The value of your inventory may be lower than the actual for a few reasons.
One cause may be if the number of items per selling unit is incorrectly set-up. Open the item information screen and check the Number of Items Per Selling Unit values. If for example 2 is entered as the Number of Items Per Selling Unit, then, entering 1 in the Ship field of an item invoice, will remove two items from inventory.
Another reason your inventory may be lower than the actual is because AccountRight values inventory using the average costing method. The formula for calculating an item's average cost is:
- Average Cost=Total Value of the item, divided by the Total Quantity of the items.
For example, a purchase of 10 items for $10.00 (tax exclusive) will result in an average cost of $10.00 per item. If the following day another 10 items were purchased for $12.00 (tax exclusive), then:
- The total quantity of the items on hand=20 items.
- The total value of the items=$220.00.
- The average cost of the items=$11.00 ($220.00/20)
If after the second purchase, 10 items were sold, the 10 remaining items would retain their average cost of $11.00 ($110.00 Total Value). If the remaining 10 items were to be returned to the supplier at a price of $12.00 each ($120.00 Total Value), then the debit purchase note will result in a:
- Zero quantity and
- A less than zero dollar value
Because of the less than zero value, the negative inventory alert will be displayed. To correct this, an Inventory Adjustment will first be needed to increase the Total Value of the items. The inventory adjustment will show zero quantity, a zero unit cost and a positive $10.00 in the amount column.