QuickBooks Enhanced Inventory Receiving–Inventory Offset Problem

Written by Charlie Russell

If you have been following this blog you know that I have some concerns with the Enhanced Inventory Receiving feature of QuickBooks Enterprise V12. Let’s take a look at another potential pitfall when using this program, relating to the Inventory Offset account.

Enhanced Inventory Receiving (EIR) is Intuit’s solution to a problem of having inventory receipts and bills handled in a single transaction – it splits this into two separate transactions. You now have an item receipt and a separate, but linked (usually) bill. This resolves many issues in QuickBooks as I discussed in my EIR Overview article, but it raises other issues. For the most part, these issues have workarounds or can be avoided by careful attention to details (such as what I discussed in my article on EIR Bill Linking Problems). I’m not seeing problems that cause data damage, so I’m not saying that you should avoid using this feature – what I’m saying is that you need to understand what the issues are so that you can decide if EIR solves more problems than it causes. You also have to understand the issues so that you can explain why things show up the way they do.

The Inventory Offset problem is vexing, because it can create problems in your financial statements if you don’t pay attention to what you are doing.

Inventory Offset Account

When you separate an item receipt from the bill we have to find a way to account for the value of the item that has been received. With EIR, Intuit creates an Inventory Offset Account. The item receipt transaction will debit the appropriate Inventory Asset account, and credit the Inventory Offset account, with the estimated value of the receipt. This is an Other Current Liability account.

Later, when you enter the bill for the item receipt, there will be a clearing debit to the Inventory Offset account and a credit to Accounts Payable.

So, assuming that you have entered a bill for every item receipt, the Inventory Offset account should have a zero balance. Of course, in many businesses you will rarely have a time when you have entered bills for all of your receipts, so this offset account can be hard to reconcile.

Bills Can Create Problems

There is a flaw in how Bills work when you enable EIR. Let me show you by example.

Let’s start with an item receipt.

Item Receipt

Next we enter the Bill for that receipt. I’m receiving the full item, and I’m going to add a freight charge as well.

Bill for Item Receipt

Now let’s take a look at the Inventory Offset account to see how these transactions show up. Since I’ve entered a bill for the full receipt, the account should have a zero balance.

Inventory Offset Account

As you can see, the account does not have the proper balance. The freight charge, which in this case is an Other Charge item, has posted a value to the Inventory Offset account. Since the transactions are all complete, this balance won’t be cleared out. Clearly this is wrong. The freight charge should be posted to the expense account associated with the item (it is a two-sided item) instead of this other current asset account.

Taking this further:

  • If I enter a bill that is NOT associated with an item receipt, that bill still posts to the Inventory Offset account. This creates a similar problem, with a posting to Inventory Offset that will never be cleared out.
  • You do NOT have this problem if you pay for an item with a Check or Credit Card Charge.

There is a workaround – don’t add charges like this to the Item tab, use the Expense tab in the bill. I don’t find that to be an acceptable solution, though. All along we are told that we want to use the Item List to handle postings to different accounts, rather than going directly to the chart of accounts. Items are shortcuts that save time and improve data entry accuracy.

To me, this is a big bug. I don’t know if I’ll call this a show-stopper, since there is a relatively simple workaround, but I don’t like it. I can’t fully endorse EIR while this problem exists. It is too easy to create problems, and it is too hard to figure out where the problems come from if you have a typical business with many overlapping transactions. The workaround makes us stop using one of the core features of QuickBooks, and that isn’t good.


Intuit is aware of these issues – we’ll have to see if they can improve the product so that we don’t have to be so careful when using EIR. This feature is a major change in how QuickBooks handles item receipts, and I’m not surprised that there are a few issues like this to work out in the early versions. Actually, I’m happy to see that there are so FEW problems, and that we haven’t seen any major flaws that destroy data. Everyone I’ve talked to at Intuit about this feature is determined to make it work flawlessly.

Thanks to Jeanne Tarazevits, a Sleeter Group Certified Consultant who pointed this out to me via the Sleeter Group member forum, and at The Sleeter Group Accounting Solutions Conference

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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 agree that this is a HUGE bug. Items are at the heart of how we use QuickBooks for reporting. They’re what we teach, what we use, and what we rely on just about as much as accounts. Sometimes we need Items even MORE than accounts. Especially when we work with clients who have inventory. So when any transaction in QuickBooks causes Items to fail, that is a HUGE, HUGE, HUGE bug. How could this have escaped the testing and QA?

    I cannot stress how concerned I get when seeing a bug in something so fundamental to QuickBooks. I feel a disturbance in the force….

  • I haven’t really made this point directly in any of my articles on QuickBooks 2012, but in a very general sense I generally like to wait a year before I use a major new feature like this. It is not uncommon to see problems that are either bugs or just design flaws come up in the first 6 months to a year. QuickBooks is so flexible, it is hard to think of every situation that you might run into.

    And there are more issues with EIR than I’ve talked about in my recent articles so far, which have been getting traction in the Sleeter Group member forum.

  • Received a call from a client with this same issue yesterday. I could only come up with recording the freght on the expenses tab, and just like you, I told the client I did not like a workaround that bypasses items, but unless they go back and add the freight to the PO, that’s all there is now.

    Thanks for writing the article and calling attention to it.

  • Charlie, I have been reading your blog for 18 mos or so and really appreciate your insights for QB in general and inventory in particular.

    I just enabled EIR in QB12 Enterprise (as a trial on a backup file) because I purchase a lot of inventory from my parent company in Europe and am billed on shipment in CHF. For closing, I must record the bill at least in the month shipped, but delivery can sometimes take weeks so I was eager to give EIR a try.

    Unfortunately, I discovered another bug with EIR during the conversion (and just reported to Intuit): After completing the conversion to EIR, a balance accumulated in the Inventory Offset Account for old, closed foreign currency Bill Receipts. When the conversion process split Bills and Item Receipts, the Bills are recorded with the correct (USD) value, but the Item Receipts are recorded with the foreign currency value, which is incorrect since this is a USD accoout. The error is also reflected in the Inventory Value of these items.

    I made a trial Bill entry and separate Item Receipt for an open PO and both entries were made with the correct (USD) offsetting values, so this appears to be a conversion problem only.

    Thanks again for the great blog!

  • I recently discovered that when EIR is enabled, any double-sided service items WILL NOT flow through to Job Profitability Reports – a huge issue with my contracting client.

    I am now faced with two options – either build a new company by transferring data from the old company and not using EIR in the new company OR

    Making my service items Inventory Parts and using the COGS account for both the COGS and Inventory Asset account.

    What are your thoughts about potential hiccups if I start a new company and then import lists and transfer transactions? I’m not sure whether there will be any surprises with transactions that were previously recorded using EIR. Your input would be greatly appreciated!


    • Sounds like a mess, Andrea. I’ve not seen this myself as I’m not working in the Job Costing arena a lot at this moment. And I generally try to steer clients away from EIR at this point, until we can get some resolution to these issues.

      Starting a new company file gets you around the EIR issue as far as not being able to disable it. I can’t say how much work that would be as I don’t know the volume of information you have there, how long the file has been in use, what features you are using. Some kinds of things just don’t transfer easily, like much of the Payroll information in some cases. And your connections to online products if you are using them. Then, too, if you have a lot of receipt/bill transactions relating to items you have the problem that in the EIR company these are separate transactions, and in the new non-EIR company they aren’t. That is a task that I’ve not addressed.

      Whatever vendor product you are using (Karl Irvin DTU, or Baystate Consulting Importer/Exporter), you may first talk to the company and see if they have any experience with that issue.

      If the file has been used quite awhile, you may also think about finding a backup from before EIR and just trying to move the data that was entered since that time.

      It might not be a simple chore.

  • We have suffered the same mess. I have expenses that won’t post to the job costing/profitability, and now items. This has become very expensive situation, and I’m extremely dissatisfied with the product as a whole. Has anyone figured out a solution? We have a year of Intuit Payroll in our company file, and starting a new company file is next to impossible. Starting a new company migrating and posting information to link all transactions is a huge endeavor. I have heard two suggests: -0- value checks to move information, and another direction to use classes to get expenses assigned to jobs rather than a generic ‘government contract revenue,’ which a pro last year directed me to set up. Obviously he was not well educated in government accounting. So, now I have a bigger difficulty, since I migrated everything to Enterprise version and didn’t disable EIR. Call tech support and you end up in the philippines.

    • Wow, Cynthia – I’m going to pass on this one. I am definitely NOT well educated in government accounting. It sounds like you have several different issues going on here, hard to figure out in blog comments.

  • On one of your posts, someone mentioned the problem with the Inventory Offset Account showing a different number in the Chart of Accounts and the Balance Sheet than what is actually in the ledger. I have that same problem. We upgraded to Enterprise with Inv in April this year. There is an almost $11,000 difference from the ledger showing as of Jan. 1 in the reports and consistently shows. Has anyone figured this out? I was told to install the R11 update and do a data rebuild, but that had no effect.

  • good morning Charlie,

    have a new client with a huge inventory but they say they dont have it; previous accountant created this, they assume.

    what would be the appropriate entry?
    thanks so much

  • I can’t believe I’m just finding out about this now; even more, I can’t believe this has been the norm for this long. We turned on EIR when we converted to QB Enterprise last year. It’s great at what it does.
    As part of improving our processes around here, I’m now setting up QB Items on the A/P side for most of the regular non-inventory related expenses. Before we were just using the expense tab on the bills for everything (except inventory).
    In my testing I see that *everything* (service, non-inventory part, other charge, etc.) is hitting Inventory Offset, thus necessitating an Item Receipt if we don’t want to continue expensing our bills directly like before, which is ridiculous.
    If I had my way, every line on the Items tab of a bill that is not Inventory (or Assembly) would debit to its default account as long as *that line* of the bill is not linked to an existing PO or Item Receipt. Otherwise behave as it does currently, i.e. “dynamic” accounting in the background. Even the PO link should be optional, for businesses that don’t see much value in “receiving” non-inventory (e.g. shop supplies), but still need a PO for the vendor(s).

    On an unrelated note: I wish I could figure out how to make FIFO and Multiple Inventory Sites give me what I want. I trust (hope?, pray?) that QB is tracking separate costs per site, but it isn’t apparent. I would really like to track inventory costs by site other than manually, and more easily determine pricing. (We only buy Parts, and only sell Assemblies, if that’s relevant.) I will re-post this last paragraph in an appropriate blog if no one gets to it here, sorry about that.

    • I generally recommend against Enhanced Inventory Receiving because of the multiple flaws in the process, and problems that it can create if you don’t do things exactly right.

      FIFO is site-agnostic. That is, FIFO costing is done on the basis of all inventory in the system, without paying attention to sites. And I doubt that Intuit will change that in the future.

      • Charlie, thank you for replying to my comment on this four-year old article. My main goal with using Items on bills for non-inventory was to break up the Utilities and Shop Supplies GL accounts into several categories (e.g. equipment, parts, gloves, propane, rags/towels, QA/lab supplies) for more visibility on expenses. I don’t require two-sided items or profitability reporting on these.
        My best idea for a work-around is sub-accounts, I guess? And if we must have purchase orders for certain suppliers we can “mark as closed” after it’s been printed/sent.
        sub-accounts example:
        6365-02 Utilities

        “FIFO is site-agnostic.”
        I’m guessing this is not limited to FIFO. Default costing would be the same? If not, then I’ll gladly turn off FIFO. I think my predecessor was mainly hoping it would help our pricing since it forces QB to segregate each purchase, and the Site is already part of each inventory transaction. (Seriously, why couldn’t Intuit see this as an obvious consequence?) Our main material is ocean imported, and greatly affects our costs depending on where it arrives.
        **Another idea: does enabling lot tracking happen to link any costs to each lot? (incoming lots and/or internal Build Assemblies each assigned to their own individual lot)

        [I’ve already mulled over the idea of splitting all inventory into sub-items by site (We only have two sites). But (1) that’s a big no-no for lots of reasons covered by experts’ blogs like yours, and (2) I feel I really shouldn’t have to do that since we’re using both Sites and Classes to track inventory and expenses by location. The classes are integral to our pricing models, but it still boils down to a manual process.]

        • Brady, I can’t give you a good answer to the first question, as it is most likely something that is more complicated than what can be dealt with in simple blog comments. Using the “type” of item to segregate things isn’t something that I would normally consider. Sub accounts may make more sense, but I can’t say for sure. You can always set up a test company to try things out.

          All costing in the QB system is site-agnostic. FIFO or average costing. BUT, keep in mind that if you change costing methods there are IRS/tax implications, so don’t make that change without talking to your financial / tax advisor.

          Lot tracking has no bearing on costing whatsoever, in QuickBooks.

          Splitting between two sites is something you would normally do with classes, BUT keep in mind that classes only generally work on the Profit & Loss side, not on the Balance Sheet side. But you are already using that, you say.

          More complicated than can be worked out in blog comments.

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