Negative inventory is a situation where the quantity on hand for a certain inventory item falls below zero. QuickBooks allows this. You can create an invoice and sell items, even though those items are not in QuickBooks in sufficient quantity to make the sale.
This can be a bigger problem than most QuickBooks users realize. QuickBooks maintains the cost of each inventory item based on the average of all purchases.
What will the average cost be when more are sold than have been purchased? When the quantity is brought back above zero, QuickBooks makes entries trying to correct the cost of those already sold. Items for which it had no average cost at the time.
Further, Intuit has stated that selling into a negative quantity can cause data corruption. Yikes.
New with QuickBooks Enterprise 15 is a setting that will prevent people in your organization from selling into a negative inventory situation.
The settings to activate QuickBooks warnings for insufficient inventory were there before. Now, it is possible to use a setting that will not only warn, but prevent selling in negative numbers.
If we make this selection, what happens when we try to create an invoice for more of an item than we actually have on hand?
Above is a portion of an invoice that attempted to sell sixty of an item, when only forty-eight was on hand. You can see the popup window that resulted.
In the window, Negative On Hand Detected, the pertinent information is listed for the user. You tried to sell 60. There are 48 on hand. You’re trying to sell 12 more than allowed.
The caption under the title of the window spells it out plainly. “This transaction could not be saved because…”
Unfortunately, this is only available in Enterprise, not in QuickBooks Pro or Premier. It would be a very useful addition to those versions as well.