An explanation of various incorrect procedures we’ve seen customers do, and what the correct procedures are to keep your Inventory general ledger account and your Stock list in balance.  There are various procedures in QFloors that affect both the Stock list and the Inventory account, and also various ways to manage the many different inventory situations that may arise. The following should help you to understand and follow correct procedures in QFloors so that your inventory stays in balance.  (We use the words materials, products, and inventory to mean the same thing: Physical goods that you have purchased for resale, whether you keep those goods “in stock” all the time, or you special order the goods. The Inventory account is a specific general ledger (GL) account for accounting purposes.)

Assumptions

In order for QFloors to provide accurate information, it has to be used in the way it was designed.  Regarding inventory specifically, we have made the following assumptions about how you are using QFloors.

1. You have at some point in time reconciled your Stock list with your Inventory General Ledger (GL) balance.  (See our End of Period Procedures document.)
   

2. You are using the Materials screen to manage all of your materials.
   

3. You are assigning materials to bills and also assigning those materials to lines on sales orders.
   

4. You are managing your inventory of “supplies” or “sundries” in QFloors in one of the following methods.
   

1. Preferred method:  All supplies are ordered and received in the Materials screen and assigned to bills.  Then those materials are either A) sold to customers on normal sales orders, or B) itemized on “dummy” sales orders to yourself with a $0.00 retail price, then job costed.  If you have “use tax” laws in your state, you need to add a generic labor line to the dummy sales order so that use tax is accrued.
   

2. Alternative method:  You manage the ordering and receiving of supplies outside of QFloors and post the bills for those items to the Materials account.  (If you are in a “Use Tax” state, you should also be adding to your tax liability for the products used.)
   

How QFloors Accounts for Inventory

When a material item is created, ordered, and/or received in the Materials screen, there is no general journal entry created for it.  The increase (debit) to the Inventory account is made when you assign the material to a line on a bill.

When you change the Orig Quant and/or Cost amounts of a material, there is no general journal entry created for it.

When you change the Status of a material to Gone, or when you use the Adjustment feature on a material, QFloors makes an entry in the journal only if the material is assigned to a bill.  No bill = no journal entry.

When a sales order is changed to a Completed status by job costing, QFloors decreases (credit) the Inventory account by the total cost of all material lines on that sale.  A negative material cost on sale line will increase (debit) the balance of the account.

Procedures That Will Cause an Inventory Imbalance

Attaching material to a bill, then changing the Quant and/or Cost on that line of the bill but not allowing QFloors to change the Quant and/or Cost of the material

Why:  The Inventory account is increased when you assign a material item to a bill line.  If you change the Quant or Cost on that line and save the bill, QFloors compares those figures to the Orig. Quant. and Cost amounts on the material.  If either is different, QFloors alerts you and asks if you want it to change the amount on the material so that it matches the amount on the bill. If you don’t allow it to do that, the Inventory account will increase by the amount on the Bill, but when you eventually job cost a line of a sales order that is selling that material, the Inventory account will decrease by a different amount, or when you do a material Adjustment, or when you change the material status to Gone.

Correct Procedures:

When you assign a material to a line on a bill and change either the Quantity or the Cost on that line, when you save the bill click Yes to allow QFloors to make the corresponding changes to the Product item.  If you receive another message that that material is sold on a customer sales order and is already job costed with the wrong cost,

1. Make a note of the sale number and line number of the sale.
   

2. Un-job cost the material cost of that line of the sale.
   

3. Change the line status to Ready*.  The material cost on the line will automatically update itself at that point.
   

4. Re-job cost the sale line.
   

5. If the change in cost changes the Ship, Prod Ovhd, and/or Commission costs, and you want those costs to update themselves based on the new cost of materials, un-job cost each of those then re-load the sales order (click on that sale# in the list), then re-job cost each of them.
   

Manually changing the Orig Quant and/or Cost amounts of a material that is linked to a bill

Why:  When a Product is assigned to a Bill, the Inventory account is increased by the total amount on that line of the Bill.  Later, if you manually change either the Orig. Quant. or the Cost of the Product, the Inventory GL account isn’t adjusted.  And when you sell that Product on an Invoice line and job cost that line, the Inventory GL account will be decreased by the cost of the Product.

If you have created a journal entry in the past to reconcile your GL account balance with your Stock list, then even if a product is not assigned to a bill, changing its Orig. Quant or Cost will cause the GL balance and stock list to be out of balance.

Correct Procedures:  

If the Orig Quant and/or Cost in the Materials screen are incorrect when the material is assigned to the bill, change them on that line of the bill.  When you save the bill, click Yes when QFloors asks if it should change those figures on the material. If the bill is dated in a closed period, do one or both of the steps below.

• Quantity Adjustment – Use the Adjustment feature on the Product to decrease or increase the physical balance.
  

• Cost Adjustment – Use the Adjustment feature on the Product to decrease the entire balance at the existing cost.  Then change the Cost amount of the product to the new cost. Then do a negative Adjustment to bring back the entire balance of the product at the new cost.
  

To prevent employees from manually changing the Orig Quant and Cost amounts of Products, you should remove Stock Control access from all but one or two employees.

You should also implement good policies for separation of duties with respect to inventory.  The smaller the company the more difficult it can be to do this, but in general, those who sell inventory shouldn’t have any system access to the ordering, receiving, managing, or Billing of inventory; those who order inventory shouldn’t have access to managing it or entering bills for it; those who physically manage inventory shouldn’t have system access to selling or managing it.

Job costing a sale line where A) no material # is assigned and B) the cost on that line is not $0.00

Why:  When you job cost the material line of an Invoice, the Inventory account is decreased by the cost value on that line, even if no material # is assigned to the line.  If there happens to be a material item in the Materials screen that could have been assigned to the line but wasn’t, your Stock list will have a higher total than it should.  At some point you’ll discover that material item in the Materials screen as not existing in the warehouse anymore and you’ll either change it’s status to Gone or you’ll use the Adjustment feature bring its balance to 0.00, and at that point the Inventory account will be decreased again (if the material is assigned to a bill).

This also applies if you have created a “dummy” line on your sales order to charge your customer for something like freight or a restocking fee:  Those should always have a $0.00 cost.

Correct Procedures:  

If actual materials are being sold on a line, make sure there’s a material # assigned.  Doing Sales Confirmation daily will ensure this happens. And in the Misc setup window (click Setup > Misc), make sure the No Warning when JC Sale Line option is not checked.

Also, when job costing a “dummy” sale line where no material can be assigned (because the line represents neither materials nor labor), first make sure the cost on that line is $0.00.

Following incorrect procedures when managing a vendor claim/credit

Why:  The balances of the Inventory account and Materials account are posted to automatically when you create certain transactions.  The account that has a balance when correct procedures are followed must be credited when you create the bill for the vendor’s credit memo, otherwise a balance discrepancy is created.

Correct Procedures:  

1. Create a Sale that itemizes the materials and labor needed to fix/repair the situation with the customer.
   

1. The customer is the customer, not the vendor/mill.
   

2. No retail prices on the lines.
   

3. Process it like any other sale (Sales Confirmation, order and receive materials, print work order, do job costing).
   

4. After the actual credit has been issued, you might “subtract” the credit memo total from the Ship cost on the sales order.
   

2. Create a Bill that represents the expected credit.  Do this at the same time you create the sales order above.
   

1. Invoice# = PENDING
   

2. Custom# = CLAIM
   

3. Select the Materials account (not Inventory), and add lines for Labor, Freight, etc. as needed.
   

4. Negative amounts on each line.
   

5. When you receive the vendor’s actual credit memo, change the Invoice# on the bill to the actual credit memo invoice number, then edit any amounts on the lines, and also edit the scheduled payment amounts as needed.
   

6. You should be in the habit of closing your general journal monthly (see our End of Period Procedures document), but before you close the journal for the previous month, change the date on any bills where the Invoice# is still “PENDING” so that they are dated in the current month.
   

3. Tracking Claims
   

1. Search the Current Bills or Completed Bills list for the Custom# of claim.
   

2. If the Invoice# is PENDING, the claim is still in process, but if it has the vendor’s credit memo invoice number, then you have received the credit memo.  If the bill is in the Current Bills list, you haven’t taken the credit, but if it’s in the Completed list, you have taken the credit.
   

Not doing the End of Period Procedures for Inventory, or doing its Inventory Reconciliation process incorrectly

Why:  Doing the End of Period Procedures at least annually (some do it monthly or quarterly) reconciles certain general ledger accounts, including Inventory, to make sure the account balance matches the transactions that create that balance.  If anyone has done an incorrect procedure in any of the above situations, reconciling the inventory account will correct its balance.

Part of the procedures are to clean up the No Bill list.  If you don’t clean up that list when doing the reconciliation procedures, then you clean it up later, you will cause your inventory to be out of balance again.

Correct Procedures:

Do the End of Period Procedures document found in the Accounting section of the Application Notes page of www.qfloors.com.