Handling Negative Stock and Stock Adjustments
Overview
This article will explain the causes of negative stock, how to handle it in iVendNext, and best practices for managing stock adjustments.
1. The Inventory Tab of the Item Master screen.
2. The Stock Validations Tab of the Stock Settings screen.
What is Negative Stock?
Negative stock occurs when the quantity of an item in the system falls below zero. This typically happens when:
Items are sold before they are received: For example, a customer order is fulfilled before the supplier delivers the goods.
Backdated entries are made: A purchase receipt is entered with a date earlier than a delivery note.
Manual adjustments are made: Incorrect stock entries or adjustments lead to negative quantities.
While negative stock can help businesses fulfill customer orders without delays, it can also cause discrepancies in stock valuation and financial reporting if not addressed promptly.
How Negative Stock Affects Stock Valuation
When negative stock occurs, the system uses the valuation rate from the most recent transaction to calculate the stock value. This can lead to discrepancies if the valuation rate changes between transactions. For example:
Scenario: An item is sold with a valuation rate of $100, but the purchase receipt is entered later with a valuation rate of $150.
Result: The system will use the $100 valuation rate for the sale, leading to a discrepancy in the stock value.
To address this, iVendNext allows businesses to make stock adjustments to correct the stock balance and valuation.
Handling Negative Stock in iVendNext
1. Enabling Negative Stock
To allow negative stock in iVendNext:
Go to Home > Stock > Stock Settings.
Enable the Allow Negative Stock option.
2. Creating a Delivery Note with Negative Stock
If you need to create a delivery note without sufficient stock:
Go to Home > Stock > Delivery Note.
Create a new delivery note and add the items to be sold.
If the stock is insufficient, the system will allow you to proceed (if negative stock is enabled).
Enter a valuation rate for the items (this will be used for stock valuation).
3. Making a Purchase Receipt to Adjust Negative Stock
To adjust negative stock, create a purchase receipt:
Go to Home > Stock > Purchase Receipt.
Create a new purchase receipt and add the items with negative stock.
Enter the purchase rate (this should match the actual cost of the items).
The system will adjust the stock balance and valuation based on the purchase rate.
Stock Adjustments in iVendNext
Stock adjustments are used to correct discrepancies between physical and book stock. In iVendNext, stock adjustments can be made using the Stock Reconciliation feature.
1. Creating a Stock Adjustment
Go to Home > Stock > Tools > Stock Reconciliation.
Click on New to create a new Stock Reconciliation entry.
Select the Purpose as Stock Reconciliation.
Enter the Posting Date and Time.
Select the Item Code and Warehouse.
Adjust the Quantity to match the physical stock count.
The Difference Account will be set as Stock Adjustment by default.
Click Save and Submit.
2. Handling Valuation Rate Discrepancies
If there is a discrepancy in the valuation rate:
The system will automatically adjust the stock value based on the new valuation rate.
The difference between the old and new valuation rates will be posted to the Stock Adjustment account.
Best Practices for Handling Negative Stock and Stock Adjustments
Avoid Negative Stock When Possible: While negative stock can be useful, it’s best to avoid it by ensuring that stock is received before it is sold.
Regular Reconciliation: Perform regular stock reconciliation to catch and correct discrepancies early.
Monitor Stock Levels: Keep a close eye on stock levels and valuation rates to identify and address issues promptly.
Example Scenario: Handling Negative Stock
Scenario
An item, Men's Leo Briefcase, has no stock in the system.
A delivery note is created with a valuation rate of $100.
Later, a purchase receipt is created with a purchase rate of $150.
Steps to Resolve
The system uses the $100 valuation rate for the delivery note, resulting in negative stock.
When the purchase receipt is created, the system adjusts the stock balance but uses the $100 valuation rate to maintain consistency.
The difference of $50 is posted to the Stock Adjustment account.
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