Incorrect quantities shipped how to handle cost properly

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Posted on by Richard Wheeler

75,848 Moderator

How do most people handle a situation like this?

On a purchase order you order 100 WIDGETS at $1.00 a piece. Vendor ships you 105 and only bills you for 100 and will never bill you for the extra 5. Now what you should have in inventory is 100 at $1.00 cost plus 5 at zero cost but some clients insist that they have 105 in stock at $1.00 cost. Given the valuation method eventually those 5 get sold and now your COGS amount will be thrown off not to mention you never want the last originating cost to be zero because that is bogus. What is best practice in situations like this?

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Richard Wheeler 75,848 Moderator on at

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RE: Incorrect quantities shipped how to handle cost properly

We just held a training session on this revised technique and it got enthusiastic thumbs up. We did it both ways; PO->Ship/Invoice Receipt and PO->Ship Receipt->Invoice Match. This idea is brilliant in scope and simplicity. Thank you.
Richard Wheeler 75,848 Moderator on at

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RE: Incorrect quantities shipped how to handle cost properly

What a great idea. I will be trying this first thing Monday morning. This maybe the solution for which we have searched all these years.
Tim Wappat 5,703 on at

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RE: Incorrect quantities shipped how to handle cost properly

Mahmoud

Neat!

Tim.
Mahmoud Saadi 32,738 on at

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RE: Incorrect quantities shipped how to handle cost properly

Absolutely right Leslie, lets see how it goes with Richard and whether it is application in his case.
L Vail 65,271 on at

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RE: Incorrect quantities shipped how to handle cost properly

Mahmoud,

I like it! Good show in my mind. You can even keep track of the dollar amounts associated with these mishaps.

Kind regards,

Leslie
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Mahmoud Saadi 32,738 on at

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RE: Incorrect quantities shipped how to handle cost properly

Hello Richard

How about using the Trade Discount on the receiving transaction ? Here is the scenario I am presenting which is identical to your case.

Item: Item M

Vendor: Vendor M

You will receive 105 items with a $1 unit cost, include the $5 in the trade discount field as shown below





Posting the receiving above will ensure correct and precise inventory cost layers (105 unit) with a dollar unit cost for each. Meanwhile, the vendor liability is $100.

Here is the Journal entry generated after posting the receiving:



Vendor Balance is included below:



Inventory HITB report:



Your feedback is highly appreciated,
MattPaulen 6,912 on at

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RE: Incorrect quantities shipped how to handle cost properly

Another option you could potentially do is receive the 100 as normal and on the same receipt, receive the additional 5 without a PO for the 0.00. Then when the invoice comes in you invoice the 100 as normal. This would close out the PO. The last originating cost for that vendor will stay at the $1.

Since you are technically not paying for those widgets, I'm not sure if a cost should be specified. I'm not sure how often this would be happening but those few dollars here and there could potentially add up to a significant amount.
Tim Wappat 5,703 on at

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RE: Incorrect quantities shipped how to handle cost properly

I would receive the the full 105 at the $1 cost, to order more would cost us $1 and don't want to upset costs with last originating costs of zero. In theory the supplier could at some point in the future invoice for those extra five so the purchase remains open unmatched carried on the Goods Received Not Invoiced (GRNI) report until a arbitrary number of years later. At that point we clear down those purchase orders as it is safe to assume that liability has expired, being careful to not revalue historical inventory.
I've not done the final step myself so don't know how this trick is performed.
Ken Roy 490 on at

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RE: Incorrect quantities shipped how to handle cost properly

Hi Richard,

We use standard costing so I'm not sure if that makes a difference.

I just ran this through our test system since this is one way we used to handle the situation:

We would receive the 105 WIDGETS at the standard cost of $105. We would get the invoice for $100 and match that using 105 WIDGETS which gives us a warning about the received Item Cost not matching the Matched Item Cost. The difference goes to the GL account PURCHASE PRICE VARIANCE. The vendor gets their $100 which is on the invoice.

Receive the WIDGETS.

$105 Debits INVENTORY on the reciept.

$105 Credits UNINVOICED A/P on the receipt.

Match the invoice to the receiver.

$105 Debits UNINVOICED A/P on the enter/match invoice receipt.

$100 Credits ACCOUNTS PAYABLE

$5 Credits PURCHASE PRICE VARIANCE

A few years ago, we change our process to receive the 105 and pay the $105 to the vendor even though the bill was $100. I checked with A/P and to this day, every check was accepted at the extra amount.