usually you don’t apply item ledger entries manually. The system does this automatically, based on the valuation method (FIFO, LIFO, Average, Standard Cost). Except for LIFO, the application logic always uses FIFO. There are (factual) exceptions to this. One is a direct application via “Applies-to Item Ledger Entry No.”, the other is item tracking codes. When serial numbers are used, the applications are similar to direct applications between selected item ledger entries.
There is a table where all the applications are recorded, it’s T339 “Item Application Entries”.
The main information is: Item application is done by the system, without intervention from the user.
in your example: negative inventory. Depending on the setup of the inventory and the location, the application is limited by location code. Also, it can be limited by variant code, serial no. and lot no. However, standard NAV does allow situations with a resulting negative inventory. Yes, this is bad. In standard NAV2013R2, you can completely disallow negative inventory. In all earlier versions only by modifying CU22.
So, next step would be to list the inventory by location for this item.