I have a client who has approximately 1500 SKUs in inventory and use QuickBooks Online (“QBO”)
to track inventory inputs, outputs an balances-on-hand . The bad news ……my
client has over 350 SKUs with negative quantities on hand.
Somewhere along the way, my client lost control of the
QBO processes for inventory tracking and has not posted inventory adjustments
for over 18 months. As a result:
1. Net
income is misstated , most likely overstated,
2. Cost
of sales is misstated, most likely understated,
3. Gross profit and gross profit percentage is misstated , most likely overstated,
4. QBO will not permit an accounting close date to be established. As a result, accounting transactions can be recorded in the wrong reporting period without warnings with the risk that net income, asset and liability accounts are incorrectly reported for multiple reporting periods,
5. The risk of inventory loss is increased and the cost of managing inventory is higher than necessary. Bi-annual physical inventory is taken rather than a program of cycle counting throughout the year and reviewing adjustments to inventory on-hand balances in a more timely manner,
6. The value of time taken to enter data into QBO is diminished. The client still enters product purchase orders in QBO by SKU with quantities and unit cost information knowing that these transactions are being added to on-hand balances that are in many cases inaccurate. The client also enters customer invoices into QBO with a SKU, quantity and unit price with the same knowledge that this is updating on-hand quantities that are wrong.
My client recognizes all these problems
and has decided to investigate what it will take to return to implement perpetual
inventory processes to eliminate the need for full scale bi-annual physical
inventory counts and have accurate reporting of net income, inventory assets for
every accounting period.
Intuit has told me that QB Online, in current form,
is not ideally designed to manage this many SKUs well. They recommend using
an Add-on App to QBO. They did mention
that there is a huge inventory enhancement due out in the next 120 days or so,
but these Add-on-Apps are definitely worth their cost in workflow efficiency
and informational reporting, restocking advice and notice etc. We
shall see!
The original intent of their inventory management program was to reconcile
inventory counts with QBO on-hand quantities on a regular basis to track
inevitable overage and shortages.
Once we have inventory is accurately reflected in QBO, portions of
inventory will be counted each month and
the differences recorded as a Journal Entry to reconcile the actual inventory
count. The point is to spread the counting of every SKU in inventory into
smaller occasional jobs. If monthly - 120 items are counted once a month
or perhaps 35 items counted each week. The schedule of what is to be
counted should be kept close to management, so staff never know what items will
be counted and reconciled each week or month. This will help identify process
inaccuracies, overage or shortages and worse, an employee attributed issue.
Stay tuned to our upcoming blogs for step-by-step progress on our
project.
