Backdated Transactions
Understanding how backdating transactions affects inventory costs and GL entries.
What is Backdating?
Backdating means entering a transaction with a date earlier than the current date. This is common for:
- Late invoice entry
- Correcting missed receipts
- Period adjustments
- Data entry delays
Backdating Impact Flow
BACKDATING IMPACT OVERVIEW
═══════════════════════════════════════════════════════════════════════════════
TIMELINE
──────────────────────────────────────────────────────────────►
Jan 1 Jan 15 Feb 1 Feb 15 Today (Mar 1)
│ │ │ │ │
│ │ │ │ │
│ ┌───┴───┐ │ ┌───┴───┐ │
│ │Trans A│ │ │Trans B│ │
│ │(exists)│ │ │(exists)│ │
│ └───────┘ │ └───────┘ │
│ │ │
▼ │ │
┌─────────────────┐ │ │
│ NEW BACKDATED │ │ │
│ RECEIPT │ │ │
│ Dated: Jan 1 │ │ │
└────────┬────────┘ │ │
│ │ │
│ RECALCULATION SCOPE │
│◄─────────────────────────────────────────────────►
│ │
│ ALL transactions after Jan 1 are recalculated │
│ - Trans A (Jan 15) ← GL updated │
│ - Trans B (Feb 15) ← GL updated │
│ - Any others... ← GL updated │
│ │
└───────────────────────────────────────────────────┘
Backdating Scenarios
Scenario 1: Backdated Item Receipt
BACKDATED RECEIPT SCENARIO
═══════════════════════════════════════════════════════════════════════════════
EXISTING STATE (Before Backdating):
─────────────────────────────────────────────────────────────────────────────
Date Transaction Qty Cost Inventory Value
─────────────────────────────────────────────────────────────────────────────
Jan 1 Opening Balance 100 $10.00 $1,000.00
Feb 1 Sale (Fulfillment) -50 $10.00 $500.00 (COGS: $500)
Feb 15 Sale (Cash Sale) -30 $10.00 $200.00 (COGS: $300)
─────────────────────────────────────────────────────────────────────────────
Mar 1 Current Balance 20 $10.00 $200.00
BACKDATED ENTRY ADDED:
─────────────────────────────────────────────────────────────────────────────
Jan 15 Receipt (Backdated) 200 $8.00 [NEW ENTRY]
RECALCULATED STATE (After Backdating):
─────────────────────────────────────────────────────────────────────────────
Date Transaction Qty Cost Inventory Value
─────────────────────────────────────────────────────────────────────────────
Jan 1 Opening Balance 100 $10.00 $1,000.00
Jan 15 Receipt (NEW) 200 $8.00 $1,600.00
► New Average Cost = (1000 + 1600) / 300 = $8.67
Feb 1 Sale (Fulfillment) -50 $8.67 COGS: $433.50 (was $500)
Feb 15 Sale (Cash Sale) -30 $8.67 COGS: $260.10 (was $300)
─────────────────────────────────────────────────────────────────────────────
Mar 1 Current Balance 220 $8.67 $1,907.40
GL ADJUSTMENTS CREATED:
─────────────────────────────────────────────────────────────────────────────
Feb 1 Fulfillment: COGS reduced by $66.50 ($500 - $433.50)
Feb 15 Cash Sale: COGS reduced by $39.90 ($300 - $260.10)
Scenario 2: Backdated Vendor Bill (Different Rate)
BACKDATED BILL VARIANCE SCENARIO
═══════════════════════════════════════════════════════════════════════════════
EXISTING STATE:
─────────────────────────────────────────────────────────────────────────────
Jan 15 Item Receipt 100 $10.00 $1,000.00 (estimated)
Feb 1 Fulfillment -60 $10.00 COGS: $600
TODAY (Mar 1) - BACKDATED BILL ENTERED:
─────────────────────────────────────────────────────────────────────────────
Jan 20 Vendor Bill (Backdated) 100 $12.00 Actual cost!
► Bill date: Jan 20
► Entry date: Mar 1
IMPACT:
─────────────────────────────────────────────────────────────────────────────
1. Receipt cost updated: $10.00 → $12.00
2. Inventory Asset increased: 100 × $2.00 = $200.00
3. Feb 1 Fulfillment recalculated:
- Original COGS: 60 × $10.00 = $600.00
- New COGS: 60 × $12.00 = $720.00
- Adjustment: +$120.00
4. System COGS Adjustment posted in March:
Dr. COGS $120.00
Cr. Inventory Asset $120.00
WARNING: March P&L affected by January/February cost changes!
Scenario 3: Backdated Adjustment Creating Negative Inventory
BACKDATED ADJUSTMENT - NEGATIVE INVENTORY RISK
═══════════════════════════════════════════════════════════════════════════════
EXISTING STATE:
─────────────────────────────────────────────────────────────────────────────
Date Transaction Qty On Hand
─────────────────────────────────────────────────────────────────────────────
Jan 1 Receipt 100 100
Feb 1 Sale -60 40
Feb 15 Sale -30 10
Mar 1 Current Balance 10
BACKDATED NEGATIVE ADJUSTMENT:
─────────────────────────────────────────────────────────────────────────────
Jan 10 Adjustment (Backdated) -50 [DANGER!]
TIMELINE BECOMES:
─────────────────────────────────────────────────────────────────────────────
Date Transaction Qty On Hand
─────────────────────────────────────────────────────────────────────────────
Jan 1 Receipt 100 100
Jan 10 Adjustment (NEW) -50 50
Feb 1 Sale -60 -10 ◄── NEGATIVE INVENTORY!
Feb 15 Sale -30 -40 ◄── MORE NEGATIVE!
Mar 1 Receipt 100 60
─────────────────────────────────────────────────────────────────────────────
COSTING IMPACT:
─────────────────────────────────────────────────────────────────────────────
Feb 1 Sale (Negative Inventory):
- No cost layers available
- Uses "Negative Inventory Cost" preference:
* Last Purchase Price
* Average Cost
* Zero (worst case)
This can result in ZERO COGS or incorrect COGS values!
Cross-Period Backdating
BACKDATING ACROSS CLOSED PERIODS
═══════════════════════════════════════════════════════════════════════════════
January February March (Current)
────────────── ────────────── ──────────────────────
Status: CLOSED CLOSED OPEN
Transactions:
Receipt #1 Fulfillment (Today's entries)
100 @ $10 -50 units
│
▼
┌─────────────────────┐
│ BACKDATED ENTRY │
│ Jan 15 - Receipt │
│ 50 @ $8.00 │
└─────────────────────┘
│
▼
┌─────────────────────────────────────────────────────┐
│ SYSTEM BEHAVIOR: │
│ │
│ 1. January entries: UNCHANGED (period closed) │
│ │
│ 2. February Fulfillment: GL unchanged in Feb │
│ BUT System COGS Adjustment created in MARCH │
│ │
│ 3. All adjustments post to MARCH (open period) │
│ │
│ RESULT: │
│ - January P&L: No change │
│ - February P&L: No change │
│ - March P&L: Absorbs ALL cost adjustments │
└─────────────────────────────────────────────────────┘
Backdating Best Practices
When Backdating is Acceptable
| Scenario | Acceptable? | Notes |
|---|---|---|
| Same period, minor date correction | Yes | Minimal impact |
| Same period, correct rate entry | Yes | Normal correction |
| Previous open period | Caution | Review impact first |
| Previous closed period | Avoid | All adjustments hit current period |
| Multiple periods back | Avoid | Large cascading recalculations |
Backdating Checklist
BEFORE BACKDATING - CHECKLIST
═══════════════════════════════════════════════════════════════════════════════
□ Is the target period open?
└─ If NO: Adjustments post to current period
□ What transactions exist after this date?
└─ All will be recalculated
□ Will this create negative inventory at any point?
└─ Check inventory levels at each date
□ What costing method is used?
└─ Average: Affects all subsequent
└─ FIFO/LIFO: Affects specific layers
└─ Standard: Only variances affected
□ Are there closed periods between backdate and today?
└─ Adjustments accumulate in current period
□ Is month-end/year-end close pending?
└─ May want to wait until after close
Impact by Costing Method
Average Costing
AVERAGE COSTING - BACKDATING IMPACT
═══════════════════════════════════════════════════════════════════════════════
Backdated receipt changes the running average from that date forward.
Before Backdate:
Jan: 100 @ $10 = $1,000 (Avg: $10.00)
Feb: Sale 50 @ $10 = COGS $500
After Backdating Receipt (Jan 15: 100 @ $8):
Jan 1: 100 @ $10 = $1,000
Jan 15: 100 @ $8 = $800 (New Avg: $9.00)
Feb: Sale 50 @ $9 = COGS $450 (was $500)
Impact: ALL transactions after Jan 15 recalculated
FIFO Costing
FIFO COSTING - BACKDATING IMPACT
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Backdated receipt inserts a new cost layer in the queue.
Before Backdate:
Layer 1: 100 @ $10 (Jan 1)
Sale Feb 1: Uses Layer 1
After Backdating Receipt (Jan 15: 50 @ $8):
Layer 1: 100 @ $10 (Jan 1)
Layer 2: 50 @ $8 (Jan 15) ◄── New layer inserted
Sale Feb 1: Still uses Layer 1 first (FIFO order)
Impact: May or may not change COGS depending on which layer is consumed
Standard Costing
STANDARD COSTING - BACKDATING IMPACT
═══════════════════════════════════════════════════════════════════════════════
Backdated receipt doesn't change COGS (fixed standard cost).
Before Backdate:
Standard Cost: $10.00
Receipt: 100 @ $12 actual
PPV: $200 (variance)
After Backdating:
Standard Cost: $10.00 (unchanged)
COGS: Uses $10.00 (unchanged)
Only Impact: Purchase Price Variance timing changes
Common Backdating Issues
| Issue | Cause | Solution |
|---|---|---|
| Unexpected COGS in current month | Cross-period backdating | Review System COGS Adjustments |
| Negative inventory errors | Backdated negative adjustment | Check timeline for negative points |
| Large P&L variances | Many transactions recalculated | Limit backdating scope |
| Period close blocked | Items still "In Queue" | Wait for costing to complete |
| Incorrect gross margin | COGS changed after backdating | Verify cost flow is correct |
Recommendations
Do's
| Practice | Benefit |
|---|---|
| Enter transactions timely | Avoids backdating need |
| Review before backdating | Understand full impact |
| Backdate within same period | Minimal cross-period issues |
| Check inventory levels | Prevent negative inventory |
Don'ts
| Avoid | Consequence |
|---|---|
| Backdating to closed periods | Current period absorbs all adjustments |
| Backdating large receipts far back | Massive recalculation scope |
| Backdating without checking timeline | May create negative inventory |
| Multiple backdates same day | Unpredictable cost flow |
Next Steps
- Cost Engine Overview - How the cost engine works
- Recalculation Triggers - What triggers recalculation
- GL Impact Changes - Which GL entries change