I had a call from a client yesterday with the following question:
1. We purchased 10 units of item 100 for $100 (average cost of $10 each) from supplier A. We ended up returning these goods to the supplier as they were faulty. In the meantime, we purchased 10 of these items from supplier B for $80 (average cost of $8 each). We have sold the 10 items to a customer and now need to enter a credit from supplier A. When we try to do this we get the message “the purchase of Item 100 would value your inventory at less than 0.00”.
2. What is happening here is that MYOB values inventory at average cost. This means after the purchase from supplier A the item is valued at an average cost of $10. When 10 more items are purchased the average cost falls from $10 to $9 (this is 20 items, total cost of $180 – 180/20 = $9)
3. When the goods were sold, MYOB reduced the value of the items by the average cost of $9 each, therefore the remaining value of the 10 items in stock was $90.
4. When the client tried to enter a credit note from supplier A for $100, they were not able to as this would result in a cost less than zero for the inventory item.
Here is how the problem can be fixed:
You will have to enter the credit from the supplier as a negative enter purchase using the service layout. It will not be possible to use an item layout to generate a credit note to the correct value needed. When you enter this credit note, code to an account such as Inventory adjustment – this is normally a code set up in the 5-xxxx (cost of sales area)
Then, go to the inventory command centre, and go to adjust inventory. Enter the item code 100, put in a quantity of -10 and a cost per item of $9. Code the inventory adjustment to the same code used above (i.e. 5-xxxx inventory adjustment)
The result? Inventory will be reset to zero quantity and value. The supplier credit note can now be netted with the original supplier invoice by using the returns and debits tab of the purchases register.
Inventory can be very complicated in MYOB and you may need a Certified Consultant to explain how the system works. Please do give us a call on 04 266 CLOUD to book an appointment with our inventory experts.