# How to correct items entered or received into stock at an incorrect price

KB449

### Overview

When a stock item has been received at an incorrect price, there will be a number of effects that will need to be mitigated. This will be the case regardless of the quantity, as the Cost Each is the value that will cause problems.

If this is caught immediately, and the item has not yet been transacted/added to a Work order/used in any way, then the Receive can be edited and this should prevent any flow-on effects. However, if the item is transacted, or used in any way, there will be a number of effects that will require correction.

### Resulting effects of receiving an item at an incorrect price

##### Your stock on hand value will be too high/low

- The production cost of Work orders that contain the item will be affected.
- Any assemblies containing sub-assemblies with an incorrect production cost will also be affected.

##### Your Cost of Goods Sold (COGS) account will have an incorrect balance

- Whenever you dispatch the item, or a kit containing the item, then the incorrect price of the inventory will be brought into your COGS account.
  - For example, if you received an item at $20 when it should have been $10, when you sell it for $30, the balances will show that your markup margin is now only $10, and the COGS will be increased by $20, rather than $10.

##### Your Work in Progress values will be too high/low

- These values represent the stock on hand that is in production, so any kit containing the item will affect your Work in Progress values.

##### You will have a residual value in Inventory

- When the invoice for the goods is entered, which contains the correct price, the stock on hand value will be adjusted, and the difference in the two values will now be sitting against the stock on hand, instead of against other inventory or COGS.
  - For example, if you received an item incorrectly at $20, and then processed an invoice for the item at its correct price of $10, your stock on hand account will show -$10.

### So what does that mean for my accounts?

Unless your Supplier actually charges you the incorrect price, all of the values will balance each other out, but you may find that values are sitting on the incorrect side of the ledger. In general, your income will not be affected unless you price your items as Cost + %. However, it is not ideal to have incorrect prices and values in your COGS account.

### How to fix: Best practice

The best way to fix it when goods have been entered at the wrong price, as long as there are not too many transactions, is to remove all transactions and correct the Receive. This may include:

1. Editing dispatches and making the quantity of the item 0, and
2. Un-finishing then un-starting Work orders.

You will then be able to change the price on the Receive to reflect the correct price, and then re-do the transactions you reversed, now at the correct price.

This will only be possible if all transactions are in the current financial year – if any transactions with the incorrect price occurred in a prior financial year, this solution will not be possible.

If all transactions are in the current financial year, theoretically everything can be undone and rectified.

### How to fix: Making adjustments

If you have too many transactions to correct, or if any of these transactions occurred in a prior financial year, then you will have to make multiple manual adjustments to fix your values and balances.

1. Correct work in progress.
   - Un-start Work orders containing the item, OR
   - Finish the Work orders, and then revalue the stock.
   - Note: This step should be completed before Step 2, as it will affect the stock values.
2. Correct stock on hand.
   - Perform a Stock revaluation of the raw materials.
   - Perform a Stock revaluation of any assembly in stock that contains the item.
   - Allocate the Stock adjustments to a special purpose COGS clearing account for this purpose.
3. Correct COGS
   - Run a report on Dispatch transactions that have the incorrect cost and calculate the difference in COGS accounts that have been affected.
   - Allocate the difference to the same G/L account as Step 2.

The result of these three steps will be that the special purpose COGS account will end up at around $0. If it doesn’t, then something has been missed, such as an un-corrected work in progress Work order.

### Flow-on effects

- Profit reporting on a per-item basis will not be correct.
  - Once a dispatch has been performed at the incorrect cost, that cost is locked in unless you edit the dispatch, remove the item, revalue the stock, and put it back again.
  - This will not be possible if the dispatch occurred in a prior financial year.

### How to prevent these effects before too much damage is caused

Of course, it is important to assess your Receive process and review why the item was received at an incorrect price in the first place. However, mistakes happen, so to prevent too much damage IF this does occur, it is recommended to run SA1247 (Extraordinary cost change analysis) every week, or even every day. This report will allow you to catch any large changes in costs and correct them before too many transactions have occurred.

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Last edit 28/02/24