Vendor Credits

Welcome to the QuickBooks Community, JenSmi10. Let me discuss how Average cost work in QuickBooks. Then, ensure you'll be routed to the rigth person to assist you further in handling vendor credits.

Since you've mentioned the Average Cost of inventory, it seems you're using the QuickBooks Desktop version. This QuickBooks uses Average Costing to track inventory costing, while QuickBooks Online uses First-In, First-Out (FIFO).

QuickBooks uses the weighted average cost to establish the value of your inventory and the amount debited to COGS when you sell inventory. The average cost is the total cost of all of the items in inventory divided by the number of items. For example, if you purchase a widget for $2.00,  the average cost is $2.00. Then, you purchase a second widget for $1.50. The average cost is now (2 + 1.5) / 2 = 1.75.

To properly handle vendor credits, I suggest consulting an accountant. They'll be able to provide you with suggestions on how to properly handle the transactions. Then, verify if the said credit is factored into the Average Cost of Inventory.

Additionally, you can run the Inventory Valuation Summary report to show how QuickBooks got the item's average cost.

Here's how:

1. Select the Reports menu at the top and select Inventory.
2. Choose Inventory Valuation Summary and set the dates to All.
3. Double-click the item in question.

Lastly, you may refer to this article to see the most common cause of an incorrect vendor balance and how to fix this issue: Adjust the current balance for a vendor.

Please don't hesitate to click the reply button below if you still have a concern about vendor credit. I would also love to get back here and offer my help if you need anything else, JenSmi10.