Dealing with Vendor Price Changes


In ESC we make short work of tracking inventory and purchases through our purchase order module. You can even easily send bills for the items you have purchased in ESC to your accounting software with the click of a button. However, we cannot account for every situation that arises in real life. Let's say, for instance, you just ordered a Square D 60-Amp 2 Pole Breaker Box from one of your vendors for a job you are doing. The last time you ordered this part, it cost $25.84, so you may assume that this will be the present price as well. Now, let's imagine that the part comes in before the vendor's bill arrives. Naturally, you would still receive this part and perhaps send the bill for this part over to your accounting software so that you can appropriately track your costs. When the vendor's bill reaches you the part costs $26.00.

Two issues arise from this situation. First, your vendor bill is off by $0.16, and second, you have a cost of $25.84 recorded in ESC for the part. Meaning that when you sell this part on an invoice, ESC would send costs to your accounting software reflecting this price. What is a dashing computer technician in his early thirties to do?

Simply adjusting the cost of the item on the vendor bill in your accounting software is not a good solution. Doing this will lead to a discrepancy between the cost of the part in your accounting software and the cost in ESC. In this example doing this would result in an extra $0.16 remaining in your inventory account even after the part was sold. This will throw off your overall profitability.

Likewise, fixing the cost of this part in ESC isn't an efficient solution. First you'd have to adjust the part out of ESC, receive it again, post the new bill to your accounting software and delete the old one. This process may not even be possible if the part was sold before the vendor's bill arrived.

I therefore submit to you that creating an "Over/Under" transaction on the vendor bill in your accounting software is the best way to handle this. Creating an Over/Under transaction requires a little setup, but is very easy to do. All you need is to create a non-inventory item in your accounting software which you will add to the vendor's bill when these situations arise.

To do this in QuickBooks, go to your Item list and create a new Non-Inventory item called Over/Under by clicking the Item button and clicking New Item. This Over/Under item should generally point to a cost of goods sold account. When something like the above occurs, simply open the vendor bill in your accounting software and put the Over/Under item onto it adjusting the total of your vendor bill. In QuickBooks, this means going to the Items tab on the vendor bill in question and adding the item that we created above (note that these steps will be nearly identical for PeachTree users). Since the overage will post directly to your Cost of Goods Sold, you will no longer need to worry about ESC sending an inaccurate cost to your accounting software.

Written by Justin Egan
Featured in April 2010 Newsletter

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