How to Fix and Prevent Negative Inventory in QuickBooks Desktop

Before you start

• Back up the company file first, and don't overwrite your earlier backups. Some fixes change dates on old transactions.
• Talk to your accountant before you change dates, accounts or items on past bills and invoices. Intuit asks you to confirm each change is legitimate.
• Know what you're fixing. Negative inventory happens when a sale is recorded before the purchase that brought the stock in.
• Plan to fix every occurrence. Intuit says adjusting today's quantity back above zero is not enough.

What negative inventory does to value and cost

An invoice for an inventory item records two entries. The income entry debits Accounts Receivable and credits Sales. The inventory entry credits Inventory Asset and debits cost of goods sold. When the stock isn't in QuickBooks yet, QuickBooks has to assume a cost for that second entry.

• If the item has stock at an average cost, QuickBooks uses that average for the missing units.
• If not, it uses the Cost on the item. With no Cost on the item either, it uses $0.
• When the purchase comes in at a different cost, the bill carries a correction to Inventory Asset and cost of goods sold. That's why bills show up on the Profit and Loss and on vendor reports.
• Assemblies sold before they're built move the correction onto the build, if the build costs differ from the average. A build can't take a customer, job or class, so job costing and class reports miss it.
• Intuit notes that negative inventory can also put a cash basis Balance Sheet out of balance.

The inventory entry doesn't show on the invoice form. Open the saved invoice and press Ctrl+Y to see its Transaction Journal, which shows both entries. We explain each posting in What is the Inventory Asset account in QuickBooks Desktop.

Step 1: Find every item that went negative

1. 1Go to Reports > Inventory > Inventory Valuation Detail.
2. 2Set Dates to All. Intuit calls this the only report that shows the full extent of negative inventory.
3. 3Scroll through each item and look for negative numbers in the On Hand column.
4. 4Write down each item and the first date its quantity dropped below zero.

• In Enterprise 15.0 and later, Reports > Inventory > Negative Item Listing gives a quick list. It shows only items that are negative now, not ones that went negative and recovered.
• In QuickBooks Accountant and Enterprise, Client Data Review's Troubleshoot Inventory tool can list items that were negative at any time in a date range. Double-click a quantity to open that item's Inventory Valuation Detail.

Step 2: Fix items whose first transaction is a sale

A new item with no opening quantity and value has no average cost. If its first transaction is an invoice, the sale is costed at the item's Cost or at $0. The earliest transaction should be a bill, check, credit card charge or Adjust Quantity/Value on Hand instead.

1. 1Go to Reports > Inventory > Inventory Valuation Summary.
2. 2Double-click an item that shows the wrong value. QuickBooks opens its Inventory Valuation Detail, with transactions in date order.
3. 3Double-click the first bill on the list to open it.
4. 4If it's legitimate, change the bill date to a day before the first invoice on the report.
5. 5Select Save & Close, then repeat for each item.

Step 3: Move purchases onto the Items tab

Sometimes the purchase is in QuickBooks, but entered with an account instead of the inventory item. The item then still looks oversold.

1. 1Find the bills for the stock you sold.
2. 2Open each bill and move the line from the Expenses tab to the Items tab, using the inventory item.
3. 3Save the bill, then rerun Inventory Valuation Detail for that item.

Intuit warns that this can change your inventory expenses, so agree on it with your accountant first.

Step 4: Put purchases before sales

1. 1Go to Reports > Inventory > Inventory Valuation Detail and set Dates to All.
2. 2Scroll to an item with a negative number in the On Hand column.
3. 3Where you can do it legitimately, change the dates so each bill comes before the invoices it supplied.
4. 4Repeat for every item with a negative On Hand.
5. 5Run the report again and confirm no item drops below zero on any date.

If negative inventory is widespread and hard to repair, Intuit says starting a new company file may be the better option. Make that call with your accountant. If the Balance Sheet and the inventory reports still disagree afterwards, see How to fix an inventory valuation mismatch.

Step 5: Turn on the warning, or block negatives in Enterprise

1. 1Go to Edit > Preferences.
2. 2Select Items & Inventory, then the Company Preferences tab.
3. 3Make sure Inventory and purchase orders are active is selected.
4. 4Select Warn if not enough inventory to sell, then choose the type of warning you want.
5. 5In QuickBooks Desktop Enterprise, you can select Don't allow negative inventory quantities.
6. 6Select OK.

These settings come from Intuit's setup steps for tracking manufactured products, which cover Premier, Enterprise and Accountant.

Habits that keep stock above zero

• Don't invoice stock until its purchase is entered in QuickBooks.
• Enter an opening quantity and value on each new item. With nothing on hand, enter the purchase before the first sale.
• When a customer orders stock you don't have, enter a sales order. Convert it to an invoice once the purchase is in QuickBooks.
• Or enter the invoice and choose Edit > Mark Invoice As Pending. After the purchase is entered, choose Edit > Mark Invoice As Final and set the invoice date to the ship date.
• Avoid selling assemblies you haven't built. If a sale happens first, enter the build before the sale.

For opening stock, see How to add inventory items in QuickBooks Desktop. For builds, see How to set up a bill of materials and build assemblies.

Where QuickBooks Desktop leaves the work to you

• Someone has to read Inventory Valuation Detail item by item to find each date stock went negative.
• Every date or account change on an old transaction needs your accountant's sign-off.
• A warning only helps if the person entering the sale acts on it.
• Orders for stock you don't have keep arriving. Each one has to go in as a sales order or pending invoice, or the problem comes back.
• Cost corrections land on bills and builds. Builds can't carry a customer, job or class, so job costing and class reports miss those corrections.

How Logistify helps

Logistify doesn't count stock, look up quantities or fix negative balances. The Sales Order Service enters customer orders that arrive by email, PDF, WhatsApp, SMS, voicemail or paper into QuickBooks Desktop as sales orders. A person reviews the exceptions. Your team still decides when each sales order becomes an invoice.