Reset an average cost item to zero

On occasion, you might want to zero out the quantity of an item and start over. For an average cost item, when you zero out the quantity, you also want the average cost of the item reset to zero.

However, the average cost of the item might not be reset to zero. It depends on whether other transactions are created for the item on the same day you adjust the quantity and the configuration for how transactions are resequenced when inventory costs are recalculated and updated.

1. Go to Inventory Control > Setup > Configuration. The Inventory Control Configuration page displays.
2. Make sure the Transaction sequence for recalculating average cost items field in the Costing subsection of the Accounting section is set to Keep sequence in which transactions entered. This ensures that the average cost is set to zero before processes other subsequent transactions that affect the item.
   Why does the transaction sequence matter?

   Example: Let's look at a simple example where you have only one warehouse. Assume you have 1 unit of Item A in inventory with an average cost of $10. On the same day, the following activities occur:

   1. You create an inventory adjustment (Quantity & Value decrease) to reduce the quantity of Item A by 1 unit to zero out the inventory, using the day's date as the transaction date.
   2. On the same day, another user then creates a purchase transaction (Quantity & Value increase) for 1 unit of Item A for $8, using the day's date as the transaction date.
   3. You run inventory valuation maintenance to recalculate and update inventory costs. The setting of the Transaction sequence for recalculating average cost items field on the Configure Inventory Control page determines if the average cost of your item is reset to $0:
      • Keep sequence in which transactions entered. Average cost is reset to $0 because inventory costs are recalculated in the sequence in which the transactions were entered.
      • All incoming, then outgoing. Average cost is not reset to $0 because inventory costs are recalculated based on incoming transactions being processed before outgoing transactions.

   Configure inventory control options

   Configuration option	Recalculation transaction sequence	Resulting average cost
   Keep sequence in which transactions entered	1. Inventory adjustment decrease of 1 unit	(10 - 10) / 0 = $0
   	2. Purchase of 1 unit	(0 + 8) / 1 = $8
   All incoming, then outgoing	1. Purchase of 1 unit	(10 + 8) / 2 = $9
   	2. Inventory adjustment decrease of 1 unit	(18 - 9) / 1 = $9
   Note: Average cost = Total value / Total quantity

3. Run an Inventory Status report for the item you want to zero out to find the on-hand quantity in each warehouse.
4. Create an inventory control adjustment transaction (Quantity & Value decrease) and enter the on-hand quantity of the item for each warehouse you want to zero out the quantity and cost.
5. Run inventory valuation maintenance to recalculate and update costs for the item with the option to Update GL with recalculated COGS in open periods.

You can switch back and forth between how you choose to have the transactions sequenced by changing the Transaction sequence for recalculating average cost items field on the Configure Inventory Control page.