Count, Adjust, and Reclassify Inventory Using Journals

At least once every fiscal year you must take a physical inventory, that is, count all the items on inventory, to see if the quantity registered in the database is the same as the actual physical quantity in the warehouses. When the actual physical quantity is known, it must be posted to the general ledger as a part of period-end valuation of inventory.

Although you count all items in inventory at least once a year, you may have decided to count some items more often, perhaps because they are more valuable, or because they are very fast movers and a large part of your business. For this purpose, you can assign special counting periods to those items. For more information, see To perform cycle counting.

If you need to adjust recorded inventory quantities, in connection with counting or for other purposes, you can use an item journal to change the inventory ledger entries directly without posting business transactions. Alternatively, you can adjust for a single item on the item card.

If you need to change attributes on item ledger entries, you can use the item reclassification journal. Typical attributes to reclassify include dimensions and sales campaign codes, but you also perform "system transfers" by reclassifying bin and location codes. Special steps apply when you want to reclassify serial or lot numbers and their expiration dates. For more information, see Work with Serial and Lot Numbers.

Note

In advanced warehouse configurations, items are registered in bins as warehouse entries, not as item ledger entries. Therefore, you perform counting, adjusting, and reclassifying in special warehouse journals that support bins. Then, you use special functions to synchronize the new or changed warehouse entries with their related item ledger entries to reflect the changes in inventory quantities and values. This is described in specific procedures below where relevant.

To perform a physical inventory

You must take a physical inventory, that is, count the actual items on hand, to check if the quantity registered is the same as the physical quantity in stock at the end of a fiscal year, if not more often. If there are differences, you must post them to the item accounts before you do the inventory valuation.

Note

This procedure describes how to perform a physical inventory using a journal, the Phys. Inventory Journal page. You can also perform the task using documents, the Physical Inventory Order and Physical Inventory Recording pages, which provide more control and support distributing the counting to multiple employees. For more information, see Count Inventory Using Documents.

Note that the document-based functionality cannot be used to count items in bins, warehouse entries.

Apart from the physical counting task, the complete process involves the following three tasks:

  • Calculate the expected inventory.
  • Print the report to be used when counting.
  • Enter and post the actual counted inventory.

You can perform the physical inventory in either of the following ways depending on your warehouse setup. For more information, see Setting Up Warehouse Management.

  • If your location is not using directed put-away and pick (basic warehouse configuration), you use the Phys. Inventory Journal page in the Inventory menu, and the procedure is much the same as when you conduct a physical inventory without cycle counting.
  • If your location is using directed put-away and pick (advanced warehouse configuration), you first use the Whse. Phys. Invt. Journal page, and then you use the Item Journal page to run the Calculate Whse. Adjustment function.

To calculate the expected inventory in basic warehouse configurations

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter Phys. Inventory Journals, and then choose the related link.
  2. Choose the Calculate Inventory action.
  3. On the Calculate Inventory page, specify the conditions to use to create the journal lines, such as whether to include items that have zero recorded inventory.
  4. Set filters if you only want to calculate inventory for certain items, bins, locations, or dimensions.
  5. Choose the OK button.
Note

The item entries are processed according to the information that you specified, and lines are created in the physical inventory journal. Notice that the Qty. (Phys. Inventory) field is automatically filled in with the same quantity as the Qty. (Calculated) field. With this feature, it is not necessary for you to enter the counted inventory on hand for items that are the same as the calculated quantity. However, if the quantity counted differs from what is entered in the Qty. (Calculated) field, you must overwrite it with the quantity actually counted.

To calculate the expected inventory in advanced warehouse configurations

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter Item Journal, and choose the related link.

  2. Choose the Calculate Whse. Adjustment action.

  3. Fill in the batch job request page with the numbers of the items you want to count and with your location.

  4. Choose the OK button, and post the adjustments if any.

    If you do not do this before you perform the warehouse physical inventory, the results you post to the physical inventory journal and item ledger in the second part of the process will be the physical inventory results combined with other warehouse adjustments for the items that were counted.

  5. Choose the Lightbulb that opens the Tell Me feature icon, enter Whse. Phys. Invt. Journal, and choose the related link.

  6. Choose the Calculate Inventory action. The Whse. Calculate Inventory batch job request page opens.

  7. Set the filters to limit the items that will be counted in the journal, and then choose the OK button.

    The application creates a line for each bin that fulfills the filter requirements. You can at this point still delete some of the lines, but if you want to post the results as a physical inventory, you must count the item in all the bins that contain it.

    If you only have time to count the item in some bins and not others, you can discover discrepancies, register them, and later post them in the item journal using the Calculate Whse. Adjustment function.

  8. Choose the Lightbulb that opens the Tell Me feature icon, enter Whse. Phys. Inventory List, and choose the related link.

  9. Open the report request page and print the lists on which you want employees to record the quantity of items that they count in each bin.

  10. When the counting is done, enter the counted quantities in the Qty. (Phys. Inventory) field in the warehouse physical inventory journal.

    Note

    In the warehouse physical inventory journal, Qty. (Calculated) field is filled in automatically on the basis of warehouse bin records and copies these quantities are copied to the Qty. (Physical) field on each line. If the quantity counted by the warehouse employee differs from what application has entered in the Qty. (Physical) field, you must enter the quantity actually counted.

  11. When you have entered all the counted quantities, choose the Register action.

    When you register the journal, application creates two warehouse entries in the warehouse register for every line that was counted and registered:

    • If the calculated and the physical quantities differ, a negative or positive quantity is registered for the bin, and a balancing quantity is posted to the adjustment bin of the location.
    • If the quantity calculated is equal to the physical quantity, application registers an entry of 0 for both the bin and the adjustment bin. The entries are the record that on the registering date, a warehouse physical inventory was performed, and there was no discrepancy in inventory for the item.

When you register the warehouse physical inventory, you are not posting to the item ledger, the physical inventory ledger, or the value ledger, but the records are there for immediate reconciliation whenever necessary. If you like to keep precise records of what is happening in the warehouse, however, and you counted all of the bins where the items were registered, you should immediately post the warehouse results as an inventory physical inventory. For more information, see To enter and post the actual counted inventory in advanced warehouse configurations.

To print the report to be used when counting

  1. On the Phys. Inventory Journal page containing the calculated expected inventory, Choose the Print action.
  2. On the Phys. Inventory List page, specify if the report should show the calculated quantity and if the report should list inventory items by serial/lot numbers.
  3. Set filters if you only want to print the report for certain items, bins, locations, or dimensions.
  4. Choose the Print button.

Employees can now proceed to count inventory and record any discrepancies on the printed report.

Note

It can take several days before printed reports come back for final processing and posting. When you specify and post actual counted inventory, the system adjusts inventory to reflect the difference between the expected and the actual counted inventory. You must keep the originally calculated journal lines and not recalculate the expected inventory, because the expected inventory may change and lead to wrong inventory levels. If you need to issue multiple reports, such as for different locations or group of items, you must create and keep separate journal batches.

To enter and post the actual counted inventory in basic warehouse configurations

  1. On each line on the Phys. Inventory Journal page where the actual inventory on hand, as determined by the physical count, differs from the calculated quantity, enter the actual inventory on hand in the Qty. (Phys. Inventory) field.

    The related fields are updated accordingly.

    Note

    If the physical count reveals differences that are caused by items posted with incorrect location codes, do not enter the differences in the physical inventory journal. Instead, use the reclassification journal or a transfer order to redirect the items to the correct locations. For more information, see Item Reclass. Journal or Create Transfer Orders.

  2. To adjust the calculated quantities to the actual counted quantities, choose the Post action.

    Both item ledger entries and physical inventory ledger entries are created. Open the item card to view the resulting physical inventory ledger entries.

  3. Choose the Lightbulb that opens the Tell Me feature icon, enter Items, and then choose the related link.

  4. To verify the inventory counting, open the item card in question, and then, choose the Phys. Inventory ledger Entries action.

To enter and post the actual counted inventory in advanced warehouse configurations

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter Item Journal, and choose the related link.

  2. Choose the Calculate Whse. Adjustment action.

  3. Select the same items that you counted in the cycle counting physical inventory you just performed, and any other items that require adjustment, and then choose the OK button.

    The Inventory Journal page opens and lines are created for these items. Note that the net quantities that you just counted and registered bin by bin are now ready to be consolidated and synchronized as item ledger entries.

  4. Post the journal without changing any quantities.

The quantities in the item ledger (item entries) and the quantities in the warehouse (warehouse entries) are now once again the same for these items, and application has updated the last counting date of the item or stockkeeping unit.

To perform cycle counting

Although you count all items in inventory at least once a year, you may have decided to count some items more often, perhaps because they are more valuable, or because they are very fast movers and a large part of your business. For this purpose, you can assign special counting periods to those items.

You can perform the cycle counting in either of the following ways depending on your warehouse setup. For more information, see Setting Up Warehouse Management.

  • If your location is not using directed put-away and pick (basic warehouse configuration), you use the Phys. Inventory Journal page in the Inventory menu, and the procedure is much the same as when you conduct a physical inventory without cycle counting.
  • If your location is using directed put-away and pick (advanced warehouse configuration), you first use the Whse. Phys. Invt. Journal page, and then you use the Item Journal page to run the Calculate Whse. Adjustment function.

To set up counting periods

A physical inventory is typically taken at some recurring interval, for example monthly, quarterly, or annually. You can set up whatever inventory counting periods necessary.

You set up the inventory counting periods that you want to use and then assign one to each item. When you perform a physical inventory and use the Calculate Counting Period in the physical inventory journal, lines for the items are created automatically.

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter Phys. Invt. Counting Periods, and then choose the related link.
  2. Fill in the fields as necessary. Hover over a field to read a short description.

To assign a counting period to an item

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter Items, and then choose the related link.
  2. Select the item to which you want to assign a counting period.
  3. In the Phys Invt Counting Period Code field, select the appropriate counting period.
  4. Choose the Yes button to change the code and calculate the first counting period for the item. The next time you choose to calculate a counting period in the physical inventory journal, the item appears as a line on the Phys. Invt. Item Selection page. You can then begin to count the item on a periodic basis.

To initiate a count based on counting periods in basic warehouse configurations

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter Phys. Inventory Journal, and then choose the related link.

  2. Choose the Calculate Counting Period action.

    The Phys. Invt. Item Selection page opens showing the items that have counting periods assigned and need to be counted according to their counting periods.

  3. Perform the physical inventory. For more information, see To perform a physical inventory.

To initiate a count based on counting periods in advanced warehouse configurations

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter Whse. Phys. Invt. Journal, and choose the related link.

  2. Choose the Calculate Counting Period action.

    The Phys. Invt. Item Selection page opens showing the items that have counting periods assigned and need to be counted according to their counting periods.

  3. Perform the physical inventory. For more information, see To perform a physical inventory.

    Note

    You must count the item in all the bins that contain the particular item. If you delete some of the bin lines that application has retrieved for counting on the Whse. Phys. Inventory page, then you will not be counting all the items in the warehouse. If you later post such incomplete results in the Phys. Inventory Journal, the amounts posted will be incorrect.

To adjust the inventory of one item

After you have made a physical count of an item in your inventory area, you can use the Adjust Inventory function to record the actual inventory quantity.

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter Items, and then choose the related link.
  2. Select the item for which you want to adjust inventory, and then choose the Adjust Inventory action.
  3. In the New Inventory field, enter the inventory quantity that you want to record for the item.
  4. Choose the OK button.

The item’s inventory is now adjusted. The new quantity is shown in the Current Inventory field on the Adjust Inventory page and in the Inventory field on the Item Card page.

You can also use the Adjust Inventory function as a simple way to place purchased items on inventory if you do not use purchase invoices or orders to record your purchases. For more information, Record Purchases.

Note

After you have adjusted inventory, you must update it with the current, calculated value. For more information, see Revalue Inventory.

To adjust the inventory quantity of multiple items in basic warehouse configurations

On the Item Journal page, you can post item transaction directly to adjust inventory in connection with purchases, sales, and positive or negative adjustments without using documents.

If you often use the item journal to post the same or similar journal lines, for example, in connection with material consumption, you can use the Standard Item Journal page to make this recurring work easier. For more information, see Working with Standard Journals.

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter Item Journals, and then choose the related link.
  2. Fill in the fields as necessary. Hover over a field to read a short description.
  3. Choose the Post action to make the inventory adjustments.
Note

After you have adjusted inventory, you must update it with the current, calculated value. For more information, see Revalue Inventory.

To adjust bin quantities in advanced warehouse configurations

If your location uses directed put-away and pick, use the Whse. Item Journal to post, outside the context of the physical inventory, all positive and negative adjustments in item quantity that you know are real gains, such as items previously posted as missing that show up unexpectedly, or real losses, such as breakage.

Unlike posting adjustments in the inventory item journal, using the warehouse item journal gives you an additional level of adjustment that makes your quantity records even more precise at all times. The warehouse thus always has a complete record of how many items are on hand and where they are stored, but each adjustment registration is not posted immediately to the item ledger. In the registering process, credits or debits are made to the real bin with the quantity adjustment and a counterbalancing entry is made in an adjustment bin, a virtual bin with no real items. This bin is defined in the Invt. Adjustment Bin Code on the location card.

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter Whse. Item Journal, and then choose the related link.
  2. Fill in the header information.
  3. Fill in the Item No. field on the line.
  4. Enter the bin in which you are putting the extra items or where you have found items to be missing.
  5. Fill in the quantity that you observe as a discrepancy in the Quantity field. If you have found extra items, enter a positive quantity. If items are missing, enter a negative quantity.
  6. Choose the Register action.

At appropriate intervals as defined by company policy, you must post the warehouse adjustment bin records in the item ledger. Some companies find it appropriate to post adjustments to the item ledger every day, while others may find it adequate to reconcile less frequently.

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter Item Journal, and then choose the related link.
  2. Fill in the fields on each journal line.
  3. Choose the Calculate Whse. Adjustment action, and fill in the filters as appropriate in the batch job request page. The adjustments are calculated only for the entries in the adjustment bin that meet filter requirements.
  4. On the Options FastTab, fill in the Document No. field with a number that you enter manually. Because no number series has been set up for this batch job, use the number scheme set up by the warehouse, or enter the date followed by your initials.
  5. Choose the OK button. The positive and negative adjustments are totaled for each item and lines are created in the item journal for any items where the sum is a positive or negative quantity.
  6. Post the journal lines to enter the quantity differences in the item ledger. The inventory in the warehouse bins now corresponds precisely to the inventory in the item ledger.

To reclassify an item's lot number

If you need to change attributes on item ledger entries, you can use the item reclassification journal. Typical attributes to reclassify include dimensions and sales campaign codes, but you also perform "system transfers" by reclassifying bin and location codes.

Special steps apply when you want to reclassify serial or lot numbers and their expiration dates. For more information, see Work with Serial and Lot Numbers.

The following example is based on a location code. The steps are similar for other types of item attributes.

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter Item Reclass. Journals, and then choose the related link.
  2. On the Item Reclass. Journal page, fill in the fields as necessary.
  3. In the Location Code field, enter the item's current location code.
  4. In the New Location Code field, enter the item's new location code.
  5. Choose the Post action.

For information about transferring items with full control of quantities shipped and received, see Transfer Inventory Between Locations.

See Also

CountInventory Using Documents
Inventory Warehouse Management
Sales
Purchasing
Working with Business Central