A physical inventory count reconciles what Business Central shows in stock with what is actually on your shelves. The process involves printing expected quantities, recording what you count, and then posting the journal to adjust the system. Any differences result in item ledger entries that bring the recorded inventory in line with reality.
Two Approaches: Journal vs Order
Business Central offers two tools for physical counts:
- Physical Inventory Journal, the standard approach for most environments. Straightforward, works in basic and standard warehouse setups.
- Physical Inventory Order, a more structured document with a header/line model, supports multiple counting rounds, and is better suited for large or audited counts where you need a clear record of who counted what and when.
This guide covers the Physical Inventory Journal. If your location uses Directed Put-away and Pick (advanced WMS), physical counting is handled through the Whse. Phys. Invt. Journal instead, which works against bins rather than total location quantities.
Step 1: Open the Physical Inventory Journal
- Search for Physical Inventory Journal using
Alt + Q. - Select or confirm the journal batch you want to use. You can use the default batch or create a named batch for the count period.
Step 2: Calculate Inventory
The Calculate Inventory function populates the journal with all items and their expected quantities based on item ledger entries.
- In the Physical Inventory Journal, select Calculate Inventory from the action bar.
- Set filter options if needed:
- Item No., limit to specific items or ranges
- Location Code, limit to one location
- Bin Code, if using bins without directed pick
- Enable Include Items without Transactions if you want items with zero expected quantity to appear (useful for confirming zero stock).
- Set the Posting Date, this will be the date of the journal entries.
- Select OK.
Business Central fills the journal lines with each item’s Qty. (Calculated), the quantity currently in the system.
Step 3: Print Count Sheets
Before counting, print count sheets so staff can record quantities manually without seeing the system figures.
- Select Print from the action bar.
- Choose the Phys. Inventory List report.
- Set the Show Qty. (Calculated) option to No if you want blind counts (recommended to avoid anchoring bias).
- Print or export the sheets.
Step 4: Record Counted Quantities
After the physical count, enter the actual quantities counted in the Qty. (Phys. Inventory) column for each line.
- Work through each journal line.
- In the Qty. (Phys. Inventory) field, enter the quantity your team physically counted.
- Leave the field blank only if the item was not counted, do not enter zero unless you confirmed zero stock.
Business Central automatically calculates the Quantity (Difference) column, which shows the variance between system and physical quantities.
Step 5: Review Discrepancies
Before posting, review lines where Quantity (Difference) is not zero.
Common reasons for discrepancies:
- Goods received but not posted in the system
- Returns not yet processed
- Picking errors or shrinkage
- Items moved between locations without a transfer order
Investigate significant variances before posting. Correcting the underlying transaction (e.g., posting a missing receipt) is preferable to adjusting through the count journal when the root cause is clear.
Step 6: Post the Journal
Once you are satisfied with the counted quantities:
- Select Post from the action bar.
- Confirm the posting date.
- Select Yes to post.
Business Central creates Item Ledger Entries for any lines with a non-zero difference. Positive differences (you counted more than the system expected) create positive adjustment entries. Negative differences create negative adjustment entries.
The inventory is now updated to match the physical count.
Using the Physical Inventory Order (Alternative)
The Physical Inventory Order is a separate document type that provides more control over the counting process.
Key differences from the journal:
- Supports multiple counting rounds (useful when you want two people to count independently and compare)
- Maintains a history of the order after posting, unlike a journal which is cleared
- Better audit trail, shows who recorded which quantities and when
To use it, search for Physical Inventory Orders and create a new order. The flow is similar: calculate expected quantities, record counted quantities, then finish and post.
After Posting
Posted adjustments affect:
- Item Ledger Entries, each adjustment creates an entry with entry type Positive Adjustment or Negative Adjustment
- Value Entries, inventory value is adjusted based on the item’s costing method
- G/L Entries, the inventory account and the inventory adjustment account in the posting group are updated
To review what was posted, search for Item Ledger Entries and filter by Entry Type = Positive Adjustment or Negative Adjustment, and by the posting date of the count.
To keep inventory accurate between counts, see How to Set Up Reordering Policies and Planning in Business Central.