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Suppose you have long dealt with clients who use QuickBooks Desktop for their Inventory. In that case, one thing that occurs at year-end is when the general ledger’s inventory account(s) and the inventory valuation do not match.
The tools and related reports available within QuickBooks Desktop Accountant and QuickBooks Enterprise Accountant help us quickly identify transactions that may cause the Inventory Assets on the Balance Sheet and the Inventory in stock reported on the Inventory Valuation report to be out of balance.
These features also allow us to review all Inventories to determine their Quantity on Hand and the Average Cost to help identify potential irregularities impacting inventory reporting and valuation.
As a result, we can quickly identify items with negative quantities and, just as quickly, identify inactive items that still have Quantities on Hand.
This is the first part of a two-part mini-series designed to help you better understand the tools to identify, troubleshoot and repair these problems within QuickBooks Desktop Accountant and QuickBooks Enterprise Accountant.
Many of these tools are found within Client Data Review (CDR) or can be accessed from its links. The first tool we want to examine is the CDR (Client Data Review) Inventory Troubleshooting.
First, let’s see how this tool provides inventory troubleshooting capabilities:
Client Data Review (CDR) encompasses several inventory troubleshooting tools within the Troubleshoot Inventory, including Compare Balance Sheet and Inventory Valuation.
Compare Balance Sheet and Inventory Valuation determines whether the inventory account on the Balance Sheet and the Inventory Valuation Summary match. This tool checks the various inventory account(s) and Inventory Valuation Summary and displays the results.
A green circle (like the one shown below) indicates that the inventory account on the Balance Sheet and the Inventory Valuation Summary match.
On the other hand, a yellow warning triangle (shown in the illustration below) indicates a discrepancy between the inventory account on the Balance Sheet and the Inventory Valuation Summary.
The Inventory Valuation Summary total should agree on the same date as the Balance Sheet value for Inventory. The default date for the comparison is the last day of the CDR review period. You can change the date in the As of field and click Refresh to help narrow down the date when a discrepancy occurs.
But there can be differences, therefore, I want to caution you to always check the Inventory Valuation Summary report even if this tool gives you the “green light” and says the Balance Sheet and Inventory Valuation match.
I have highlighted the Inventory Valuation Summary value in the above example of the tool because upon first look they don’t match the underlying report (shown below). The Inventory Valuation Summary shows a different value (highlighted in the red box).
Since 2019, when Inventory Valuation Reports were provided with an option of including inactive items along with their quantities and values to help balance Inventory against the inventory assets on the Balance Sheet, the amount reflected in the Compare Balance Sheet and Inventory Valuation tool has shown the amounts inclusive of the optional values.
The Show Inactive Inventory Items checkbox located in the report header, and the “Hide zero QOH” options, as can be (both shown below) will change the total inventory valuation when the related problems exist. With these items checked (in the example below), the Inventory Valuation Summary now shows the same value as in the Compare Balance Sheet and Inventory Valuation tool.
Those pesky ’20 bags of Soil’ someone made inactive were the culprit.
It took adding back the Inactive Inventory Items with quantities on hand to balance them. So, even though the Compare Balance Sheet and Inventory Valuation tool is a great starting point, you must fully understand how it works, especially if you used it before 2019 and then observed that it seems flawed after that time.
Getting back to the subject of differences between the balance sheet inventory account totals and the inventory valuation summary total, when you fully consider the mechanics of how the tool works, there still can be a multitude of other reasons for those differences, including:
- The fundamental way QuickBooks works — Because inventory-related detail reports are item-based, but summary reports, including financial statements like the Balance Sheet, are account-based, the two types of reports can easily be out of balance.
- Improper item set-up — If items have been set up improperly, they may appear in item-based inventory reports but be tracked to the wrong accounts on account-based reports like the Balance Sheet.
- Improperly Posted Transactions — Users may enter transactions that impact transactions, typically affecting an inventory account, without using an appropriate inventory item. In these cases, the two can’t help but be out of balance.
- Inactive inventory items with quantities on hand — When inventory items with quantities on hand are made inactive, a discrepancy between the inventory valuation summary report and the inventory assets reported on the Balance Sheet will occur.
As I mentioned earlier, amounts displayed in the Compare Balance Sheet and Inventory Valuation tool may differ from those in the corresponding reports. Previously, we discussed issues impacting Inventory Valuation Summary computations; now let’s discuss Balance Sheet computations appearing in the tool.
Suppose you have established more than one Inventory Asset account. In that case, the tool’s value for the Inventory Asset Account value represents the total of all accounts tied to inventory items and assembly items.
This is because there is no unique identification for inventory asset accounts other than the initial account QuickBooks’ flags as being inventory-related. Subsequent accounts have no special “flag” in the back-end of their data set-up, and users have no way of configuring such a flag.
Accordingly, the developer’s only option was to total all accounts tied to inventory items as their Inventory asset accounts for computing the total value of inventory assets to display on the tool.
Once we get past these irregularities, the Compare Balance Sheet and Inventory Valuation tool provides several helpful links to assist in troubleshooting. As of the selected date, we’ve already used the related links for the Balance Sheet and Inventory Valuation Summary reports.
You can change the date, refresh, and click the links again to see the Balance Sheet and Inventory Valuation Summary as of any new date if needed.
We have reached a good stopping point in our review of these tools. In our next QB Desktop Weekly, we will finish up our examination of Troubleshooting Inventory.
Adapted from Intuit QuickBooks Desktop Accountant and QuickBooks Enterprise Accountant Help content and related source materials. Source content materials were adapted by Insightful Accountant solely for educational purposes.
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