When processing returns we enter the amount owed to us by our vendor on a negative receipt (i.e. 1 - item ABC @ $50.00). Later the credit arrives from the vendor at times it may be a different amount (i.e. 1 - item ABC @ $30.00). This amount is all we can recover of the cost so when entering the credit we call up the RC# and enter 30.00 in the Adj cost field and post it as a negative invoice to Payables. I'm confused as to what happens to the difference?

Does it:

A) Go back on to the inventory item as a cost?
B) Go to our GL rounding error account as it's set up in POA profile?
C) Go to our Account Payable Clearing account as it's set up in POA profile?
D) Go somewhere else?

Please advise. Thanks.

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?

Hello Susan,

Yes, you are correct. The adjustments are passed through to Inventory. Purchase Orders for Adagio will not automatically write off the residual cost.

If you know that the item no longer has stock on hand when you are processing the adjustment, try adding a Misc charge line instead of adjusting the item cost.