QuickBooks Enhanced Inventory Receiving–Inventory Offset Problem

 

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.

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.

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.

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.

Tags: QuickBooks Payroll Taxes Bookkeeping Support Credit Inventory Enterprise