How to Prevent Inventory Shrinkage Issues

The best, worst, and recommended daily practices to control QuickBooks Inventory Shrinkage

Best Practices

  • Use Purchase Orders for purchasing. (keep the unit costs accurate.) Make sure the unit of measure and purchasing units of measure are accurate.

  • Use Sales Orders (Estimates) for sales. Doing so will correct your timing for both revenue and COGS recognition and will significantly reduce the scenarios of driving inventory negative. (selling it before you have it to sell)

    ** Have a new part number for every non-interchangeable raw material or subassembly (or if there is a significant difference in costs).

  • Have the proper BOM’s so that you can properly record in real time the materials that you consumed and produced during manufacturing.

  • Put processes -or use permissions- to prevent anyone from doing “Quick Receives” or “Quick Ships” as this will ensure the process of properly receiving against PO’s and shipping against Sales Orders (estimates).

  • Monitor your inventory shrink account on a daily basis and detect and remedy any process failure that produced caused any material swing. If you do this regularly you will be more likely to know what went wrong as well as have less audit data to sift through to figure out who did it for training purposes. This will make following Inventory Shrinkage Correction Steps much easier!

Practices to Avoid - Requires same-day clean up to prevent Shrinkage creation

  • Delete/edit directly in QuickBooks any posting transaction synced from DataNinja. If something needs corrected, reverse it out from the DataNinja side (and DataNinja will void it out from within QuickBooks.) The point is to keep them in sync so there is not a discrepancy for quantity that hits shrink at the end of the day.

  • Do not reclassify any posting transaction date from the past to the future or the future to the past as this will cause shrink.

  • Do not let inventory go negative in QuickBooks. The number one way to do this is through posting sales transactions (invoices and sales receipts). Every time you enter one QuickBooks instantly deducts the quantity from inventory. If you let QuickBooks ever get negative IT picks your cost tiers (bad). This can also happen by reversing or voiding a historical posting purchasing transaction. A Bill getting removed from QuickBooks can potential drive inventory negative.

Daily Hygiene

  1. Review and close from inside of DN any old transactions.
    Anything you are not planning to SHIP or RECEIVE against NEEDS to be closed. Anything open is a sign of a process problem. – Which transactions were not recorded? Do we need to record them still? Will our inventory be wrong after we record them?

  2. Review your open WIP (particularly valuable to review at month, quarter, and year-ends)
    a. Receiving WIP: Receiving Page >> WIP tab
    b. Shipping WIP: Shipping Page >> WIP tab
    c. Manufacturing WIP: Production Plan Page >> WIP tab


Posting vs Non-Posting Entries

Both DataNinja and QuickBooks treat POSTING transactions (Invoices, Sales Receipts on the sales side and Vendor bills, expenses, checks on the purchasing side) differently than the best practice non-posting ones like estimates on the sales side and purchase orders on the purchasing side.