In today’s ‘what if’, we are going to look at the steps you should take if you have purchased inventory items and recorded the purchase using a Vendor Bill or a Credit-card Charge, and later your vendor informs you that they mistakenly charged you the incorrect cost for the items.
If the correct cost is higher than the original cost appearing on the Vendor's Bill, you now owe your vendor additional money. If the correct cost is lower than the original cost, your vendor owes you a refund or a credit toward your next purchase.
While either making a supplemental payment, or posting a refund or vendor credit may seem simple enough, there are several issues that can complicate this situation especially when 'inventory' is involved. The first complication involves changing the cost on the original vendor Bill or Credit-card Charge. Changing the cost on the Vendor Bill results in a change to the average cost QuickBooks used on all subsequent sales of the item.
Changing the original cost may not be sufficient since this does not leave you with a well documented audit trail, even though the change shows-up in the audit trail report. You may have to make additional adjustments.
In case where you have already sold some of the items, any adjustments you make need to be posted before the earliest sale date so that the invoices use the corrected average cost. Because QuickBooks uses the order entered within a transaction date, you may also need to adjust the Bill, Credit Card or Invoice dates.
- Let’s assume that the original Vendor Bill was dated on 1/2/2014.
- You sold some items on the same day.
- Dating the adjustment to 1/2/2014 will enter them after the invoices, and the invoices will still have used the incorrect average cost.
- You must change the date of the Bill and also the adjustments to 1/1/2014, unless you wish to delete the invoices, enter the adjustments and then reenter the invoices.
If you have already paid the Bill using the original billed cost you will have to change the link between the Vendor Bill and the Bill Payment Check. You must now link the new Bill Credit to the old Vendor Bill, and then you must re-link the Bill Payment Check to the new Vendor Bill.
So what about situations where the original Vendor Bill occurred in a closed accounting period? If, and only if you have not sold any of the inventory items, you can enter the adjustments in the current period if. If on the other hand you have already sold some of the items in the closed period, then you must enter the adjustments in the closed period to maintain the correct average cost. As a result of these changes which may impact your cost-of-goods sold, your income and your inventory asset valuation, you may be required to restate your financial statements for the closed period.