Incorrect COGS when returning multiple buying unit items

This issue only happens when:

1. You're using AccountRight 2022.4 or earlier.

2. You buy and sell items with a multiple items per unit of measure:
   

3. You purchase the item. For example, suppose you purchase the box of fasteners for $10. This results in the average item cost to $0.10 ($10/100 units in each box):
   

4. You sell the item.

5. The customer wishes to return some of the fasteners, so you enter a partial customer sales return (as a negative sale) — for example, a customer returns a quarter of the fasteners above (not the whole box).
   

How the customer return affects item average cost and COGS

When you enter a customer return for an item that has a number of buying units greater than 1, the average cost is calculated as:

Number of units being returned x the number of buying units x the last purchased price (if the item was bought via a supplier bill, the last purchased price is also GST inclusive in Australia and assuming that the current average cost of the item is 0).

In our example, we returned 0.25 (a quarter of the box as some fasteners were not up to standard) so the calculations is: 0.25 x 100 units per box = 25 x 11 (gst incl price) = $275 — this is the COGS calculation when the return gets recorded:

Once the transaction gets recorded, the Quantity On Hand is overstated by a factor of 100 and the Average Cost of the item now is: $275/ 25 boxes x 100 (units per box) = $1100:

You'll also notice when running reports:

• incorrect COGS values in the Profit & Loss
• overstated inventory value in the Balance Sheet and Trial Balance

• incorrect reporting on inventory margins, for example in the Analyse Sales (Item) report

Your income tax calculations may also be affected — COGS will be high so you may be under reporting income tax.

What you need to do

Because this was a longstanding issue in AccountRight, you may have used a workaround to correctly calculate the average cost and COGS of multiple buying unit items for when you need to return items. For example, you may have:

• entered a standard cost when creating an item
  
• added items to inventory via inventory adjustments (rather than via purchases)
  

As there is no last purchase price, this workaround would have calculated COGS correctly when items were returned. However, now that the issue has been fixed, using this workaround would end up overstating COGS again. So, after updating to the latest version of AccountRight, you should take a backup of your company file (as a precaution), then update your items to zero out the standard cost. You can then revert to using the purchases features to add your items to inventory.