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Inventory - Negative Cost Tier LIFO or FIFO
If you use the LIFO or FIFO valuation method for any of your inventory items, it is possible to over distribute a cost tier so that the quantity on hand becomes a negative number.
Any time more units are sold than are currently in stock (you accept a quantity entered during Sales Order processing or Transaction Entry that is larger than the quantity on hand), a special cost tier with a reference of Overdist is created for the negative quantity amount.
The last cost for the item is used as the unit cost. This condition is usually encountered when a sale is processed before a receipt is recorded. After a receipt for additional units of the item is recorded, the Overdist tier will be deleted during Period End Processing.
Correcting Negative Tiers
You can issue or sell an item, even if there is not enough quantity on hand. An item using the LIFO or FIFO valuation method results in a negative cost tier. Print the Inventory Negative Tier Report to list tiers with negative quantities. Cost tiers with negative quantities distort the true inventory cost as new items are received at different unit costs.
To ensure that LIFO/FIFO items are correctly posted, you must adjust the negative cost tiers in one of the following ways:
Inventory Negative Tier Adjustment
On the Period End Processing menu, click Inventory Negative Tier Adjustment to automatically apply positive balance cost tiers against the negative quantity.
The difference in cost between the negative and positive tiers is posted to the general ledger Inventory and Adjustment accounts.
ransaction Entry
- On the Inventory Management Main menu, click Transaction Entry.
- At the Transaction Type field, select Adjustments to correct negative quantities for LIFO/FIFO items. Complete the fields on the Header tab.
- Adjust the negative quantity against one or more tiers with a positive balance, so the total distribution equals the positive amount applied against the negative tier.
Corrective Negative Tiers Examples
Assume that Widget-50 (a FIFO item) has the following cost tiers
| Date |
Reference |
Quanty |
Unit Cost |
| N/A |
Overdist |
-15.0 |
$ 9.50 |
| 05/05/03 |
1010 |
10.0 |
$10.00 |
| 05/31/03 |
1020 |
30.0 |
$12.0 |
Given these tiers, the following lines must be entered in Transaction Entry to adjust the negative quantity of 15.
| Line Number |
Item Number |
FIFO Reference |
Qty |
Unit Cost |
| 01 |
Widget-50 |
Overdist |
15.0 |
$ 9.50 |
| 02 |
Widget-50 |
05/05/03 1010 |
-10.0 |
$10.00 |
| 03 |
Widget-50 |
05/31/03 1020 |
-5.0 |
$12.00 |
In this example, the net difference of the adjustments ($17.50) is posted as a credit to the Inventory account and a debit to the Adjustment account.
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