Recording Damaged Goods (Damaged Items) and Tracking Their Quantities
The system has no separate item type called “damaged item”, but you can record damaged goods and deduct their quantities from inventory, track their quantities, and charge their value to a dedicated damaged goods expense account, using the regular inventory tools. This guide explains the available methods, the journal entry for each one, and how to record scrap in manufacturing.
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Note: Make sure the Inventory Management app is enabled.
Contents
- Choose the right method
- Suggested setup before you start
- Method 1: Writing off damaged goods directly from inventory
- Method 2: Transferring damaged goods to a damaged goods warehouse
- Method 3: When requisitions aren’t enabled
- Finding damaged goods during stocktaking
- Selling damaged goods (scrap)
- Scrap items in manufacturing
- Tracking damaged goods quantities
- FAQs
Choose the right method
| Your need | Method |
|---|---|
| Deduct the damaged quantity from inventory and charge its value as a loss | Method 1: an outbound requisition. |
| Keep the damaged goods and track their quantities before disposing of or selling them | Method 2: transfer them to the damaged goods warehouse. |
| Requisitions aren’t enabled in your account | Method 3: a manual deduct transaction from the product page. |
| Scrap resulting from the manufacturing process | Scrap items in manufacturing. |
Suggested setup before you start
- An expense account for damaged goods: from the Chart of Accounts, add a sub-account under Expenses with a name such as Damaged Goods Losses, so the value of damaged goods appears as a separate expense in the income statement. Without it, damaged goods are recorded by default on the Other Debit account.
- A warehouse for damaged goods (optional): from Warehouses, add a New Warehouse with a name such as Damaged Goods Warehouse, if you want to keep the damaged goods and track their quantities.
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Note: To record all outbound requisitions on the damaged goods account automatically, you can set it as the default account for outbound requisitions from Requisitions Accounts Routing. But note that it will apply to all manual outbound requisitions, so it’s better to choose it in each damaged goods requisition.
Method 1: Writing off damaged goods directly from inventory
- Open a new Outbound Requisition, or from the product page click Add Transaction, then Deduct Transaction.
- Choose the warehouse that has the damaged goods in the From field (it appears when you have more than one warehouse).
- Set the date.
- In Journal Account, choose the Damaged Goods Losses account.
- In Notes, write the reason for the damage (such as: broken during transport, expired), and attach photos or a disposal report if there is one.
- Add the damaged products and their quantities. The unit price shows the average cost by default, with the Stock On Hand and New Stock On Hand.
- Click Save.
The requisition is saved with the Accepted status, so the quantity is deducted from the warehouse and the journal entry is created. Example: 10 damaged units with a unit cost of 20:
| Account | Debit | Credit |
|---|---|---|
| Damaged Goods Losses | 200.00 | |
| Inventory (warehouse account) | 200.00 | |
| Total | 200.00 | 200.00 |
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Note: If you don’t choose an account in the requisition, the amount is recorded on the default account for outbound requisitions, otherwise on Other Debit. To choose a different account for each item, turn on account assignment for requisitions in the accounting settings.
Method 2: Transferring damaged goods to a damaged goods warehouse
Suitable if you want to isolate the damaged goods and know their quantities at any time, before disposing of or selling them:
- Open a new Transfer Requisition, or from the product page click Transfer Stock.
- In From, choose the original warehouse, and in To, choose the Damaged Goods Warehouse.
- Add the damaged products and their quantities, and write the reason in the notes.
- Click Save.
The quantity moves to the damaged goods warehouse without changing the total inventory value; the journal entry is: debit the damaged goods warehouse account, and credit the original warehouse account. When you dispose of the damaged goods for good, make an Outbound Requisition from the damaged goods warehouse on the losses account.
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Note: Don’t sell from the damaged goods warehouse by mistake: make sure users’ default warehouse isn’t the damaged goods warehouse, and check the warehouse permissions for who is allowed to sell from it.
Method 3: When requisitions aren’t enabled
- Open the product, and click Add Transaction.
- On the Add Stock Transaction page, choose Detract and enter the damaged quantity.
- Set the Movement Date and the warehouse.
- In Transaction Type, choose or type Damaged, so you can filter damaged goods movements later.
- Choose the Journal Account (the damaged goods losses account), and write the reason in the notes.
- Click Save.
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Note: This method is only available for products tracked by quantity. For products tracked by serial numbers, lots or expiry date, use requisitions.
Finding damaged goods during stocktaking
If you find damaged goods during a Stocktaking Sheet, enter the actual sound quantity; the difference appears as a Shortage, and a Stocktaking Outbound is created to deduct the quantity. Its value is charged by default to Sales Cost, and you can change the account from Requisitions Accounts Routing. It’s better to record known damaged goods with a separate outbound requisition before the stocktaking, so they appear separately from the shortage.
Selling damaged goods (scrap)
- Create a regular sales invoice, and choose the Damaged Goods Warehouse in the shipping tab (or for each item).
- If the scrap is sold as a different item (such as: scrap iron by the kilogram), add it as a separate product, and enter its quantities with an Inbound Requisition.
Scrap items in manufacturing
In the manufacturing app, you can record scrap resulting from production in the Scrap Items section of the Bill of Materials and the Manufacturing Order:
- For each scrap item, add: the product, the quantity, the unit, the price, and the production operation.
- The Scraps total cost is deducted from the manufacturing order cost, so the finished product’s cost decreases by the scrap value.
- When you finish the manufacturing order, choose the Main Product Warehouse and the Scrap Items Warehouse that the scrap quantities are added to.
- An inbound requisition for the scrap is created in the chosen warehouse: debit the scrap warehouse account, and credit the manufacturing order account. It can’t be edited or deleted after the order is finished.
Tracking damaged goods quantities
- Damaged goods warehouse balance: if you use a warehouse for damaged goods, its balance is the current damaged quantity.
- Requisitions: filter by warehouse or product to view damaged goods requisitions; each requisition’s account is shown.
- Stock Transactions on the product page or in the stock transactions report: filter by warehouse, or by Transaction Category (Damaged) for manual movements.
- Chart of Accounts: the balance of the damaged goods losses account shows the total value of damaged goods.
FAQs
How do I add a damaged item?
There’s no “damaged item” type; record the damaged quantity with an Outbound Requisition on the damaged goods losses account, or transfer it to the damaged goods warehouse to track it.
Why were damaged goods recorded on Other Debit?
Because you didn’t choose an account in the requisition. Edit the requisition and choose the damaged goods losses account in Journal Account.
Can I write the reason for the damage?
There’s no dedicated field for the reason in the requisition; write it in Notes. In the manual transaction, use Transaction Category.
At what price are damaged goods calculated?
At the product’s average cost at the time of the deduction, by default.