I think I figured this out. I believe that A) It goes back to the inventory item as a cost. The result is that the average cost of any remaining stock on the particular item is adjusted accordingly. This makes sense except when there is no stock on the item, in which case it leaves a residual cost on a zero quantity item. I believe this explains why we have several residual costs both positive and negative on zero quantity items. I'm assuming the same scenario works in reverse when we receive QTY 1 of an item at $75.00 and sell it. Later we get the invoice for $80.00 and post it to Payables. $5.00 is added to the cost of a zero quantity item. Am I correct? At our fiscal year end I adjust all the residuals to a write off account that is listed in the Cost of Goods Sold section of the Income Statement. Is there a better way to control this so we're not building up residuals all year? Is there a way to tell Adagio to use the write off account immediately when there is zero quantity on this item?