How to Perform a Physical Inventory Journal in Dynamics 365 Business Central

The Physical Inventory Journal in Dynamics 365 Business Central helps accounting and warehouse management teams accurately track on-hand inventory. Once your system is set up to meet your specific needs, performing it becomes intuitive.

I often help clients set up Physical Inventory Counting Periods, Inventory Count Cycles, and process the Physical Inventory Journal. These standard activities are vital for maintaining accurate inventory counts in Business Central.

In this article, I will walk you through setting up your system for success based on your warehouse requirements. When performing a Physical Inventory Cycle Count, the process will vary depending on locations and warehousing requirements. These requirements can be easily incorporated into the Physical Inventory Journal processing to meet your specific inventory counting needs.

Setting Up Your Physical Inventory Journal

The setup and categorization of your products are crucial for accurate counts. The choice between using the item card or the stock-keeping unit card depends on how locations are set up in your environment.

If you’re operating a simpler warehouse and are not leveraging locations, use the item card. This process is more straightforward and often has no location requirements. For convenience, Physical Counting Periods can be set up directly on the item card.

For advanced warehouse environments with multiple locations, use the stock-keeping unit card to define inventory by location. This may require more detailed counts for multiple locations or multiple bins at a location. In such cases, Physical Counting Periods may need to be set up on a stock-keeping unit for each item/location combination.

Setting up Physical Inventory Counting Periods will allow Business Central to recommend when a Physical Inventory Count is required. Inventory with high turnover or cost may need to be counted more frequently than low-cost or low-turnover items. Setting up Physical Inventory Counting Periods is not required to perform a Physical Inventory Count, but it will benefit any company aiming to establish a standard cycle counting period or focus on priority items.

Performing a Physical Inventory Journal in Dynamics 365 Business Central

Physical inventory helps users calculate what is currently seen as on-hand inventory in the system. Depending on your product group, this may be performed monthly, quarterly, or annually. High-volume products might be counted more frequently, while low-volume items might be counted annually.

Steps to Perform a Physical Inventory Journal

1. Navigate to Physical Inventory Journals: Type it into the search engine within your Dynamics 365 Business Central search bar.

2. Choose a Counting Method: Within Dynamics 365 Business Central, there are two basic ways to perform a physical inventory count: Calculate Counting Period or Calculate Inventory. These options are available by default under the ‘Prepare’ tab on the Ribbon.

Option 1: Calculate Counting Period

This requires you to set a Physical Inventory Counting Period on either the Item or the Stockkeeping Unit Card.

1. After you select “Calculate Counting Period”, a list of items that are due to be counted will be displayed.
2. Select a line or multiple lines for which you are ready to perform a physical inventory count and click ‘OK.’
3. Business Central will pull the lines selected into the Physical Inventory Journal and calculate the on-hand inventory registered in the system.

Calculating by counting period is a great utility for scheduling recurring counts by location. This method prompts users to perform counts based on a predefined schedule. It requires setup and configuration, which involves defining counting periods such as annual, biweekly, monthly, quarterly, and weekly.

The count frequency per year drives the calculation and recommendation to the user on how frequently a count may be required. For example, an annual count will prompt the user once a year, while a weekly count will prompt the user 52 times a year.

Option 2: Calculate inventory

This can be performed without additional setup on the Item or Stockkeepping Unit card.

1. Enter a Document No., this is a required field.
2. Select Inventory parameters:

1. 1. Items Not on Inventory: Items with a value of zero for on-hand inventory.
   2. Include Items without Transactions: Items will have no ledger history.

The calculate inventory action is a straightforward calculation that does not require any setup. It is always available and allows users to perform physical inventory counts without prior setup. This method is particularly useful if you have a defined focus, such as running the calculation by location, bin, or item. Users can specify filters to utilize for performing the physical inventory count, making this method more user-dependent.

3. Print the Report: Once you’ve defined your parameters, proceed with the following steps:

1. Print the report using the ribbon action “Print” under the Home tab.
2. A pop-up window will display
3. Leaving the option Show Qty (Calculated) disabled will prevent the system from providing the calculated on-hand on the Physical Inventory List report.
4. Enabling the option Show Item Tracking Numbers will cause the report to print by Lot or Serial Numbers in addition to standard Item Numbers.

4. Enter Physical Inventory Count:

1. Enter the counted quantity into the Qty (Phys. Inventory) column.
2. The system will look at the Qty (Calculated) column to determine if a positive or negative adjustment is required for the Entry Type value.

5. Double-check the Unit Amount column.

1. Pulls from Item/SKU card
2. Impacts on-hand Inventory Valuation

6. Post the Physical Inventory Journal

1. If the Physical Count matches the calculated quantity, no adjustment will occur.
   • If using Counting Periods (option 1), the system will register the item that was counted and adjust the date for the next required count
2. If the Physical Count does not match the calculated quantity, a positive or negative adjustment will occur, modifying the on-hand inventory in the system.
   • Inventory Valuation will be impacted based on the Unit Amount listed.

Common Issue – Double Counting

Double counting can occur if items are received before completing the physical inventory, leading to discrepancies in the inventory count. Best practice is to freeze transactions for that item until the Physical Inventory has been completed. If the Physical Inventory Journal cannot be completed prior to additional inventory being received into the system, then it is recommended to clear the Physical Inventory Journal and recalculate the inventory.

For a complete walkthrough on Streamlining Physical Inventory Journals in Dynamics 365 Business Central, watch the recorded webinar:

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