Terry D EA Posted March 12, 2013 Report Share Posted March 12, 2013 Can an S-corp show a negative amount for year ending inventory? This is blowing my mind here. In this case, sales for the year are substantial enough to have sold every item at a profit. Some rough figures are: Gross sales 528,000 COGS (by books) 228,000 including purchases but how can I calculate the year ending inventory when it is negative? It makes no sense to me to have a negative amount of something onhand. I think someone in this company needs to give me a good explanation of what happened. I do know this much, this company has the worst of any I'v seen set of inventory controls. Huge adjustments have been made each year, I have asked for physical counts verses books and it is always messy. This gets better, this company is now out of business and to the best of my knowledge has nothing left to sell. What to do with this? Quote Link to comment Share on other sites More sharing options...
grandmabee Posted March 12, 2013 Report Share Posted March 12, 2013 they needed to take a physical inventory at year end. How you count something that is not there. Did they take out items from purchases for personal use? Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted March 12, 2013 Author Report Share Posted March 12, 2013 These are all good questions that I wish I could answer. This is a manufacturing company under one roof. So, the rules out a location miscount. A production finish verses in process error is not the problem either. Here is the main problem. This company has been using QuickBooks for years and QuickBooks does allow negative inventories without throwing up any flags. Their sales people were able to process sales for items they didn't even know if they had the right amounts in stock. I just want to zero this out but am not sure if I should. Quote Link to comment Share on other sites More sharing options...
Guest Taxed Posted March 12, 2013 Report Share Posted March 12, 2013 Terry one of my good clients has a lazy operations manager and I run into COGS problem each year. I actually have to go to the warehouse and help this id*** count stuff on the shelf to get a true picture. Software is only good if it is used properly. Each time this guy makes an adjustment it gets worse. I have a suspicion that they had junk data in quickbooks to start and they will continue to have thi issue until someone puts in place a correct procedure to count! Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted March 12, 2013 Author Report Share Posted March 12, 2013 You are so gracious to go help count inventory. I for one do not have that kind of time and if I had to do it, there would be a significant charge. As you said, they have had junk data in QuickBooks and I have complained every year. I tried to get them to adopt a new set of controls but the more I tried the worse it got. There will not be a correct procedure as this company is finished. Literally no production of any kind and no employees and it will take the next year or two to wind up business. S0, as I said earlier is there a problem adjusting up to zero which actually reflects the quantity on hand as far as I know. I have sent an e-mail inquiring of this deficiency so we will see what the response is. Quote Link to comment Share on other sites More sharing options...
Lee B Posted March 12, 2013 Report Share Posted March 12, 2013 If the company is out of business before year end and there is still inventory, then it can be counted now. If the company was out of business before year end and there is no inventory, I would have no problem adjusting it to zero. Quote Link to comment Share on other sites More sharing options...
rfassett Posted March 12, 2013 Report Share Posted March 12, 2013 It sounds like this problem has been on-going for years. If there is no year-end inventory, you might school your clients to be prepared to create one if the return should be audited because the auditor certainly will ask for it. For your current year issue, adjust to zero and move on. What else can you do? You are correct, there is no such thing as a negative inventory. Very few of my QuickBooks clients use QuickBooks correctly. For those, I insist on a backup and print the annual G/L to a pdf and pull out of that what I need to prepare the return. Of course, I document what I do so I can prove the numbers. But the balance sheet on the return has no semblance to what is in their QuickBooks. Had a new client just yesterday that just brought in her printed income statement (for a Schedule C). I sent her home to get the back up. Quote Link to comment Share on other sites More sharing options...
Guest Taxed Posted March 12, 2013 Report Share Posted March 12, 2013 I bet 50% of small mom and pop general stores have an inventory accounting problem. Why? Because each time the family or friends needs something they pull it off the shelves without marking it "withdrawn for personal use". I was at my clients store and saw first hand stuff given to family right off the shelves without any charge. I bet the counter girl forgot to mark it withdrawn for personal use in the register. I guess the smart ones adjust it enough so there is no negative inventory and goods withdrawn for personal use actually end up inflating the COGS figure and lower the net profits! That's how small business works it America and I bet IRS knows about it too. In many other countries for small business tax filing you are given a choice of providing an audited P/L and balance sheet or take a flat profit margin percentage if you choose not to keep books accurately and get it audited. So even if you have a net loss, you are paying taxes on an assumed profit margin. Just a matter of time before that comes to America from Europe! Quote Link to comment Share on other sites More sharing options...
imjulier Posted March 12, 2013 Report Share Posted March 12, 2013 Obviously a negative ending inventory is wrong. However, if it is the final year, there may be an adjustment to COGS (reduce COGS) to clear up all the previous years of inventory issues. This will result in increased income but the increased income has never been reported in previous years so it would be reported now. This is the adjustment that will take ending inventory to zero. Hope this helps. Julie Quote Link to comment Share on other sites More sharing options...
OldJack Posted March 12, 2013 Report Share Posted March 12, 2013 >> Gross sales 528,000 COGS (by books) 228,000 including purchases but how can I calculate the year ending inventory when it is negative?<< Calculating inventory requires more than 2 numbers. Where is the beginning inventory number? How do you know ending is negative? How do you know there is no inventory if no one has counted? Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 12, 2013 Report Share Posted March 12, 2013 Clearly you need to zero it out since they are now out of business. {bet their bad bookkeeping contributed to that.] Even tho bringing a negative COGS to zero means increasing Income by the difference. Essentially you are adjusting Beginning Inventory with this adjustment. Depending on the amount involved, might need to use 3115. Quote Link to comment Share on other sites More sharing options...
JohnH Posted March 12, 2013 Report Share Posted March 12, 2013 I haven't tested this in a while, but it might be that your problem arises from a simple posting error (multiplied many times, of course). Quickbooks allows an inexperienced user to post directly to "Cost of Sales". If they post purchases to this account, rather than to "Purchases", then the only way QB can compensate for the error is to drive ending inventory negative. You might want to drill down into their "Cost of Sales" account and just see if there have been check transactions posted directly to that account. That won't solve your problem, but at least it will tell you where it originates. It will also make you more comfortable in making the adjustments necessary to get inventory to zero, assuming there really isn't any remaining inventory. Quote Link to comment Share on other sites More sharing options...
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