The points listed here in this article can be used to troubleshoot reasons why you may see your Inventory out of balance.
Points to Check:
1. Receiving non-inventory items on a PO when the Vendor’s default expense GL account is set to Inventory will create a discrepancy. Non-inventory items are not counted in the inventory module and thus not in the Stock Status reports. The count will not change however the GL inventory account will be increased.
2. Technically, the Inventory GL Accounts are not “pure” control accounts, in that one can post directly to them at any time, outside of functions that affect Inventory. For example, you can post to them directly from Accounts Payable. This is different than the AR and AP control accounts, which cannot be directly posted to (except when you “un-integrate” the system).
3. Check Integration. The Company Settings > Inventory preference “Post Inventory Adjustments to GL” must be turned ON if integration is wanted. If it is OFF, then all Receipts made through inventory adjustments will not be posted to the GL,
4. Check Variance Account. When considering the value of Inventory in the GL, do not count the Inventory Variance account, as this represents the “other half” of GL entries that adjust the Inventory GL accounts. It is customary to reallocate Inventory Variance to some other Account, such as COGS, or spoilage/breakage etc. at the end of the year. This account will normally fluctuate up and down in value.
5. Check Post and Review. Post and Review should be turned OFF. This is found in User Settings in the module preference "Modify GL Transaction". If it is ON, and users are able to edit journal entries, then entries to the Inventory GL Accounts can be changed during posting.
6. Close PO's to AP. The System Setup switch (Company Settings > General > Post to Accounts Payable) must be turned ON, otherwise proper reconciliation of Vendor Invoices to PO's is not taking place.
7. No Vendor should have an Inventory account as their default expense GL Account to ensure that no postings to Inventory GL Accounts occurs outside of Purchase Orders, Receipts, Warehouse Transfers, Sales Order, and Physical Inventory.
8. Check for post-dated or back-dated invoices. A post-dated invoice will reduce the inventory quantities on the actual day of the invoice, but the GL entry will be reflected on the post-dated date of the invoice.
9. The following steps may lead Inventory to go out of balance as well:
- Put a non-inventory part number on a Sales Order or Purchase Order.
- Add the same part number to Inventory.
- Invoice the Sales Order and/or Receive the Purchase Order.
- The inventory On Hand quantity will not change but the default Inventory Asset account will be posted to.
10. When using a non-physical part number with a non zero cost, then it is important to configure the sales department correctly so that the Physical Inventory Asset account does not get posted to.