Backdating Inventory Transactions
DBA is a real-time inventory system
DBA is a real time inventory system. Each item’s Inventory Cost gets updated by the most recent transaction entered, regardless of the transaction date.
Backdating has no effect on prior costs
Some users assume that by backdating a PO or job receipt, it will retroactively affect the item’s Inventory Cost as of that date and therefore the cost of any subsequent transactions that used the item. This is not the case. Backdating has no retroactive effect on past costs.
Backdating can distort past transaction costs
In DBA, current costs are applied to backdated transactions. When you analyze past transactions in date order, the costs can appear misaligned when picks and receipts get entered before receipts, which can easily happen when entries are made a day or two after the fact instead of in real time.
Backdating is a sign of bad process
Frequent backdating means that inventory is being updated one or more days after the fact. This is bad process that can cause problems with planning, production, shipping, and costing. When users do not trust the numbers on screens and reports, they bypass formal processes with inefficient work-arounds such as hot lists, stock hoarding, and expediting.
To be an efficient manufacturer, it is essential that inventory be updated in real time. Shipping and warehouse personnel should have access to computers and should update their transactions as they occur.
Is backdating needed at period end?
At period end, some users who routinely backdate a day or more after the fact are concerned that last period’s transactions will fall into the current period and cause distortions on the income statement. This should be of no concern because inventory transactions in DBA, with the exception of stock counts, have no effect on the income statement and only affect the balance sheet.
Job issues and receipts affect Inventory, and WIP, both of which are asset accounts. PO receipts affect Inventory and Received Not Invoiced, which are asset and liability accounts, respectively. Sales order picks affect Inventory and Picked Not Invoiced, which are asset accounts. No cost of sales or expense accounts are involved in any of these transactions.
What about stock counts?
If you take a stock count and variances occur, when you update the stock count, the amount of each variance is posted to Inventory Adjustments, which is a Cost of Sales account that does affect the income statement. The posting date in the GL is the date you run the update. No backdating is permitted.
If you are taking a stock count at the end of your fiscal year and you want the change in value to effect this fiscal year, be sure and complete the stock count and update it before the new fiscal year begins.
If you want the change in value posted to last year:
If you happen to update the stock count a few days into the new fiscal year and you want the change in inventory value to be reflected in your previous fiscal year, a journal entry is required.
First, create a new asset account called Stock Count Variance and locate it adjacent to your Inventory account. Determine the total amount of the stock count variance and make the following journal entries.
Create this journal entry in the last month of the previous fiscal year:
Debit Adjustments - Inventory (Cost of Sales)
Credit Stock Count Variance (Asset)
Create this journal entry in the fist month of the new fiscal year:
Debit Stock Count Variance (Asset)
Credit Adjustments - Inventory (Cost of Sales)