System Cost of Goods Sold Adjustments

When an in stock item is sold, NetSuite reduces the total in the inventory asset account, and increases the total in the COGS account. When an item is sold that is not in stock, NetSuite makes an adjustment to the on-hand value of the item. This adjustment is called a system COGS adjustment. A system COGS adjustment could show in financial reports or on transactions.

System COGS adjustments are a necessary procedure for tracking inventory costing used by many accounting systems. When an item is not in stock, NetSuite estimates the cost of goods sold based on historical data. Only if no historical data exists, the estimated cost of goods sold is based on the cost entered.

When the item is later added to your inventory again, a linked COGS adjustment entry is also created. This COGS adjustment is triggered by any transaction that creates a positive inventory level from a negative one, including the ones listed below:

Vendor Bill
Purchase Order Receipt
Assembly Unbuild
Inventory Adjustment

This COGS adjustment changes only the on-hand value in an amount that is calculated as follows:

[the estimated COGS (when you were out of stock)] - (the cost of the item when you added it back to stock)

Below are example posting asset lines on item receipts and fulfillments.

Item #ABC100	Day 1	Day 2	Day 3
Beginning On Hand	0	0	-3

Item Receipt Quantity	10	0	20
Item Receipt Value	$15.00	$0.00	$35.00
Item Average Cost	$1.50	$0.00	$1.75
Item Fulfillment	10	3	0
Item Fulfillment COGS	$15.00	$4.50	$0.00
Item Fulfillment COGS Adjustment	$0.00	$0.00	$0.75

Ending On Hand	0	-3	17
Ending On Hand Value	$0.00	$0.00	$29.75

Note:

For costing purposes, NetSuite considers increases to inventory before reductions to inventory.

For transactions that trigger an inventory adjustment, NetSuite considers all positive adjustments first and all negative adjustments last.

For example, you enter an invoice that includes Item A at 6:00 am. You enter a vendor bill for Item A at 7:00 am, both on the same day. After you save the vendor bill, NetSuite recalculates the item cost for the invoice as if the vendor bill had been entered before the invoice. The vendor bill added the item to the inventory, therefore was considered ahead of the invoice, which removed the item from inventory.

Note:

If you must enter a negative adjustment that comes first before a positive one, the two adjustments must be entered over two days. A negative adjustment showing one date, and the positive adjustment dated the next day.

When transactions are entered on the same date, they are considered by transaction type in the following order:

Inventory adjustment worksheets (First-in-day)
Purchase transactions (purchase receipts, vendor bills, adjustments)
Assembly builds, component builds, transfers and transfer orders (including fulfillments and receipts)
Vendor return fulfillments, assembly unbuilds
Sale transactions (sales order fulfillments, invoices, cash sales, and inventory adjustments)
Return transactions (credit memos and RMA receipts)
Inventory adjustment worksheets (Last-in-day)

For vendor returns, differences between the vendor return authorization return cost, and the average cost of the item posts as a COGS adjustment.

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