactions that this creates. For an existing company, you have to decide if the benefits outweight the problems of having an adjustment at the beginning of the year…

  • If prior financial reports are being changed then something is wrong with the conversion process. If I had a bill and bill payment, and now the conversion gives me a receipt, a bill, and payment what really changed financially?

    If quantities are changing then that is a red flag – go no further.

    And if quantities are changing in QB, what happens if multiple unit of measure is enabled – reporting of quantities in that option is already difficult to understand.

    I wish you had delved into average cost and how adding inventory as a result of a receipt will work, and how it affects COGS when sold, and then when the bill is finally entered, what will QB do then? Especially if the receipt is in one financial period and the bill is in another. Currently you add qty without cost and average cost decreases, you sell something causing a reduced average cost to post to COGS, and then you enter the costs for the item receipt and?

    • Thanks, Jim. I wish I could have gone into this much further, and I might do that in the future. There were SO MANY new features and changes that I haven’t been able to go into further depth on any, more than I have here. I hope to come back to that when the dust settles a bit.

  • Charlie:

    In Quickbooks, the only way to create a Work Order was to change the name of a Sales Order to Work Order. We build custom store displays and fixtures for a major U.S. retailer and a single sales order might include 400 different SKUs. Is there any way to issue Work Orders on a SKU by SKU basis that can be used to control actual production of each item? Do you know if Quickbooks has addressed the issue in Quickbooks 2012?

    • Robert, “Work Order” means different things to different people. What exactly are you trying to accomplish, AND what edition of QuickBooks are you using? Enterprise has features that aren’t in Premier, which might affect this…

    • Can you not just create the work order (non-posting txn-sales order template) for the one SKU? Is that now what you are doing now?

      • Woody, that is why I asked for details on what Robert is trying to do. “Work Order” can mean so much more than just a sales order for the item. In a manufacturing environment it could include a bill of materials, for example. Lots of ways to interpret “work order”…

  • Charlie –

    After the changes are made, is the audit trail report a tool that could be used to look at what changed on the conversion date? Theoretically it would be possible to make journal entries that offset the financial statement impact of those changes.

    Your observation that the conversion should not be done on a file that is also the substantiation for an already-filed prior year income tax return is a good one. Every business using QuickBooks should be keeping a backup for each tax return that is preserved specifically for that purpose.

    • Scott, I didn’t look at that. However, if you have a lot of transactions, the audit trail would be full of things, and it would be very tedious to use that. When you convert you get a summary statement on the screen, that may help. And, I would think it would just be simpler to print financial statements and supporting documents before the conversion, and then compare them to statements from just after the conversion, and look for differences there. But then, I’m not an accountant…

  • Please note that I updated this article on 9/9/2011 to correct some information about what journal entries are entered by the system. The list of journal entries is much smaller than I had originally believed. My thanks to Catherine Fisse of Intuit for pointing out the error.

  • Thanks, Charlie, great info. Glad to hear Intuit is working on updating the SDK to support this new feature (I hope Intuit Anywhere will handle it, too, when it comes out of beta).

    I wonder how this will work with QuickBooks Point of Sale. Since POS takes over the inventory management functions – but not bills – from QB, it could be interesting. Say someone turns on Enhanced Receiving in QBES 2012, and later implements QB POS. In theory QB could detect which version of QB POS is talking to it (or more accurately, which version of QB, QB POS thinks it’s talking to) and respond accordingly when POS tries to create an item receipt. Have you heard anything from Intuit about this? Or maybe we just need to test it to find out. Hopefully not a common scenario, but I want to find out how it works before I set up POS in front of a client…

    • Mike, I don’t work with QBPOS, so I can’t really answer that. My guess would be that you don’t use “Advanced Inventory” when using QBPOS. I doubt that QBPOS is going to even recognized that AI is there…

      But that is speculation on my part.

  • Just a note on one more potential issue to be aware of with this feature. I was curious what would happen to the Inventory Offset account if the pricing on the Bill was different than on the PO. I found something very troubling. This was my example:

    Enter a PO dated 11/1 for 15 units @ $5 each.
    Enter three separate item receipts dated 11/15, 12/15, and 1/15 for 5 units each. As expected the Inventory Offset entry is $25 each.
    Close accounting period at 12/31
    Enter Bill dated 1/15 for 15 units at $5.50 each.

    As suspected QB updated all three previous inventory offset entries with the new cost. What is really worrisome about this, is that it didn’t prompt me for the behind the closing date password, or even notify me that it was going to adjust closed periods. This would of course then also affect COGS in prior periods, what a mess!

    • Thanks for pointing that out, Jessie. It took me awhile to respond because I wanted to play with that a bit and check it out. You are correct, this changes the prior period WITHOUT a warning. I suspect that they’ll fix this oversight in an early revision.

      Other than missing the warning, when you set up that scenario even WITHOUT EIR enabled, the kind of situation you created is a problem. If you enter the bill in the next fiscal year, with that date, it changes the receipt of the items to be the next fiscal year. That affects both years. You have to do a bunch of workarounds for this situation. So I’m not sure that we are necessarily any worse off with EIR here, other than the warning not being shown?

      I have to think about that one some more…

  • I recently took a job as controller for a company that has BusinessVision installed. I’m considering switching them over to Quickbooks Enterprise and I am finding the information written in these blogs absolutely priceless. So much more detailed and clearly written than anything else currently available. I still have a lot of reading to do before making a final decision as it will be a huge project to make the switch, not to mention leaving the existing history behind.

    Anyway, I did have a little to add to this particular topic. BV has the separate receipt/bill function. While it works fairly well it will often cause the ‘Inventory offset account’ (BTW, BV calls this account ‘accrued purchases’ and lists it with current liablities) to go into a debit balance at monthend. We are finding that our bills are actually dated PRIOR to the inventory receipt date which means the offset account shows the relieving (debit) entry before the setup (credit) entry.

    Vendor ships item and creates the invoice on the same day – say the 29th. Vendor sends invoice almost instantly (email/fax) dated the 29th and item arrives 5 days later dating the receipt on the 3rd or 4th of the following month. Invoice can’t be entered until items received. Even so, when you enter the bill the debit entry is recorded at the 29th and the credit not until the next month on the 3rd or 4th.

    I’m wondering about the presentation of this offset account. Is this one of the QB created control accounts that can’t be easily altered? If so, where does it list in the balance sheet? Is it in the inventory section, or the current liabilities?

  • I have a question that I have yet to find the answer. We do have version 12.0, Enterprise MFG & Whlse and started with the Enhanced Inventory Receiving. I am using a test environment of our file to see how best to create a purchase order, receive the goods and pay the bill with different scenarios we encounter. We use China manufacturers for some products and they demand 50% before production and 50% before shipment. When we create the bill, it asks if we want to attach the PO. We say yes. When we pay the bill we enter in the amount we are paying: 50%. On the balance sheet we have an AP for the balance and Inventory offset for the total value of the inventory. Is this creating a double liability until we receive the items? When all items are receive then the inventory offset account is zero. I am not sure how best to handle.

    Thank you for your help!!

  • I noted that this feature requires items are received using “Receive Items” and user cannot go on directing entering vendor bill linking it to a purchase order.

    That is, if a bill is directly entered without first using “receive items” it does not update inventory with debit goes to Accounts Payable.

  • Thanks for that Charlie. It doesn’t seem to explain how it averages old cost for new cost. I issure PO’s through a separate software and then when the items are received, I have to add freight, duty, brokerage etc. and include them in the unit price of the item. In figure 7 above there doesn’t seem to be any way of getting the new price into the item so that it averages with the old price. How would you handle that?

  • We recently turned on this function in our companies quickbooks. My question is, this totally threw off our cash basis balance sheet. When I try to make entries to fix it then the accrual basis is off. My boss has been filing taxes on a cash basis since he started the business. Can we continue this while using this functionality in quickbooks? Or will the cash basis balance sheet always have a balance? Thanks for any information that you can give me.

    • Sheri, I’ll be honest and say that I’ve not looked at how this impacts the cash basis reports. I’d have to see your file to be able to give specific recommendations. But, note, QuickBooks is an accrual system at heart, and there are often things that show up in the cash-basis balance sheet that you wouldn’t expect to see (Accounts Receivable, for example) because QuickBooks has problems making things balance out on a cash basis (since it is accrual at heart).

      • Thank you very much for your imput! I agree with the statement of an accrual system, especially when we need to use the job costing functions.. That is why I felt we needed to turn on EIR in our system to use the PO’s etc. correctly. But it has really thrown the cash basis off! Thanks again!

      • I found some other issues with EIR, we are now having problems with the Balance sheet being out of balance with the detail when you drill down. The help section is saying rebuild the file, is this going to cause any additional problems. My boss is already ready to strangle me for all the issues that this has caused. Also, once you do the re build does the problem continue? Has quickbooks came up with a fix for this. We have not updated to the 2013 version until we got 2012 closed. I certainly hope this does not continue!

        • Sheri, I can’t really comment about that problem without having hands on the file to examine it. Part of the “rebuild” process is to make a backup of the file first – so you can do the rebuild, and if it looks like it caused a problem you can restore that backup. However, rebuilds don’t always fix the issues. You may have to do some diagnostic work with the “qbwin.log” file, looking for error messages about what might need manual intervention. You might want to have someone take a look at this file for you.

  • I recently took a job as controller for a company that has a industry specific software That we are moving away from and putting our re-seller business on QB. Product is drop shipped from suppliers and we have no inventory in-house. However we do have to serialize all the items for service contracts and subsequent renewals. We have not yet turned on the advanced inventory. So far I have uploaded all the items, but set all items up as non-inventory. Do I have to change to inventory items to be able to add serial numbers?

    • Alice, you can’t use the Serial Number feature with non-inventory parts. They have to be inventory items or inventory assemblies.

      If you are just using this to track serial numbers for later followup, and not tracking the quantity on hand you have (not worrying about matching up a serial number you have in stock with a delivery) – I don’t know that you need to pay extra to Intuit for this feature (it is NOT cheap) if that is all that you are doing.

      You can add a “custom field” to the item list for serial number (but don’t enter a value there). Then you can add that as a column to the invoice template. Then you can enter the numbers there – one value per line would work best. This enters the serial numbers into the invoice and you can make it show in searches, in reports. Since you aren’t worrying about stocking these numbers for later use, you are not using all the features available.

      Try this out before you spend the big bucks for that feature. It might not be what you want, but it might…

  • We are wanting to turn on the Enhanced Inventory Receiving for QB Enterprise, but when we did the test run, the items that are setup as a “Service” created an item receipt. How do we get the “Service Items” to not create an Item Receipt.

    • I’m not clear as to what issue you are talking about, Derinna. Are you saying that you enter a PO, that you have some service items on the PO, and you don’t want them to show up on the item receipt along with the inventory and non-inventory items?

  • Hello Charlie,
    We have been having issues with inventory being received and through production prior to receiving bills. I am continually clearing pending builds. We have Premier 2012. We also use the PR add on so by May I need to upgrade.
    I would like to separate the receiving from entering bills at this time, so the receiving can be done by the Inventory Manager rather than accounting. Currently our process is redundant.
    What version would you suggest? Any updates on if the newer versions have resolved the prior period and inventory count problems?
    Love your blog.

    • Amanda, I still have questions about Enhanced Inventory Receiving (which is a part of Enterprise). There are people who use it successfully, but you have to be very careful in how you use it, for all the reasons that I outline in this and other articles on the subject that I have in this blog.

  • I have EIR turned on and just now noticed it will not let me change a non-inventory item to a inventory part. Any help, thoughts or advice on how to remedy this? I’ve never seen this error message before.

    • Yes, because that would require changing every bill for those non-inventory items into two transactions, an item receipt and a bill, and it would require posts to the special inventory account, and it would be a mess. So they just don’t let you do it.

      • Do you have a suggestion? Should I just create a new item? This file is brand new from the start of the year, if that helps. And thank you for the prompt reply! Happy St Patrick’s Day!

  • Thank you, Charlie, your articles are always handy and helpful! I have a customer that is making an Item Receipt every time they manufacture a product. Ideally that should go Raw Material Inventory > WIP > Finished Goods Inventory, but they just make an Item Receipt. Well, now all these Item Receipts are sitting in the Aging AP because they will not pay themselves for these receipts. How do I clear the inventory and the Aging AP? I would really appreciate any help at all, as this is driving me nuts

    • I don’t know of a simple shortcut to resolve those item receipts. And even if there was, you would need to solve their process so they don’t build up again.

      solve the workflow issue first, then start a new company file, perhaps.

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