Handling negative inventory balances

You can view negative inventory balances and modify the Inventory Value and Average Costs calculations.

When doing a receipt against an item or node that has a negative on-hand balance, Inventory Value and Average Cost calculations are modified as follows:

  1. Average cost is set to the loaded cost of the current transaction. The loaded cost is the unit price on the PO PLUS the Landed Cost Factors for the seller on the PO.
  2. Inventory Value is set to the value of on-hand inventory * new average cost.
  3. Sterling Order Management System Software generates a second event to accompany the standard inventory value change. This second event publishes the delta between the recalculated inventory value and the write-off amount which is calculated as:

    Old Inventory Value + Change in Inventory Value – New Final Inventory Value

For example:

A product currently has an average cost of $3.50. The on-hand quantity in the system is -20 and the inventory value is -$70. When a receipt is created for 15 units of this item with a loaded cost of new receipt as $4.00, Sterling Order Management System Software updates inventory as:

Average cost = $4.00 – loaded cost from the receipt

On hand quantity = -5

Inventory value = -$20.00

The standard inventory event publishes an increase of $60.00 to the inventory value of the item. This increase includes the loaded cost of $4.00 * 15 (the number of units received).

An additional inventory write-off event publishes the write-off amount as $10.00 calculated as (Old Inventory value + Change in inventory value due to the receipt – New final inventory value) or (-$70 + $60 – (-$20) = $10.00. In this instance, an entry to the financial application is created with a debit to an adjustment account and a credit to an inventory account. If the result were a negative amount, the entry would be credit to an adjustment account and debit to an inventory account. Sterling Order Management System Software ensures that this is represented as such to the financial application.