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QuickBooks Enhanced Inventory Receiving–Inventory Offset Problem

January 17, 2012 | By | 11 Replies More

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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Category: QuickBooks Tips/Tricks, Technical QuickBooks

About the Author ()

Charlie Russell is the founder of CCRSoftware. He's 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 a one-floppy disk drive system, loading the program from one floppy and then replacing that with the other floppy to hold the data. 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. He also is a Xero Certified Partner. Visit his CCRSoftware web site for information about his QuickBooks add-on products. Charlie can be reached at charlie.russell@sleeter.com He is also the author of the California Wildflower Hikes blog Connect with Charlie at Google

Comments (11)

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  1. Doug Sleeter says:

    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….

  2. 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.

  3. 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.

  4. Mickey Reynolds says:

    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!

  5. 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!

    thanks.

    • 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.

  6. Cynthia Stull says:

    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.

  7. Tom Andrews says:

    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.

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