Why the COGS pick up the foreign currency value instead of the home currency value
Why the Cost of Goods Sold account shows the foreign currency value instead of the home currency value?
Scenario:
Home currency was in Singapore Dollar.
01 Dec 2010, invoiced your customer for item A at S$1,000.00.
05 Dec 2010, received Bill from your supplier for item A at US$550.00
The exchange rate for the month was at S$1.40 : US$1.00 and Item A was a new item in your inventory list.
After the above transactions were recorded into QuickBooks, you discovered that the Cost of Goods Sold in Profit and Loss report for Item A was recorded as 550.00 instead of showing 770.00, which was the correct value in Singapore dollar; it shows the US dollar value.
What causes this problem?
When user recorded the invoice for Item A at S$1,000.00, it causes the quantity on hand for Item A to fall into negative (that is -1). Since it is a new item, there is no prior cost, when user recorded the Bill on 5 Dec; QuickBooks did an auto-correction in Cost of Goods Sold.
This seems to be a bug, by right, when Bill was entered, the auto-correction feature should pick up 770.00 (amount in Singapore dollar) but it pick up the US dollar value (550.00).
To correct this issue, user can consider changing the date of the bill to be before the invoice date (consider adding the original date in the memo of the bill). This will increase the stock on hand for Item A to 1 and update the average cost to 770.00. So, when invoice is done after the bill, the cost of goods sold will pick up the average cost correctly at 770.00.
The proper way of doing this is to record the invoice after the bill. You should not issue invoice when there is no stock. If you need to issue Proforma invoice, consider using Sales Order in QuickBooks instead of using Invoice feature.