If you still get a negative inventory alert, it could be because AccountRight uses the average cost to value inventoried items, so if purchases and sales of inventoried items are not entered in the order they actually occur, the average cost of the items will be affected.
For example, on the following dates these transactions occured:
- 1 July - 10 items purchased for $10.00 each, so the average cost of the items is $10.00.
- 2 July - 3 items sold. The average cost of the items remains unchanged at $10.00. This can be calculated by dividing the total value of the items by the quantity of items on hand; $70.00 / 7 items=$10.00.
- 3 July - 10 items purchased for $12.00 each. There are now 17 items on hand. The total value of the items is $70.00 + $120.00=$190.00. The average cost of these items is now $190.00 / 17 items=$11.18.
If the two purchases were entered before the sale, then the resultant average cost of the Widgets would be as follows:
- Enter both purchases - Average cost of items=total value ($220.00) divided by the quantity (20 items)=$11.00.
- Enter the sale - The average cost of the items will be unchanged at $11.00. Total value=$187.00 divided by quantity 17 items=$11.00.
From this example, you can see that the average cost of an item is affected by the order in which sales and purchases are recorded. In some cases, this can result in a negative inventory alert when returning items.