Determining Your Negative Inventory Strategy

PeopleSoft's negative inventory feature enables you to move or ship stock that sends the item's quantity balance into negative numbers within the PeopleSoft system. Negative inventory is an optional feature that is activated at the PeopleSoft Inventory business unit level.

A negative inventory depletion transaction is a depletion transaction that drives the item quantity to a negative balance in the system even though physically the quantities did exist. Causes of negative inventory in the system could include:

  • The receipt transaction is entered into the system after the shipment transaction.

  • A bin-to-bin transfer is entered into the system after the consumption transaction.

  • An error in entering transaction quantities.

Once PeopleSoft Inventory has shipped a negative inventory depletion transaction, you have options in PeopleSoft Cost Management on how to cost the transaction. Since there is no corresponding receipt or receipt cost to apply to the negative inventory depletion transaction, you can:

  • Place the transaction on hold. You have the option to split the depletion transaction, cost up to the currently available quantity in the unit, then hold the negative inventory part of the transaction. Each time the Transaction Costing process is run, any negative inventory depletion transactions on hold are examined to determine if there is sufficient quantity available to satisfy the depletion. Once sufficient quantity is entered into the business unit through putaway and adjustment transactions, then the depletion transactions are costed.

  • Cost the transaction based on the most current cost. If a portion of the stock is currently available in the unit, then the depletion transaction is split, one part is costed up to the currently available stock and the negative inventory part is costed based on the most current cost. Later, when sufficient quantity is entered into the business unit through putaway and adjustment transactions, then the Negative Inventory Resolver process within the Transaction Costing process can use the new receipt cost to adjust the negative inventory depletion records.

Users are cautioned that negative inventory is an invalid state and these conditions should be investigated and reconciled on a timely basis. The negative inventory options are provided as a convenience to users where, in the user's judgment, the principle of materiality is not violated by the negative inventory state.

Setting Up Negative Inventory

The negative inventory feature is activated by selecting the Allow Negative Inventory check box on the Inventory Definition-Business Unit Options page. The Insufficient Qty Cost Option on the Cost Profiles page determines how the Transaction Costing process applies costing to negative inventory transactions.

Accounting for Transactions on Hold Due to Negative Inventory

If you allow negative inventory balances in the PeopleSoft Inventory business unit and you choose not to cost a negative inventory depletion transaction, then you will want to determine the approach to accounting for these held transactions at period end. These depletion transactions are not reflected in the financial records since they have not been processed by the Transaction Costing process, therefore, they are not passed downstream to the Accounting Line Creation process or the Journal Generator process. The options are:

  • Use the Transaction Costing process to cost the depletion transactions once sufficient receipts exists. The Transaction Costing process will post the depletion transaction costs in the original period of the shipment, as long as that period is still open per the open period page for inventory and GL and per the ledger calendar. If the negative inventory balances are relatively small and do not impact the financial balances, then use the Transaction Costing process to update a prior period depletion transaction.

  • Enter manual journal entries at period end to accrue negative inventory depletion transactions. Be sure to use the GL open period feature and set the open period lag days to zero so the cutoff day is the last day of the period. This enables you to enter manual journal entries in the closing period without concern that the Transaction Costing process will later post depletion transaction costs into this period, therefore doubling the accrual. By setting up the period end control in GL to zero lag days for inventory, the Transaction Costing process is prevented from posting delayed depletion transaction into the prior period and instead posts them into the current period.

Page Name

Definition Name

Usage

Open Period Update Page

OPEN_PERIOD_SINGLE

Determine the number of open period lag days that enable any PeopleSoft Inventory or Cost Management process, such as the Transaction Costing process, to post a depleted depletion into a closing period. The lag days are defined by PeopleSoft Inventory business unit.

Inventory Definition - Business Unit Definition Page

BUS_UNIT_INV5

Select the Allow Negative Inventory check box to record depletion transactions in PeopleSoft Inventory business unit that will drive the item's balance negative. If this option is not selected, the system rejects any inventory transaction that results in a negative inventory balance for the item.

Cost Profiles Page

CM_PROFILE_DEFN

Define the Insufficient Qty Cost Option on the Cost Profiles page to determine how the Transaction Costing process applies costing to negative inventory depletion transactions.

Pending Transactions Page

CM_NPOSTED

View the number of depletion transactions on hold due to negative inventory. Click the Details links to view current transaction information generated by a predefined query.

Insufficient Qty Tool Page

RUN_CM_NEG_INV

Run this PeopleSoft application engine program, (CM_NEG_INV) to generate a query of the accounting line entries that would be generated for those transactions held back in CM_DEPLETIONS due to insufficient quantities.